Brookings: Experts - Pietro S. Nivola

To Fathom the Fiscal Fix, Look in the Mirror

Pietro S. Nivola — Mon, 07 Jan 2013 11:00:00 -0500

No one particularly liked the way Congress and the president resolved their “fiscal cliff” dilemma. The outcome, and the petty haggling that led up to it, was disparaged by commentators of opposite persuasions. But as last week’s dust settles, it is time to take a break from hyper-ventilating about how “dysfunctional” and out-of-touch the government is, and face an inconvenient truth: Actually, decisions like the fiscal deal pretty much mirror what most of the American public has indicated it prefers.

If that proposition seems perverse, consider these simple facts. Whatever else Americans say about the country’s soaring and unsupportable debt, clear majorities have expressed two sentiments: (1) If taxes are to increase, the burden should fall on “the rich.” Fully 64 percent favored higher taxes on households earning above $250,000, according to a Pew poll taken in October. (2) Serious spending reductions are mostly anathema. The resistance to changes in Social Security and Medicare is strong. The same Pew survey found 57 percent opposed to raising the amount Medicare recipients contribute to their health care; 56 percent disapproved of gradually raising the Social Security retirement age.

So, there you have it. The fiscal deal duly followed both of these popular mandates; it raised taxes on the wealthy, and then predictably kicked the can of spending cuts, and entitlement reform, down the road.

One can denigrate this answer ad nauseam. It raises too little revenue for the long haul. (Hiking income tax rates only on the rich, while permanently letting 99 percent of us off the hook, is a sure recipe for an enduring revenue shortfall.) Ducking an imperative to rein in entitlement spending is an especially unsustainable policy for the long term. It is easy to bemoan the way Democrats seem unprepared to face up to those issues. It is equally easy to pan Republicans for not really having the courage of their convictions—that is, for having flirted with meaningful entitlement reforms (such as increases in eligibility age, means-testing, altering cost-of-living adjustments, or Ryan’s premium-support idea), but then in essence waiting for the president to buy in first, to provide them with bullet-proof political cover. It is easy to chastise both political parties for, ever so opportunistically, shirking responsibility.

But without popular consent, it is also utopian to expect elected politicians to be casting heroic profiles in courage. They are, after all, representatives of the people, not Platonic philosopher kings. This is true in any democracy, but particularly in this one. With its system of exceptionally frequent elections (and almost continuous electioneering), America’s regime is keenly sensitive to public opinion. Hence, like it or not, until the voters send a very different message—one that asserts, in effect, “We are finally ready to share the pain of higher taxes, and of lower spending!”—the political process is, at best, likely to keep grinding out sausages like last week’s.

And, by the way, that’s not all bad. Look on the bright side; thanks to the public’s misgivings—and, yes, some helpful “gridlock”—at least the compromise that was reached avoided the clearest, most present danger: a draconian lurch toward precipitous austerity measures and broad tax increases that would run the economy back into a ditch. At least for the time being, let’s just breathe a sigh of relief.

Authors

Pietro S. Nivola

Image Source: © Joshua Roberts / Reuters

What Today’s Political Parties Can Learn From the War of 1812

Pietro S. Nivola — Wed, 14 Nov 2012 15:03:00 -0500

It is not always clear how much we Americans deep down deplore the polarized postures of our political parties. Most voters get some customer satisfaction from the polarization—at least inasmuch as they prefer “a choice, not an echo.” Nonetheless, as the partisan passions of the 2012 election start to subside, some of us wish that both parties could begin to moderate more of their orthodoxies, and find greater common ground to solve the country’s pressing problems. So, it is interesting to look back at U.S. history for times when such transformations took place.

An especially intriguing case occurred early in the 19th century. The story begins with a dimly-recalled existential crisis of the country in that period: the War of 1812.

The War of 1812

As in the Revolutionary War, the enemy in 1812 was Great Britain. But unlike the Revolution, this “second war of independence” was waged along party lines. Congress and the presidency were in the hands of the so-called Republicans (not to be confused with today’s party that bears the same name), who rammed through a declaration of war over the unanimous opposition of their rivals, the Federalists.

The administration, under James Madison, and congressional majority mostly botched the project almost to the end. The Republican president and lawmakers thrust the United States, woefully unprepared both militarily and financially, into armed conflict with the 19th century’s superpower. That the nation, so early in its infancy and vastly outgunned, ultimately emerged intact was something of a miracle.

Folklore has it that America’s armed forces ultimately fought the British to a standstill. True, David did hurl some stones at Goliath. The tiny U.S. Navy performed storied feats in several single-ship duels on the high seas, and scored heroic victories in engagements on Lake Erie and Lake Champlain. On land, the Americans successfully defended Baltimore and then New Orleans.

But more fundamental to the outcome was the fact that the British—though they had long deemed it necessary to commandeer numerous American ships and sailors to support what was in essence a titanic world-wide struggle against Napoleonic France—had not really wanted to pick a fight with America in the first place. By 1815, having finally defeated the French, Britain no longer felt a need to interfere with the maritime rights of neutral countries such as the United States. The cooler heads in London then prevailed on their government to settle the unwanted long-distance brawl in North America.

Close Call

In these fortunate circumstances, the Republicans lucked out. Quickly forgotten was the fact that six months before the war finally wound down, the republic had been on the ropes. Early in the war, the prediction of hawks such as John C. Calhoun of South Carolina that a conquest of Canada (then a British colony) would be accomplished in a mere “four weeks” had proved delusional. All attempted American incursions across the Canadian border were repulsed. Several defeats had been embarrassing, even scandalous. As the war progressed, Britain had tightened the noose. British troops occupied eastern Maine. Then, effectively blockading the main ports further south, the Royal Navy penned in America’s few sizeable warships, which in any case were never a match for the collective firepower of the multiple enemy squadrons that now were steadily patrolling inside territorial waters. By 1814 British ships and landing parties were mostly at liberty to raid towns up and down the Eastern seaboard, even torching the public buildings of Washington, D.C.

The U.S. economy was dealt a severe setback. Exports and imports plunged. The collapse of trade emptied what was left of the government’s meager coffers. As revenue from duties shrank and expenses mounted, the public debt soared and soon became unsustainable. Forced to suspend interest payments on its bonds, the United States Treasury technically defaulted on November 9, 1814.

So controversial became the war for a time that in some parts of the country local militias refused to cooperate and some states in the Northeast flirted with secession. In others, murderous mobs raged against suspected enemy sympathizers. The title of historian Alan Taylor’s magisterial book, The Civil War of 1812, captures the mayhem that had been unleashed. The union’s future hung in the balance.

By the autumn of 1814—with key New England states wanting out, the army gravely shorthanded, the navy’s largest ships disabled, Congress incapable of securing essential financial instruments and the government hence basically bankrupt, and, for good measure, the heart of the nation’s capital a smoldering wreck—the only rational course was to try to call a halt and to do so without great delay. Fortunately, our adversary was amenable. The peace treaty that was ultimately ratified did not prove “ruinous,” as the Federalist naysayers had predicted, but remarkably benign.

So it was that Madison and the Republican Party in general managed to land on their feet. They escaped lasting discredit for their mismanagement of the war effort, while the Federalists, whose skepticism had been eminently sound at the outset, wound up with the stigma of having behaved as unpatriotic prophets of doom. Not even a severe financial panic that burst in 1819 (resulting from rampant land speculation in new territories that the war had put in play, and that brought five years of deepening debt, deflation and hard times) reversed the Republican ascent.

Partisan Transformation

As if that script were not sufficiently improbable, to it would be added this: Almost overnight, the party jettisoned a good deal of its old dogma. For, while the conclusion of the War of 1812 had redounded to the benefit of the Republicans, it also exposed the inherent shortcomings of their ideology: specifically, its inordinate distaste for centralized power—in the form of permanent armed forces, an executive bureaucracy, a national bank, and federal taxes—and a bias for agriculture over manufacturing and commerce.
In his final message to Congress in December of 1815 Madison all but laid those traditional tenets of his party’s creed to rest; he startled the country by advocating a broad national program that now included adequate military strength, a national bank, a system of direct internal taxation, and a protective tariff. The Republican president seemed to take a page from an early Federalist playbook—Hamilton’s report on credit and manufactures—even calling for a “comprehensive system of roads and canals” and the establishment of a national university in Washington.

Republicanism, in sum, was morphing into Hamiltonian nationalism. The convergence promptly contributed to relieving the partisan disputes that had accompanied the altercation of 1812. In their place arrived what came to be known as an “era of good feelings,” and considerable consensus in the 1820s on an agenda that the Republican House speaker Henry Clay christened the “American system”—that is, policies of protection and internal improvements basically reminiscent of Hamilton’s. The rebranding of the Republicans beginning in 1815 helped keep them (or, more accurately, their up-dated heirs) in power for years.

How did the Republican Party, so partial to small government and minimal taxes until 1815, manage to reassess its long-standing credo and perform an about-face? A good deal of the answer has to do with a fundamental difference between political parties of the 19th century and those of the present day. Back then, party leaders exerted control. A party’s orientation could reflect, for the most part, the inclinations of its establishment—an acknowledged elite. The Republicans of 1815 were led by James Madison. A consummate pragmatist at most of the critical junctures in his career, Madison had been chastened by the 1812 experience. He pivoted accordingly—and most of his partisans followed.

Today’s parties, by contrast, are driven from the bottom up. Established leaders, to the extent they exist, have limited influence. Instead, through their grip on party primaries and caucuses, grass-roots activists dictate not only the choice of candidates for office but their agendas. Redirecting a party’s stance, therefore, requires altering its base, not merely counting on a different management style at the top. Overhauling the base is not impossible, but it takes much longer.

The meaning of all this for the present day is plain enough. You may wish that, like the Republicans after 1815, the GOP now would shed more of its ideological resistance to raising the requisite tax revenue for essential public priorities, deficit reduction being one. And you may wish that, also to reduce future deficits while continuing to serve other vital public purposes, the Democratic Party would give up its doctrinaire reluctance to rethink more of the welfare state’s unsustainable entitlement spending. In time, both will have little choice but to change their customary tune in these matters—but it may well take more than promising leadership, however enlightened and statesmanlike.

Authors

Pietro S. Nivola

Image Source: © Jessica Rinaldi / Reuters

What So Proudly We Hailed : Essays on the Contemporary Meaning of the War of 1812

Pietro S. Nivola and Peter J. Kastor, eds. — Wed, 17 Oct 2012 00:00:00 -0400

Brookings Institution Press 2012 175pp.

On the bicentennial of the War of 1812, What So Proudly We Hailed looks at this formative yet misunderstood period in American history through the lens of 21st century America. This provocative book asks, among other questions: What did America learn—and what did it not learn—from the experience? How did it help shape a nation?

With Congress divided along party lines, the U.S. government went to war without adequately preparing either the means to finance the conflict or the capabilities needed to achieve its aims. Like the United States two hundred years ago, the executive branch still suffers from in-fighting. The military invades a foreign nation, expecting to be treated as liberators. The entire endeavor winds down to a seemingly inconclusive ending. Sound familiar?

By 2003, America was waging two wars at once, at vast expense. Neither was financed by tax increases, but instead with borrowed money—much like in 1812, when the “Republican” party’s reluctance to use the government’s taxing power led to expanded debt and inadequate funding for the war effort.

In What So Proudly We Hailed, the contributors look at how Partisan animosity in 1812 surpassed today’s rancor, teaching us the danger of hyperpartisanship as well as the less obvious tendency of the party system to adapt and realign: The Federalist-Republican competition that dominated early U.S. politics dissipated in the war’s aftermath. We take today’s partisan divide as a given, but in time that too is likely to pass.

Contents

Pulitzer-winning historian Alan Taylor (The Civil War of 1812) examines the war’s sectional tensions and the implications for American nationalism.
Historian Peter J. Kastor discusses how 1812–15 affected state-federal relations.
Author Stephen Budiansky (Perilous Fight) explores the military legacy.
Pietro Nivola assesses the keen partisan rivalry of the early 1800s and what it can tell us about today’s strife.
Benjamin Wittes and Ritika Singh of Brookings investigate constitutional frictions, particularly regarding presidential power and civil liberties.

ABOUT THE EDITORS

Pietro S. Nivola

Peter J. Kastor

Peter J. Kastor is an associate professor of history at Washington University in St. Louis.

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Learning from James Q. Wilson

Pietro S. Nivola — Fri, 07 Sep 2012 12:00:00 -0400

When James Quinn Wilson passed away in March, he left a formidable legacy for policymakers in need of guidance. But at least as notable was his influence on a generation of scholars. He was not just an exceptional thinker but an exceptional teacher as well.

As one of his students — who became a colleague and friend — I learned three lessons from him above all. And in classic Wilson style, they were straightforward: First, be sure to get the facts before opining. Second, be practical. Recognize that the root causes of many problems in society are elusive, and that public policy has to make do regardless. But third, be prudent when proposing solutions — or "reforms" — for they can often make matters worse.

These exhortations may now sound like clichés to any self-respecting conservative, at least until we recall that their force, and in some cases even their genesis, lie in the teachings of James Q. Wilson. And our appreciation for those teachings only grows when we fully reckon how often they are ignored by today's would-be reformers, across the political spectrum.

THE EMPIRICIST

It is no secret that Wilson's politics became increasingly conservative in his later years. Originally a registered Democrat, he died an iconic figure in Republican circles. But perhaps less noticed is that, throughout his illustrious career, he did not do business the way either the left or the right often does in important policy debates.

Economic policy offered a recent illustration. When the Democratic majority in Congress managed to pass a gargantuan stimulus package in February 2009, the Obama administration confidently predicted that it would quickly generate hundreds of thousands of jobs. With equal conviction, Republican lawmakers, all of whom had voted against the legislation in the House, predicted that the stimulus would fail. Even now it remains practically de rigueur for leading GOP politicians to denounce the stimulus and proclaim that it "didn't work."

This war of tendentious declaratives, unsupported by sound science, was not the kind of dispute into which James Q Wilson was eager to enter. He was no fan of the stimulus bill, but he also recognized that the legislation was composed of many moving parts, and so ultimately deemed it unserious to presuppose that none could conceivably have a desirable impact. Professionally steeped in evidence-based reasoning, he naturally declined to indulge in the dubious exercise of forecasting precisely the number of jobs likely to be saved or created, but he likewise resisted sweeping assertions about the utter futility of the entire countercyclical effort. Instead, in an essay I co-authored with him for the Hoover Institution in 2010, he came soberly to this sensible formulation:

"It is quite plausible that the stimulus was one of the actions of government that helped prevent the severe economic slump from worsening. To answer scientifically, however, whether a particular anti-recessionary policy succeeded, there would have to be a controlled test examining a series of identical recessions, and somehow applying exactly the same policy to some but not others. Then we would have a better idea of what works.Obviously, such a test is impossible."

Would that the polemicists in Congress, on the campaign trail, and in the media might reason this way.

Or consider the ceaseless partisan strife over the role of tax reductions in spurring economic growth. Except grudgingly and in the throes of a crushing recession, the left robotically dismisses the possibility that higher marginal tax rates could stifle growth. The right, meanwhile, ritually presumes that lowering such rates always begets prosperity. To be sure, Wilson worried that raising taxes risks letting politicians off the hook when it comes to undertaking essential retrenchment in unsustainable government spending, and he strongly suspected that a wider tax base (with fewer loopholes) but lower rates would be economically productive. Yet he was not dogmatic in the least.

He knew that reputable economists continue to debate the relative countercyclical advantages of tax relief versus spending programs. Ever the empiricist, Wilson also agreed that the literature favoring tax-cutting by itself was far from sufficient, let alone conclusive. Much depends on where the rates are to begin with. Tax cuts are a no-brainer when top marginal rates reach absurd levels. (It is likely that stagflation in the 1970s, for instance, could have been alleviated in part by slashing the top tax rate, which remained above 70% at the time.)

The debate over taxation these days is, of course, doubly knotted by concerns about equity. In his State of the Union address last January, President Obama proposed on grounds of basic fair play the equivalent of a substantial alternative minimum tax for millionaires. Wilson was too sophisticated a thinker to be comfortable with so simple a formula for distributive justice. One reason, as he argued in an op-ed in the Washington Post shortly before his death, was that, as a practical matter, soaking the rich hardly guarantees better living standards for the poor. More fundamentally, fairness really is a more capacious concept. In his magisterial 1993 book The Moral Sense, Wilson parsed the concept of fairness as Aristotle did: Determining fair shares among people entails dividing things in proportion to relative merit, including a person's effort, skill, and deeds. It may seem intuitively obvious that Warren Buffett should have to pay at least the same tax rate as his secretary, but whether that "rule" is truly fair depends on whether the deeds, skills, and efforts of Buffett and his secretary are commensurate. A moment's reflection would keep a thinking person from jumping to that conclusion.

And yet Wilson would also see the intuitive appeal of a simpler notion of fairness. Citing evidence from developmental psychology, he had taken pains to emphasize in The Moral Sense that an appreciation of fairness, in its simplest forms, is evident in essentially every human being at an early stage. Even elementary-school children give it "a fairly definite meaning," he wrote. More than a few contemporary conservatives would do well to pause over such considerations before reflexively brushing aside Obama's brief as mere "class warfare."

The day after Wilson died, the New York Times carried a front-page story about him. It was mostly devoted to his "broken windows" theory of law enforcement. That theory is now so famous that it needs little explication in these pages. Suffice it to say that the community policing programs that helped reduce crime rates in New York, Los Angeles, Boston, and other major cities were inspired in no small part by an article Wilson co-wrote with George L. Kelling in the Atlantic Monthly in 1982. Wilson and Kelling explained how the breakdown of social order in neighborhoods encourages criminal behavior. What may begin with the mere presence of, say, busted windows, commonly abetted by tolerance of minor acts of vandalism or delinquency, may end with far more serious crimes. By signaling indifference or complacency, a permissive environment ultimately breeds greater violence.

This argument is commonly described as a "theory" of Wilson and Kelling's, but it was not just a theory, in the sense of a mere supposition—plausible but not empirically adduced. It was derived in large part from work Wilson had begun to do with Richard Herrnstein, the prominent Harvard psychologist with whom he would eventually publish Crime and Human Nature (1985), and from systematic observation of realities on the ground. Wilson had logged long periods in the field, studying law-enforcement officers in action in a number of cities, thereby ascertaining what works and what doesn't.

This almost anthropological form of research—accompanying police officers in their squad cars or on their beats—had yielded his book Varieties of Police Behavior (1968), which compared police operations in eight jurisdictions, and then resulted in subsequent studies (such as The Investigators, a 1978 book about the ground-level experiences of the FBI and the Drug Enforcement Agency). It allowed Wilson to build a body of evidence for his insights about the perverse social dynamics of "broken windows." Long before theorizing and rendering judgments, he had learned the facts.

THE PRAGMATIST

To stress that James Q. Wilson's policy preferences were typically drawn from extensive, objective fact-finding is not to say that he had boundless faith in the ability of the social sciences to get to the bottom of mankind's predicaments. On the contrary, Wilson was keenly aware that the underlying causes of our problems could often remain a mystery—and he recognized that policymakers would have to settle for something less than the (unknowable) whole truth. There were times, in other words, when public officials would need to address urgent challenges by exercising common sense, rather than awaiting the fruits of inconclusive sociological inquiries or holding out for the conjectural remedies emanating from those inquiries.

Amid the violent-crime wave of the 1960s and early '70s, for example, Wilson began to sense that much of what passed for policy analysis — such as the "finding" that urban poverty was at the root of the crisis, and hence that relief lay in greater expenditures for Great Society programs — raised more questions than it answered. After all, crime rates had continued to soar despite an already great investment in such programs. Accordingly, in the volume Thinking About Grime (1975), Wilson wound up taking a contrarian stance. The book argued that, inasmuch as reliable empirical data could be brought to bear on the matter, there was little to refute an intuitively compelling proposition: namely, that if acts of crime pay, more of them will be committed. It stood to reason, therefore, that if the penalties for criminal activity follow quickly and certainly, fewer crimes will be committed.

In due course, local criminal-justice systems across the land began to follow that logic—and apparently with considerable success. The great tide of crime began to ebb. Exactly how much of the change could be imputed strictly to stepped-up enforcement apart from other factors (such as the changing age profile of the population), and whether a deterrent effect resulted primarily from faster, more predictable punishment or from its greater severity, remain questions much debated. Alas, now we will never be certain what Wilson would say about all of them going forward. But it is probably safe to submit that, if he were still with us, he would be leaning toward a nuanced view: crediting the new policies he had helped to develop, but only up to a point, and approving of justice that is swift and certain but not so draconian as to degenerate into mass, long-term incarcerations. Wilson, after all, was scrupulously mindful of the limits of what is in the power of a free society to control.

While he was always aware of the limits of our knowledge, however, Wilson did not shy away from prescribing policies in areas where he felt sure-footed. Criminal justice was one, but there were others. In one of the best tributes to Wilson in the days after his death, New York Times columnist David Brooks reminded readers that Wilson's recommendations could be bold in the sphere of social policy. In a 1998 essay for The Public Interest, for instance, he advanced a range of suggestions for strengthening families. They included not only improved pre-school programs but privately operated, publicly supported group homes for troubled teenage mothers, as well as government-funded incentives for struggling single parents to take better care of their children. (The social contract for proper parenting would be analogous to the G.I. Bill of Rights: Young mothers who proved themselves better caregivers would be rewarded later with government-backed educational benefits or training.) Clearly, for Wilson, government had a part to play in ameliorating some of the country's social maladies. To the extent that his instincts could be labeled, they were decidedly more neoconservative than libertarian.

Still, a hallmark of Wilson's scholarship was a deep reluctance to offer ambitious to-do lists for government in most domains—a reluctance I experienced first-hand a decade ago. With two Brookings Institution colleagues, Henry J. Aaron and James M. Lindsay, I was editing a book of essays immodestly titled Agenda for the Nation. Over the years, Brookings had published earlier volumes by that title, and Wilson had contributed to some of them. We editors felt that his wisdom was especially needed for the new edition, since it would be published amid the continuing aftershocks of 9/11 and the many bureaucratic failures that had become apparent in the wake of the attacks.

Wilson duly agreed to author a chapter, but to our disappointment he steadfastly refused to offer any trace of a possible agenda (which was, after all, the plainly stated purpose of the book). Instead, he simply expressed confidence in the resilience of the country's constitutional institutions in times of crisis. "I happen to be fond of what we have here," he wrote, "for it is an arrangement that largely avoids sudden, ill-considered changes." He continued: "This is not to say that no refinements are warranted, though I leave it to other essays in this book to suggest what those might be."

At first, this struck me as a cop-out. How could James Q. Wilson, America's pre-eminent authority on, among many things, the behavior of bureaucratic organizations, not provide in our book advice on ways to improve the nation's counterterrorism policies and security apparatus? But looking back, I'm no longer so sure. For time has largely vindicated his judicious caution.

Wilson's conclusion was that, "in a serious crisis, the political process in this country can and does respond effectively"; no grand governmental reorganization is called for, thank you very much. Whatever else the post-9/11 years demonstrated, they generally showed again that the republic's creaky constitutional order not only remained intact but, at least on core concerns of national security, proved capable of adjusting — and, however imperfectly, acting forcefully. The adjustments that made the most difference, moreover, were, as Wilson would have expected, probably not those that mainly redrew organizational charts. Rather, they were the changes that took place in more subtle ways at less visible levels.

Wilson's abiding respect for the political institutions that the framers had deliberately designed to check, balance, and decelerate the decisions of government permeated his writings on national politics. Thousands of college students were exposed to it over decades in the pages of his perennially best-selling textbook American Government: Institutions and Policies, co-authored with another disciple, the distinguished social scientist John J. Dilulio, Jr. As a result, a lot of young citizens stood a chance of coming away from their government courses posing interesting questions, and arriving at counterintuitive answers.

An especially intriguing Wilsonian question at the moment might go as follows: By the end of last year, several major economies in the European Union were sinking back into a slump. The United Kingdom is now officially in a double-dip recession. With unemployment approaching 25%, Spain seems headed for a depression. Meanwhile, the U.S. economy was on its way to recovery through 2011, and posted a 1.9% rate of growth in the first quarter of this year. Why the difference?

A substantial part of the answer is that the American political process may in fact have done a better job digging out from the Great Recession than did those of many other advanced democracies. And the comparatively favorable performance may well have had much to do with the actions that our Madisonian framework impeded, not just the actions that it permitted. In its own muddling fashion, the U.S. government has managed to avoid (at least so far) the trap that several European countries have fallen into: initiating stringent austerity measures in a still-fragile economy.

How did this happen? In part, some countries in Europe have had less wiggle room. The bond market had already begun forcing their hands, whereas (at least so far) lucky America has been able to continue financing its deficit spending at low rates of interest. But that is not the whole story. Unlike, say, the British parliamentary model—so admired for its capacity to act decisively—our separation of powers, with its manifold opportunities for obstruction, blocked premature budget-cutting and tax increases.

James Q. Wilson might not have commended both those options equally, but he certainly would have predicted the reticence of our system to adopt either one precipitously.

THE SKEPTIC

All of which brings us to perhaps the most notable element of Wilson's approach to knowledge. One reason why he was often hesitant to reach for theoretical answers to perceived national problems was that he frequently wondered whether we could really know that they were genuine problems in the first place.

Think about the prevalent lament among commentators in Washington today—that the American political system is hopelessly "gridlocked." Well, as Professor Wilson would have urged, think again. For all the debilitating partisan rancor of the past two decades, the government still managed to adopt national health-care legislation, a torrent of measures to jump-start the economy, a far-reaching overhaul of financial regulation, a massive expansion of Medicare, a huge new cabinet department, a series of deep tax cuts, and comprehensive welfare reform—while, for good measure, waging two wars. Is such a government gridlocked? Or is it more accurately described as quite active, even overextended?

More to the point, as the record of American anti-recessionary steps in the past few years suggests, a little gridlock can be a good thing. To again borrow Wilson's words, a regime that "largely avoids sudden, ill-considered changes"—changes exemplified, in my view, by evidently untimely pro-cyclical policies like those promulgated lately in various European parliaments — seems to have its advantages.

From Wilson's perspective, additional wariness was warranted because of the strong possibility that, even when a perceived problem was real, and its solutions reasonably persuasive in theory, actually implementing those solutions could be an entirely different matter. To as keen an observer as Wilson was of public management and intergovernmental relations in this country's complex federation, there tended to be a daunting chasm between crafting programs, however well intended, and effectively putting them into practice.

There is no shortage of illustrations validating Wilson's skepticism. A case in point that he pondered at length was the American Recovery and Reinvestment Act. Yes, he conceded, there was a respectable case for a major fiscal stimulus to help reverse the economic tailspin in 2009, but what kind of stimulus? One involving elaborate projects like complex infrastructure investments, he suspected, was unlikely to provide a prompt Keynesian payoff. Other possible merits of such ventures notwithstanding, federalism and the modern regulatory state would put too much administrative and legal red tape in the way.

How did he infer this? Drawing on wide-ranging research and a shelf full of penetrating Ph.D. dissertations he had supervised over the years, Wilson had produced Bureaucracy: What Government Agencies Do and Why They Do It (1989), a treatise he graciously dedicated to the Harvard graduate students he had mentored. Still widely regarded as more or less the last word on the subject, the book drove home a simple point, one so basic it is often overlooked: Government agencies charged with straightforward tasks—say, issuing monthly retirement checks—stand a good chance of carrying out their duties efficiently. Bureaus tasked with promoting far more complicated initiatives — such as building futuristic high-speed railroads, controversial new freeways, "smart" electrical grids, or an industrial policy purporting to create hundreds of thousands of "green jobs" — have bigger obstacles to clear.

No wonder that the Social Security Administration disbursed its stimulus funds smoothly, whereas the departments of transportation and energy often ran into difficulties and delays. In the end, President Obama himself noted the dilemma, famously expressing his frustration to Peter Baker of the New York Times: For many public works, the president exclaimed, "there's no such thing as shovel-ready projects." In short, even if a sizable stimulus in 2009 was a good idea in principle, substantial portions would prove maddeningly hard to administer. James Q. Wilson, who knew a thing or two about bureaucratic impediments, was not surprised.

Nowhere was Wilson's skepticism more marked than in the realm of political reform — another area where his analytical efforts ran deep. The most distinctive feature of American politics in recent decades has been the intensified polarization of the political parties, as each has grown cohesive, disciplined, and doctrinaire. Wilson was too smart to wring his hands about every facet of this phenomenon. Polarized partisanship, after all, has some virtues. Would voters really be better off if the two parties instead gravitated so consistently to the center as to become programmatically indistinguishable? Was the Democratic Party truly better when its diverse coalition included Southern segregationists? Although Wilson naturally would have answered these questions in the negative, he could see that the development of a style of partisan politics so ideologically hidebound as to preclude pragmatic compromise for the public interest was deeply problematic.

In fact, Wilson was perhaps the first American political scientist to discern and begin to explain this trend. In 1960, Wilson published Negro Politics. Based on his doctoral dissertation, the book compared the styles of two black politicians: William Dawson, a seasoned member of Chicago's congressional delegation, and the flamboyant Adam Clayton Powell, Jr., of New York's. Congressman Dawson's loyalty was to Mayor Richard J. Daley's local party machine, an organization notoriously motivated by expedient material incentives rather than by ideology. Congressman Powell was the opposite: a firebrand, excited by symbols and passions. The result? Dawson was adroit at wheeling, dealing, and getting things done. Powell mostly wasn't.

The growing presence in the party system of uncompromising activists, animated by wedge issues and ideological sentiments, was the subtext in at least two of Wilson's subsequent books. The Amateur Democrat (1962) and Political Organizations (1973). Both were far ahead of their times. Anyone contemplating the power of ideologues in both the Democratic and the Republican parties today ought to re-read those works. They shed light on the rise of zealotry, and on its most vexing implications: the willingness to go down in flames over professed principles, and disdain for politics as the art of the possible.

Although Wilson detected sooner than the rest of us the perils in the ascent of partisan activism, he was no less concerned that proposed reforms of party politics, now as in the past, could have unforeseen side effects, including some that might turn out to be worse than the disease. His circumspection reflected the influence of Edward C. Banfield, his closest teacher and colleague, who was another of the 20^th century's greatest social scientists.

In 1963, Banfield and Wilson had written City Politics, a book brimming with historical insights into how political reform movements aimed at suppressing "partisanship" had gone awry. Drastic measures to curtail the power of party organizations were adopted by American city governments during the Progressive era. One of them was the notion of erasing, quite literally, the party identifications of candidates in municipal elections. The theory behind this so-called non-partisan balloting was that it would empower the voters: Now, presumably, they would choose directly among persons running for office, rather than having their menus decided by partisan intermediaries.

What stirred the proponents of this idea was disgust with big-city machines and party bosses, and with the corruption and waste they begot. Of course, that specific complaint was not the same as the one critics level at the parties today — namely, that their elites are too polarized philosophically. In a larger sense, though, the reform ideals then and now have something in common. The ultimate intent of the non-partisan ballot, Banfield and Wilson observed, was to release "the people from the shackles which the machines and bosses had fastened upon them" in order to elevate public affairs above "considerations of party interest and party advantage" and "give the democratic impulse a chance to express itself" Indeed, an overarching objective of the Progressives was to put "the electorate in the position to assert its will despite professional politicians." That preoccupation has at least some parallels with current talk of a "democratic deficit" — that is, the concern that public affairs again are being hijacked by political operators who pursue, albeit for other reasons, partisan aims presumably disconnected from the will of average voters.

The main point to note about such reform efforts, Wilson would remind us, was that their principal consequence was undesirable: Far from encouraging people to get out and vote, the non-partisan formula depressed turnout. Today, more measures aimed at domesticating partisan politics and blurring party differences might appeal to battle-weary voters — or, like the non-partisan ballot, such measures could confuse, bore, and discourage those voters. The latter outcome, in turn, would scarcely serve the goal of depolarization. The first to be weeded out by lower turnout are the relatively apolitical voters, those who are less partisan and less militant—in short, those who are less polarized.

It gets worse. Among Progressivism's various political innovations, Wilson argued, none grew more consequential over time than the idea of the direct primary election as the preferred means of nominating candidates. Before the diffusion of primaries, the selection of candidates was largely controlled by cadres of state and local party leaders. Their usual cast of mind, at least until rather recently, lay less in any impassioned pursuit of social causes than in simply securing for the political parties material advantages such as pork and patronage. For these power brokers, therefore, anointing candidates who stood the best odds of getting elected was the first order of business. And that pragmatic imperative tended to favor office-seekers with a broad appeal.

Enter the primary system. Its purpose was to displace the role of party bosses in vetting candidates and to engage the citizenry. Alas, not infrequently, this experiment in giving "the democratic impulse a chance to express itself has had the perverse result of rendering American elections, in a sense, less democratic. Typically, only small bands of voters bother to participate in primaries — and these committed participants tend to be more fervid than ordinary citizens. (The effect is strongest in the "closed" primary, where only card-carrying members are eligible to vote in their party's contest.) Thus candidates are impelled to pitch their campaigns to unrepresentative factions. Having gained nominations by aligning with the hard-core positions of primary voters, candidates may then have trouble moving back to the midfield, where general elections are often won or lost.

The party primary, in sum, risks leaving the general electorate with fewer moderate politicians and more zealots. At times, it has also turned into a device for driving any remaining moderate incumbents toward disagreeable extremes. In no small part, the direct primary has come to represent the reverse of what the Progressive ethos envisioned: less a dependable expression of the "democratic impulse" than an instrument of party purification, purging society's public servants when they don't toe the party line.

No one foresaw more clearly than James Q. Wilson how far this Progressive electoral institution would stray in practice from its original theoretical intent. He would point to it as a cautionary tale for other prospective exercises in political reform.

THE TEACHER

I will miss James Q. Wilson. So will the rest of his pupils. And so will the country. For he set a standard of civility and intellectual integrity that anyone interested in the practice, as well as the study, of politics ought to admire.

His old friend Daniel Patrick Moynihan was famed for reminding those who engage in political discourse, "You are entitled to your opinion. But you are not entitled to your own facts." Few public intellectuals have adhered to that maxim more assiduously than Wilson did.

Deference to the facts, even when they might lead government policy in unexpected or unconventional directions, was among his trademarks. These days, more attention to that disposition by all sides surely would render the arguments in some of the nation's momentous partisan debates less sterile, and more credible.

Today's great public dialogues also would benefit from a larger quotient of the quality Wilson displayed in abundance: humility. The inconvenient truth is that frequently our knowledge of how to get to the source of what afflicts the economy or the polity, and then to fix it reliably, is woefully fallible. Correctives are confidently bandied about, but too often — and often too late — they get mugged by reality. James Q. Wilson grasped this quandary profoundly, and he strove nobly to alert all of us to it.

This article originally appeared in National Affairs.

Authors

Pietro S. Nivola

Publication: National Affairs

Image Source: Michaela Rehle / Reuters

Clean Energy: Revisiting the Challenges of Industrial Policy

Adele Morris, Pietro S. Nivola and Charles L. Schultze — Mon, 04 Jun 2012 00:00:00 -0400

A peer-reviewed version of this paper appears in the November 2012 edition of Energy Economics and is available for download through ScienceDirect.com (pdf).

“We’re in a competition all around the world, and other countries -- Germany, China, South Korea -- they know that clean energy technology is what is going to help spur job creation and economic growth for years to come. And that's why we’ve got to make sure that we win that competition. I don't want the new breakthrough technologies and the new manufacturing taking place in China and India. I want all those new jobs right here … in the United States of America, with American workers, American know-how, American ingenuity.”
President Barack Obama
May 6, 2011
Remarks at Allison Transmission Headquarters, Indianapolis, Indiana

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Clean Energy Subsidies without a Price On Carbon May Be Money Down a Rat Hole

Governments in most industrial countries have stepped up their promotion of clean energy technology in recent years. No longer a laggard, the U.S. government increased energy subsidies from $17.9 billion in fiscal year (FY) 2007 to $37.2 billion in FY 2010, according to the U.S. Energy Information Administration (EIA).^{^[1]} The total includes a mix of direct expenditures, tax expenditures, the subsidy associated with loan guarantees, and research, development and deployment (RD&D) spending.

The Energy Improvement and Extension Act (EIEA), passed in late 2008, and the American Recovery and Reinvestment Act of 2009 (ARRA) account for much of the increase. The EIEA expanded or extended tax credits for renewable energy, energy-efficient appliances, plug-in electric vehicles, and liquid biofuels. ARRA, a broad fiscal stimulus package, included $35.2 billion to the Department of Energy (DOE) and added $21 billion in energy tax incentives over the life of the legislation.^{^[2]} Using ARRA authority, cumulatively from September 2009 through November 2011, DOE underwrote $35.9 billion in loan guarantees for a range of energy-related technologies.^{^[3]}

Figure 1 displays the U.S. spending stream on energy-related research and development since 1974. The graph shows the dramatic impact of the ARRA package.

Figure 1.^{^[4]}

Public investments of these magnitudes, targeted at specific industries, arguably constitute an industrial policy, albeit a sectoral one, unlike the earlier proposals of the 1980’s —that is, a government strategy to steer resources toward select producers or technologies. The rationale and efficacy of these clean-energy expenditures call for scrutiny.

Proponents offer numerous reasons for scaling up particular energy technologies at the taxpayer’s expense. One set of reasons involves the need to remediate market failures that have not been corrected by other policies. For example, clean-energy technologies are said to emit fewer greenhouse gases than do traditional sources per unit of energy produced. The United States does not have an economy-wide policy to control greenhouse gases, most notably, one that puts a price on CO₂ that reflects the environmental harm associated with use of fossil fuels.

A far more effective policy than subsidies for clean energy research, development and demonstration would be a tax or a cap-and-trade regime that would put an appropriate price on carbon and other greenhouse gases.^{^[5]} Properly implemented, this alternative approach would help level the playing field for greener energy sources, for it would require emitters to pay prices that reflect the costs their emissions impose on society. The enhanced efficiency that would result has been widely recognized by economists.^{^[6]} True costs would flow to purchasers of goods and services that require energy, suitably inducing conservation. Emitters would have incentives to invest in equipment and new production techniques, use alternative fuels, and seek other methods to reduce emissions. And America’s innovators would channel their efforts into inventing, scaling up, and marketing competitive forms of clean energy. However, because existing market signals do not suffice to encourage climate-friendly technologies, carefully targeted federal funding seems warranted. But as we explain later, it is ironically only after incorporating the social costs of energy into market prices that many clean energy subsidies will succeed in deploying new technologies.

Some clean energy technologies, such as electric vehicles and biofuels, are also said to wean the economy from its inordinate dependence on oil, which is both volatile in price and supplied in part from unstable foreign sources. Like environmental damage, the security risks of relying on oil are not fully embedded in its price, and therefore, the argument goes, policies to reduce its use could be efficiency-enhancing.

A second set of reasons for sustaining clean-energy subsidies is less about correcting inefficient market outcomes than about tilting the market toward U.S. interests. In this view, strategic investments in clean energy technologies would increase U.S. firms’ market share of a growing industry and thus help American firms and workers win a larger portion of global business. Although the projected market growth of cleaner energy derives from the international community’s efforts to protect the environment, the objective here is economic. Proponents imply that capturing a larger market share would boost long-term U.S. “competitiveness” and create jobs in American firms that manufacture the exportable products.

Are these justifications sound? And even if convincing in theory, what happens in practice? That is, can the American political process successfully carry out the envisioned strategy? Section 2 of this paper reviews the history of industrial and energy technology policy since the 1970s. Section 3 examines the environmental and energy- independence rationales, and Section 4 analyzes claims about the potential role for government backing of clean energy to ensure U.S. competitiveness and save or create jobs. Section 5 explores the administrative and political challenges of implementing an efficient clean-energy research and development portfolio, and Section 6 sketches our recommendations.

[1] U.S. Energy Information Administration, “Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2010,” August 1, 2011. http://www.eia.gov/analysis/requests/subsidy/

[2] $11 billion went to grants to state and local governments for weatherization and other programs and $600 million in new research funding.

[3] U.S. Department of Energy (DOE), Loan Programs Office website, accessed November 29, 2011. https://lpo.energy.gov/?page_id=45. The overall value of loans guaranteed by DOE is much larger than the appropriations necessary to account for the value of the subsidized interest rate on the guaranteed loan.

[4] International Energy Agency, Detailed Country RD&D Budgets. Data downloaded November 29, 2011 from http://wds.iea.org/WDS/ReportFolders/ReportFolders.aspx.

[5] A carbon tax and a cap-and-trade program are theoretically very similar. We favor a carbon tax based on our assessment of the likely actual implementation.

[6] For example: Greenstone, Michael and Adam Looney, A Strategy for America’s Energy Future: Illuminating Energy’s Full Costs, The Hamilton Project, The Brookings Institution, May 2011.

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Clean Energy Subsidies without a Price On Carbon May Be Money Down a Rat Hole

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Broadband and Energy Efficiency

Wed, 30 May 2012 10:00:00 -0400

Event Information

May 30, 2012
10:00 AM - 11:30 AM EDT

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue, N.W.
Washington, DC 20036

Broadband Internet providers are reconsidering how they think about power consumption. Focusing on long-range energy efficiency will help ensure sustainable growth and contain costs as the price per kilowatt of power and consumer demand for broadband capacity both continue to grow. Broadband firms are approaching energy efficiency as a critical advance planning exercise, just as they prepared for the major switch in Internet addressing. Power consumption will become an up-front consideration in the planning and design phases for networks, services, and equipment.

On May 30, the Center for Technology Innovation at Brookings hosted a forum on the future of energy efficiency and its relevance for the Internet ecosystem. A panel of experts discussed the rationale for and implementation challenges to bringing efficient and reliable energy throughout the network and product-planning process, beginning at the design phase.

After the program, speakers took audience questions.

Participants followed the conversation on Twitter using the hashtag #TechCTI.

Participants

Panelists

Darrell M. West

Mark Colbitz

Senior Vice President, Strategic Planning

Beth Colleton

Senior Vice President, Corporate Social Responsibility

Pietro S. Nivola

Lorie Wigle

General Manager, Eco-Technology

Charlotte Field

Senior Vice President, Infrastructure and Operations, National Engineering and Technical Operations

America's Political Gridlock and the Euro Crisis

Pietro S. Nivola — Mon, 21 May 2012 00:00:00 -0400

By the end of last year, several major economies in the European Union were sinking back into a slump. The United Kingdom now is officially in a double-dip recession. With unemployment approaching 25 percent, Spain seems headed for a depression. Meanwhile, the U.S. economy was on its way to recovery through 2011, and at least posted a 2.2 percent rate of growth in the first quarter of this year.

Could it be that, for all the laments about America’s “gridlocked” and “broken” political system, it actually appears to have done a better job contending with the Great Recession and its aftermath than did many other advanced democracies? Increasingly, it looks that way. The comparatively favorable performance, moreover, may well have much to do with the actions that our system impeded, not just the actions that it permitted.

In its own quirky fashion, the U.S. government managed to avoid the trap that several European countries have fallen into: initiating severe austerity measures in a fragile economy. How come? In part, some countries in Europe have had less choice in the matter. There, the bond market had already begun forcing their hand, whereas (at least as of now) lucky America has been able to continue financing its deficit-spending at low rates of interest. Yet, that is not the whole story. Unlike, say, the British parliamentary model—so admired for its capacity to act decisively—our separation of powers, with its sometimes frustrating checks and balances, blocked precipitous budget-cutting and tax increases.

Thus, when the House of Representatives adopted a relatively stringent budget resolution in April, 2011, the Senate declined to go along. Later, during the showdown over raising the debt ceiling, the House passed a bill that called for only a short-term increase in the debt limit, and that conditioned any further increase on specific cuts in discretionary spending, plus, for good measure, passage of a balanced-budget amendment. Again, the Senate rebuffed the House. The trouble with the House’s approach was not that it was pressing for greater spending restraint, only that it was in too much of a rush. Prudent retrenchment needs to be back-loaded.

The eventual result of this bicameral thrust-and-parry was the Budget Control Act, a compromise that has kept government spending essentially the same in fiscal 2012 as in the previous fiscal year. For the time being, this has been the right medicine. About the last thing the still-frail economy needs at the moment is an immediate heavy dose of fiscal frugality.

A similarly useful stasis had occurred during 2010. Congress’s annual budget process had fallen to pieces earlier in the year, thanks to that biennial American peculiarity: the upcoming mid-term election. No budget resolution for fiscal 2011 emerged. Not only that, but no regular appropriations bills were enacted, either. What a mess! Right?

Wrong. The upshot was that government spending largely continued at fiscal 2010 levels through the first part of the following year—enough space for the teetering economy then to dodge the bullet of possible ill-timed budgetary reductions.

One might be tempted to infer that sound counter-cyclical outcomes have only been the handiwork of a Keynesian president and his Democratic majority in the Senate which duly stiffed the House’s many Republican skeptics of Keynes.

Not exactly. The inconvenient truth, which many liberals don’t seem to acknowledge, is that the GOP is not consistently anti-Keynesian. Particularly in a weak economy, just about every Republican (in stark contrast, for example, to most British Tories) has insisted that any tax increase would be a pro-cyclical “job killer.” Thus, wise temporary extensions of the Bush-era tax cuts at the end of 2010 received bipartisan support. Indeed, so committed were the Republicans to avoiding an increased tax burden, they also swallowed a continuation of unemployment benefits through the end of 201l. The result? A counter-cyclical twofer.

Likewise, in February 2012 the GOP opted not to oppose extending the Obama administration’s payroll tax holiday. So, while Italy, France, Britain, and Spain are proceeding with tax hikes that could further stall economic growth, the United States continues (at least as of now) to offer timely tax relief.

We Americans have a tendency to wring our hands over the country’s partisan polarization and seemingly paralytic political institutions. Many of us also seem quick to forget, however that in 2008 and 2009 those same institutions succeeded in arresting a financial free-fall unprecedented since the 1930s.

Consider: After an initial round of grandstanding, Congress acquiesced with bipartisan backing to the Toxic Asset Relief Program (TARP)—the bold brainchild of a Republican administration—which probably more than anything else staved off another Great Depression. Early the following year, the Senate kept the essential program intact, beating back a Republican joint resolution that would have barred President Obama from using the second half of the $700 billion authorized by the TARP. At the outset, the bailout of the auto industry, likewise initiated by Bush and completed by Obama, was highly controversial. Looking back, the project proved to be a success. An enormous stimulus bill also was adopted quickly in 2009. While some of this much-maligned undertaking fell short, quite plausibly a good deal of it ultimately made a difference. Not to be overlooked as well, of course, was a uniquely versatile player, always on the field: the Federal Reserve. Facing fewer constraints than, for instance, the European Central Bank, the Fed moved swiftly to manage the liquidity crisis.

All this is a record of respectable activity, not of “dysfunctional” governance. Yes, at times it hasn’t looked pretty. And things could still turn downright ugly in the months ahead. But for the moment at least, let’s give our old Madisonian political order the credit it's due. Although its messy comportment may not win a beauty contest, from 2008 to date, this eccentric regime has not committed many basic economic blunders. In a world where other democratic governments are inadvertently courting new recessions, Uncle Sam seems on track to regain economic health.

Why, then, just two—instead of three—cheers for the American way? A few concerns: First, the actions (and inactions) of the central government are only part of the picture. Untimely state and local budget cuts and tax increases have caused some fiscal drag. Second, at the federal level, the relatively good show up to now might not look so presentable by the end of the year. For that is when, absent a display of exceptionally creative leadership in both the legislative and executive branches, our squabbling politicians could conceivably default to the blunt statutory contrivance that Congress finally cobbled together last summer: an automatic $1.2 trillion “sequester” of discretionary spending, on top of a looming “taxmageddon” if the Bush-era tax cuts and relief from the payroll tax are allowed to expire. Because that scenario would likely plunge the economy back into a ditch, my guess is that even the hyper-polarized partisans in Congress will find a way to avoid it.

And even if they succeed, there still will be this: just kicking the can won’t suffice. As John Diiulio explains in a fascinating article in the current issue of National Affairs, the American welfare state is bigger, and less sustainable, than it looks. Much like the behemoths of Europe, ours is fundamentally in need of reform. To face up to that fact going forward, a lot more will be required than procrastination and just muddling through. So, our final full-throated applause had better wait till we see signs of greater profiles in courage.

Authors

Pietro S. Nivola

Image Source: © Mike Segar / Reuters

Federalism’s Downside

Pietro S. Nivola — Thu, 16 Feb 2012 00:00:00 -0500

Washington, writes Bruce Katz, “is mired in gridlock.” One could quibble over how “gridlocked” Washington actually has been. For all the partisan acrimony of recent decades, the central government still has managed to enact national health care legislation that has eluded past presidents, a torrent of fiscal stimulus, a far-reaching overhaul of financial regulation, a massive expansion of Medicare, comprehensive welfare reform, a huge new cabinet department, and a series of deep tax cuts—while, for good measure, waging two wars. Isn’t such a government, in fact, quite active, and perhaps overextended?

Nonetheless, Katz has a point. Much novel policy, indeed leadership, has emanated from statehouses in recent times, a prime example being the path-breaking health insurance law of Massachusetts, as he notes. Or consider the world-class environmental standards set by California, the job-creation performance of Texas, or the public-employee pension and compensation reforms in New Jersey.

Katz makes a case for leveraging “the distinctive assets and advantages” of American federalism, particularly the entrepreneurial energy for economic development that often bubbles up from states and localities. What are those assets and advantages?

The main one, in my judgment, is what public finance economists call the practice of fiscal equivalence. In the United States, unlike the unitary regimes of other advanced countries, local taxpayers have to pay directly for most of the services they consume. Of course, Washington’s intergovernmental grants and transfers also account for a significant share of the resources available to states and cities. Yet even in comparison with other federations (such as Germany), the local needs or demands of citizens here still have to be met primarily through own-source revenues.

In principle, this arrangement facilitates fiscal discipline and local creativity. If a state or municipality wants better schools, roads, or social services, its residents—not some distant group or entity—have to pay the piper for the most part. To defray its expenses, the municipality or state has to compete to retain or attract taxpaying businesses and households.

The interjurisdictional competition for jobs and wealth is often efficient. It spurs communities to experiment with public investments, regulatory policies, and safety nets that won’t impair the local economy and hence will ultimately bolster the local tax base. Because people and firms can “vote with their feet,” jurisdictions may have a keen incentive to innovate creatively and, in fiscal terms, not get too far out of line by embracing profligate agendas. The resulting local experimentation may eventually redound to the benefit of society as a whole. When contemplating new programs, policymakers at the national level presumably tend to learn “what works” from projects first field-tested in the states.

All this, in theory, is the good news about the nation’s federated republic. And, as Katz suggests, in a number of places and for a good deal of the time, its virtues are in evidence. The form of federalism in this country arguably does discourage the growth of a bloated public sector that overtaxes and overregulates. For all the excesses of some spendthrift state governments, to date none is comparable to Greece. In short, the comparatively decentralized U.S. system helps explain why the government remains a bit less “big” and less unsustainable in the United States than, say, in much of Europe.

But there is also bad news about American federalism’s distinctive institutions, and it is a partial but pertinent counterweight to Katz’s perspective. The economic crisis of the past few years serves as a painful reminder that a prime responsibility of any modern government is to carry out antirecessionary measures, and to do so promptly, comprehensively, and effectively when a sharp downturn looms. Alas, this is where America’s two-tiered public sector, roughly half of which rests at the state and local level, greatly complicates matters. Therein, what may be virtuous constraints in normal times—chiefly, the norms of extensive fiscal equivalence and of balanced-budget requirements in nearly every state—turn out to be liabilities in a severe economic slump. Why? Because they beget pro-cyclical policies that partly neutralize the countercyclical efforts of central authorities. So while Congress may succeed in enacting an $800 billion stimulus package, for example, and the Federal Reserve duly pursues monetary expansion, state and local governments have a tendency to move in the opposite direction: scrambling to meet revenue shortfalls, they cut budgets and raise taxes.

This perverse intergovernmental dynamic—with states effectively taking money out of people’s pockets as Washington tries to put more in—may help explain why tepid GDP growth and high unemployment have persisted for almost three years since the official end of the Great Recession. Of all the challenges federalism is likely to bestow on future administrations, this is the most vexing. Presidential candidates ought to grapple with it. The U.S. economy is not entirely out of the woods. Its recovery remains vulnerable, and another downturn within the next four years cannot be ruled out. Some form of contingent countercyclical revenue sharing may need to be readied beforehand.

Designing a sound program will not be easy, not least because a moral hazard arises if states can simply expect a federal bailout during recessions. A judicious partnership between the levels of government could include some of the microeconomic initiatives Katz envisions, but in the next presidential term the partnership will also require more macroeconomic coordination—including better inducements for states in good times to prepare for eventual rainy days.

Authors

Pietro S. Nivola

State of the Union 2012: Politics and Policy

Wed, 25 Jan 2012 10:30:00 -0500

Event Information

January 25, 2012
10:30 AM - 12:30 PM EST

Falk Auditorium
The Brookings Institution
1775 Massachusetts Ave., NW
Washington, DC

On January 25 – the day after President Obama delivered his State of the Union address before a polarized Congress – Brookings hosted a discussion exploring how the president’s speech could impact critical policy challenges facing the nation during this contentious presidential election year. The first panel, moderated by Senior Fellow Thomas Mann, examined a range of domestic and global issues; participants included Karen Dynan, Martin Indyk, Eswar Prasad and Robert Puentes.

The panelists agreed the president's speech focused on domestic economic policy, and specifically on proposals to spur sustainable economic growth. Karen Dynan said the speech offered a laundry list of policy options, but that it lacked a clear narrative on how to "address our labor market problems in the short term and our budget deficit in the long term."

Thomas Mann noted the political challenges of deficit reduction. "Leading with his chin on a broad plan for deficit reduction in the face of Republican tax proposals that would dramatically cut taxes would set him up politically to lose the election," Mann said.

To achieve the president’s goals on exports, manufacturing, infrastructure and energy, Robert Puentes cited the need to harness energy at the state and metropolitan levels. "We need to go to the heart of the American economy—the states and metros—to capture their innovation and momentum," said Puentes.

Addressing global economic and trade issues, Eswar Prasad said the president’s speech made very clear the U.S. will not tolerate unfair competition from other countries, with China being the primary competitor. "It’s going to be important to be very tough on China," said Prasad.

Martin Indyk said President Obama was tough and clear on Iran, but that the United States is in a very tense and dangerous period. "In an extreme scenario, the president could well order a military strike," Indyk said. "In order to try to prevent that from happening, the president is focused on trying to get the international community behind these very strong, crippling sanctions."

During the second panel, William Galston, Elisabeth Jacobs and Pietro Nivola put the speech into the context of the 2012 election and examined how growing mistrust of government may shape the presidential campaign.

"The President eloquently invoked the ideology of fairness, solidarity, collective action and common purpose," said William Galston. "But given the pervasive mistrust of government today, it’s unclear what will happen when these themes run up against the individualist and libertarian values espoused by many independent voters."

This event was live tweeted using the hashtag #BISOTU.

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20120125_state_of_the_union

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Presidential Leadership, Then and Now: Woodrow Wilson and Barack Obama

Pietro S. Nivola — Thu, 05 Jan 2012 13:32:00 -0500

Abstract

Every presidency develops a leadership style, which has bearing on presidential accomplishments. Historical comparisons shed light on the matter. The following paper compares Barack Obama and Woodrow Wilson in their respective early years.

The narratives of these two presidents share certain elements. Both men were progressive agents of change, who would try to adjust the balance of public and private power in society. Both men took office following back-to-back wave elections, resulting in clear Democratic congressional majorities. Both compiled impressive legislative scorecards. (In the rear-view mirror of history, Wilson’s legacy, which included achievements like establishing the Federal Reserve, would acquire indisputable legendary status.) Each president faced an economic crisis while pursuing his agenda.

For all the parallels, however, key contrasts stand out. President Wilson had more wind at his back since, albeit within important limits, the political climate was more receptive to reform during the Progressive era, and he confronted a less-solid opposition party in Congress. Also, parliamentary rules differed a century ago. Filibustering in the Senate was not the same as it is today. The electoral campaigns of the two presidents differed. And, Wilson was far more predisposed to govern through his party’s legislative majority, rather than bet on bipartisan agreements, and he managed relations with the legislature differently.

There may be lessons here. For instance, could it be that Wilsonian “party government”—however difficult in contemporary politics—still offers a serviceable model during periods of unified party control of the executive and legislative branches, one that at times befits the reality of today’s political polarization more than does a frustrating quest for post-partisanship?

A caveat: This essay does not purport to offer more than a partial, and tentative, comparative assessment. The bookends of Woodrow Wilson’s presidency have been in place for nearly a century, whereas Obama’s record remains very much a work in progress. Observations drawn at the mid-point of a president’s first term can be suggestive, but their limitations are evident. Much of what is observed now may well be overtaken by events. This paper only focuses on domestic issues, not the conduct of foreign policy. As we know, in Wilson’s case international setbacks were ultimately a principal source of his undoing. We have yet to see how world affairs will inform the rest of the Obama years.

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Pietro S. Nivola

Creating and Sustaining Democracy in the Middle East: Constitution and Governance Building

Mon, 02 May 2011 10:00:00 -0400

Event Information

May 2, 2011
10:00 AM - 11:30 AM EDT

Falk Auditorium
The Brookings Institution
1775 Massachusetts Ave., NW
Washington, DC

From Tunisia to Egypt to Yemen and beyond, momentum toward creating democratic governments has reached unprecedented levels in the Arab world. As demand for regime change spreads, architects and leaders of these aspiring new democracies will face a host of pressing governance and constitutional challenges and questions. What are the key constitutional considerations? Which governance principles would best build and sustain democracy in Middle Eastern countries making the transition? How do the experiences of other fledgling democracies – including the 18th century United States – inform our present-day understanding?

On May 2, Brookings hosted a forum on the numerous constitutional and governance issues facing transitioning countries in the Middle East. Brookings Senior Fellow Thomas Mann moderated a discussion featuring Donald L. Horowitz of Duke University, and three Brookings senior fellows: William Galston and Pietro Nivola of Governance Studies and Daniel Kaufmann of Global Economy and Development. Horowitz reported on constitutional prospects for post-revolutionary Egypt and Tunisia. Galston and Nivola discussed key constitutional considerations including majority rule vs. minority rights, the place of religion in the state, parliamentary and presidential systems of government formation and policy making, and federalism. Drawing from data and experiences around the globe, Kaufmann suggested how the core dimensions of governance embodied in the Worldwide Governance Indicators (WGI) can offer useful guidance to prospective and new democratic regimes in the region.

After the program, panelists took audience questions.

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Transcript (.pdf)

Event Materials

20110502_democracy_mideast

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Panelists

Donald L. Horowitz

James B. Duke Professor of Law and Political Science, Duke University
Woodrow Wilson Center Fellow

Partisanship in Perspective

Pietro S. Nivola — Tue, 30 Nov 2010 00:00:00 -0500

The following was orginally published in National Affairs (Issue Number 5 p.91-104)

Commentators and politicians from both ends of the spectrum frequently lament the state of American party politics. Our elected leaders are said to have grown exceptionally polarized — a change that, the critics argue, has led to a dysfunctional government.

Last June, for example, House Republican leader John Boehner decried what he called the Obama administration’s “harsh” and “hyper-partisan” rhetoric. In Boehner’s view, the president’s hostility toward Republicans is a smokescreen to obscure Obama’s policy failures, and “diminishes the office of the president.” Meanwhile, President Obama himself has complained that Washington is a city in the grip of partisan passions, and so is failing to do the work the American people expect. “I don’t think they want more gridlock,” Obama told Republican members of Congress last year. “I don’t think they want more partisanship; I don’t think they want more obstruction.” In his 2006 book, The Audacity of Hope, Obama yearned for what he called a “time before the fall, a golden age in Washington when, regardless of which party was in power, civility reigned and government worked.”

The case against partisan polarization generally consists of three elements. First, there is the claim that polarization has intensified significantly over the past 30 years. Second, there is the argument that this heightened partisanship imperils sound and durable public policy, perhaps even the very health of the polity. And third, there is the impression that polarized parties are somehow fundamentally alien to our form of government, and that partisans’ behavior would have surprised, even shocked, the founding fathers.

Though the first of these propositions is now nearly a cliché, it happens to be right. There is, in fact, more discord between Republicans difficult question is whether the divergence of the parties is entirely unhealthy — that is, whether it inevitably impairs effective governance and diminishes the quality of civic life. Moreover, is it something with little precedent in our politics, a novelty the founders would have viewed with anxiety and profound regret?

Answering these questions calls for a re-examination of the nature and scope of contemporary partisanship, an assessment of its consequences, and an effort to compare the role of political parties today with the partisan divisions that prevailed during the first years of the republic. By putting partisanship in perspective, we can draw some reassurance from history — and also identify those facets of our contemporary situation that could spell trouble in due course.

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Authors

Pietro S. Nivola

Publication: National Affairs

What Do We Really Think About the Budget Deficit?

Pietro S. Nivola — Mon, 21 Jun 2010 14:36:00 -0400

Americans are finally according the federal government’s cavernous budget deficit the attention it deserves, and are demanding bold action to reduce it. Right? Well, ... let's see.

Granted, the fiscal fiasco has moved up on the list of leading predicaments that people wish their politicians would (in some sense) address. An NBC News/Wall Street Journal poll last month noted that many more people (20 percent) now rank “the deficit and government spending” well ahead of, say, the supposedly red-hot issue of immigration (7 percent).

Still, the deficit hawks remain a relatively small portion of the public compared to the number of persons who cite, first and foremost, “job creation and economic growth.” Thirty-five percent view this challenge—battling the recession—as the highest imperative (one that implies, if anything, a need for deficit-spending). The results of a Fox News poll taken at about the same time were even starker. It found only 15 percent primarily preoccupied with the deficit and government spending—in contrast to 47 percent saying that, as a first order of business, the government ought to be “working on” the economy and jobs.

That at most just one-fifth of the public currently regards the deficit as “the top priority” may seem underwhelming, but it isn’t surprising. Naturally, when people are asked to identify problems for the government to solve, the list tends to get long, hence rarely can a single item claim more than a plurality of respondents. Besides, just because the deficit is but one of multiple issues jockeying for prominence in the public consciousness doesn’t mean that most of the interested public considers this particular issue unimportant. Indeed, in an especially insightful survey of likely voters taken in March by the Greenberg Quinlan Rosner Research organization for Democracy Corps and Tulane University, fully half of the respondents described the current federal deficit as “a crisis” while an additional 43 percent described it as “a major problem” (though not a crisis). In other words, a combined total of 93 percent expressed a seemingly high degree of concern.

Concern, however, is one thing. Concern so intense as to accept genuine, but alas painful, remedies is quite another. The Greenberg Quinlan Rosner poll, for example, asked likely voters whether they agreed with this statement: “The federal deficit is such a national problem that we might have to raise taxes broadly in ways that will help to bring it down.” Forty-three present concurred, while 51 percent objected. If tax increases fall so short of solid majority support, how then is the deficit to be reduced? Seventy-one percent favored something called “spending cuts” instead. But when the pollsters drilled a little deeper and specified a few such cuts, the vast majority of respondents jumped ship. Sixty-five percent ruled out reductions in Social Security or Medicare—in other words, the preponderance of the government’s outlays.

These findings are consistent with those of other survey-takers. A Quinnipiac poll, also taken last March, reported that an overwhelming percentage (84 percent) of Americans felt that the middle class will have to make financial sacrifices to reduce the budget deficit. Yet, more than three-quarters not only opposed raising income taxes on the middle class but slowing the rate of growth of Social Security and Medicare expenditures.

Why do such attitudes prevail? In part, the pattern reflects an understandable aversion to tax hikes, especially amid bad economic times, and to a loss of entitlements—which is perceived as a breach of the nation’s social contract. But in part, too, there appears to be a fundamental misapprehension about the origins of the fiscal imbalance. For example, while well over a third of the people queried in the Greenberg Quinlan Rosner poll believed that the wars in Iraq and Afghanistan are the principal cause of today’s widening deficit, only a paltry 10 percent blamed the economic recession.

A lesson: Evidently, political leaders need to do a much better job explaining the main sources of the mess we’re in—and leveling with voters about the truly difficult choices it poses.

Authors

Pietro S. Nivola

Rebalancing American Federalism

Pietro S. Nivola — Thu, 01 Apr 2010 00:00:00 -0400

The following was orginally published in the March-April 2010 issue of the American Interest. Please click here to read the full article.

Whatever else it is supposed to do, a federal system of government should offer policymakers a division of labor. Perhaps the first to fully appreciate that advantage was Alexis de Tocqueville. He admired the federated regime of the United States because it enabled its central government to focus on primary public obligations (“a small number of objects”, he stressed, “sufficiently prominent to attract its attention”), leaving what he called society’s countless “secondary affairs” to lower levels of administration.¹ Such a system, in other words, could help the central authorities keep their priorities straight.

Thinking along those lines warrants renewed emphasis today. America’s national government has had its hands full coping with a deep and lingering economic crisis and onerous security challenges around the world. It cannot, or at any rate ought not, keep piling on top of those daunting tasks a second-tier agenda that injudiciously dabbles in too many decisions and duties best consigned to local entities. Turning every imaginable issue into a Federal case, so to speak, diverts and polarizes political leaders at the national level, and erodes recognition of local responsibilities. A kind of attention deficit disorder besets anybody who attempts to do a little of everything rather than a few important things well. Although not a root cause of catastrophes like the submersion of a historic American city by a hurricane in 2005, the terrorist attacks of September 11, 2001, the great financial bust of 2008 or the successful resurgence of the Taliban in Central Asia, an overstretched and distracted government stands less chance of mitigating such tragedies.

¹Tocqueville, Democracy in America, vol. 1 (Vintage Books, 1945), p. 281.

Authors

Pietro S. Nivola

Publication: The American Interest

Is America the New France? How President Obama's Policies are Transforming the United States

Tue, 28 Apr 2009 11:00:00 -0400

Event Information

April 28, 2009
11:00 AM - 12:30 PM EDT

Falk Auditorium
The Brookings Institution
1775 Massachusetts Ave., NW
Washington, DC

When President Barack Obama unveiled his budget proposal in February, many observers described it as a radical departure for the American experiment, one that put the United States on a path to become like a European social democracy. One columnist lamented that "one France is enough," and a political opponent derided the budget as "a blueprint for the France-ification of America." The new administration bears more than a passing resemblance to its European counterparts in setting aside funding for universal health care and high-speed trains, increasing federal intervention in the markets and embracing green industrial policy and greater social equality. But, is the Obama administration really taking the American model in the direction of European social democracies? If so, would that be such a bad thing?

On April 28, the Brookings Institution hosted a discussion to assess the scope and meaning of the "Obama revolution," possible reactions by the American public and an apparent narrowing of U.S.-Europe differences. Panelists include Brookings Senior Fellows William Galston and Pietro Nivola; Guest Scholar Jonathan Rauch, a senior writer for National Journal and The Atlantic Monthly; and Clive Crook of the Financial Times, The Atlantic Monthly, and National Journal. Senior Fellow Justin Vaisse provided introductory remarks and moderate the discussion. After the program, panelists answered audience questions.

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20090428_new_france

Participants

Moderator

Panelists

Clive Crook

Chief Washington Columnist, The Financial Times
Senior Editor, The Atlantic Monthly
Columnist, National Journal

Jonathan Rauch

Senior Writer and Columnist, National Journal
Guest Scholar, Governance Studies

Know Thy Neighbor: What Canada Can Tell Us About Financial Regulation

John C. Courtney and Pietro S. Nivola — Thu, 23 Apr 2009 12:00:00 -0400

Policy-makers in the Obama administration and Congress are designing a new regulatory architecture for the nation’s financial system. As they toil on this daunting project, they might consider taking a page or two from a model next door—Canada. Before pursuing this idea, we, the authors of this paper, owe readers two disclaimers. First, neither of us is an economist nor do we claim deep expertise in financial regulation. Our observations perforce will be elementary. Second, notice that we said take “a page or two”—not every page. For not everything above the 49th parallel is to be emulated, and much that might be praiseworthy is not politically feasible down here.

Good Show

The Canadian banking system has long been regarded by the IMF as a paragon of international best practices. The World Economic Forum recently ranked it the soundest in the world. And it looks better with every passing day. As during the Great Depression, when only a few inconsequential banks failed in Canada, the overall system has remained solvent and solid amid the current global crisis. Indeed, unlike several large U.S. banks these days, the sustained profitability of Canada’s is startling. While shares of Citigroup and Bank of America were trading at lows of around $2 to $4 in February, shares of Royal Bank of Canada and of Toronto-Dominion Bank were in the range of $24 to $37. Canada’s “Big Five” banks had recorded substantial profits last year. Since the credit crunch began in 2007, write-downs taken by Canadian banks have represented a negligible fraction of the total recorded by banks and brokerage houses worldwide. In 2008, Ottawa had made available to the banks a comparatively modest $125 billion mortgage purchase program. But so healthy are Canada’s institutions, last month they announced that they no longer needed to use any of it.

A Few Misapprehensions

What accounts for the extraordinary performance by our northern neighbor?

Small, hence presumably more manageable, scale is not a sufficient explanation. Ranked by assets, four of the top ten banks in North America are Canadian, according to a recent Bloomberg report. Contrary to a misimpression harbored by some casual observers on this side of the border, Canada’s big banks are not mere local lenders focused on commercial banking activities for a limited domestic market; they are full-service financial firms, engaged, like our biggest banks, in corporate and investment banking, and complex securitization of loans with a global reach. These far-flung enterprises could have wound up as over-extended and relatively under-capitalized as some of ours. But they didn’t.

Some might conjecture that because Canada’s banking sector is led by five major banks, it is a concentrated industry with limited competition and comfortably cushioned by oligopolistic profits. The trouble with this thesis is that by most measures of consumer welfare—service fees, credit card costs, interest spreads on intermediated credit, and so on—customers in Canada hardly seem disadvantaged. On the contrary, their experience appears to compare favorably with those of citizens in other advanced countries, including the United States.

Nor does it seem very plausible that the Canadian banking establishment is neo-protectionist. Plenty of foreign companies—including Bank of America, Capital One, Credit Suisse, ING, and Deutsche Bank, among many other foreign subsidiaries and branches—do business in Canada.

Further, although one could stipulate that a banking industry organized around a few huge companies is less likely to experience major liquidity problems than a system built around smaller, regionally based firms with shallower equity pools, the opposite can also be true. It is the banking giants in the United States that are now in trouble, while, as Fed Chairman Ben S. Bernanke noted not long ago, the nation’s extensive lower-tier of community banks are the lenders that still appear robust enough to make new loans. Put another way, if Canada’s financial conglomerates had been mismanaged, Canadians could have ended up in worse shape than Americans. With fewer local banks to come to the rescue and relying on a handful of behemoths “too big to fail,” Canadian taxpayers might have had to cough up bailouts proportionately even larger than ours.

Canadian Regulation

That Canadian banks are more closely, or carefully, regulated is fairly well-known. The specifics, however, deserve more attention.

The Canadian regulatory edifice is more centralized. There is no provincial equivalent to America’s state-chartered banks. All of Canada’s banks are federally chartered and overseen by federal agencies. One government-owned entity—the Canada Mortgage and Housing Corporation (CMHC)—plays a dominant role in shaping mortgage default-insurance policy. It and five other government bureaus in Ottawa—the Department of Finance, the Canada Deposit Insurance Corporation, the Bank of Canada, the Financial Consumer Agency, and importantly, the Office of the Superintendent of Financial Institution—set standards, coordinate the overall regulatory structure, and enforce it with sanctions. The Superintendent, for instance, has the power to remove miscreant bank directors and senior officers.

Three additional features of the edifice stand out. For starters, over-leveraging is discouraged. The ceiling on leverage ratios (assets to capital) for Canada’s financial institutions is capped well below the U.S. norm (an average of 18:1 compared to over 25:1, respectively).

Second, the requirements for mortgage loans are relatively stringent. Down payments of at least 20 percent are ordinarily required, unless the bank obtains mortgage insurance through the Canada Mortgage and Housing Corporation. The CMHC exerts a prudential influence over mortgage underwriting. Banks rely extensively on it for default insurance, which is conditioned on comparatively strict criteria for creditworthiness. (Private insurers operate as well, but they, too, are held to relatively exacting standards since they benefit from a partial government guarantee.) Sub-prime mortgages are not unheard of in Canada, but the stiffer standards for lending have kept them to a minimum. In 2006, for example, sub-primes amounted to less than five percent of the country’s total mortgage originations, compared to over 20 percent in the United States.

Last but by no means least, CMHC, working alongside the banks, transparently plays a role in circumscribing residential mortgage securitization. Indeed, the great bulk of all lending in Canada takes place within the banking system itself, not through a largely unsupervised secondary market for bundles of loans and securities supposedly backed by other bundles of loans and securities—the “shadow banking system” that has burgeoned in the United States.

Systemic Differences

Canadians may be right to showcase a good deal of their regulatory regime. But one wonders how much of it would succeed were it not for other fundamentals in the Canadian story.

It may be, for example, that the “culture” in Canada’s financial sector is inherently more risk-averse than in the United States. As individuals, Canadians have long been known to be greater savers than Americans, although the spread between the two countries has narrowed over the past few decades. As businessmen, Canadian financiers have tended to steer clear of the chanciest investments, not just in North American real estate but in various other kinds of global gambles, such as certain Latin American bonds.

Contrary to what Americans might think, Canadian executives are handsomely compensated. (Anticipating the growing consternation about outsized bonuses on both sides of the border, the CEO of Toronto-Dominion Bank took more than a 40 percent pay cut, though his compensation remained in the multiple millions of dollars. He was not alone among bank CEOs.) Still, Canadians don’t appear to countenance the ultra-lavish packages that go out of their way to encourage short-term risk-taking on Wall Street.

To an extent Canada may have avoided a hyper-risky mortgage market because, ironically, policymakers there seem less preoccupied with promoting ownership of “affordable” housing. Which is not to say that Canadian policy, at both the national and provincial levels, hasn’t furnished an ample supply of low-cost housing. To the contrary, so much is available at low rents that households may actually be less inclined to buy their dwellings whether they can afford to or not. Whereas almost half of all American households in the lowest income quintile own their own homes, the home-owning share for the lowest quintile in Canada is just over 38 percent.

Perhaps even more important is the fact that macro-level fiscal policy in Canada differs rather fundamentally from America’s. It restrains the demand side more than does the U.S. national tax structure, which arguably rewards consumption while mostly dunning incomes and saving.

Although housing prices in Canada’s major urban centers (notably Vancouver and Toronto) have increased markedly since the 1980s, the country did not experience a U.S.-style housing bubble. In the Greater Toronto area, for example, the average selling price of houses dropped only seven percent between the months of March of 2008 and 2009, compared to 29 percent in Miami, 25 percent in Los Angeles, and 13 percent in metropolitan Chicago.

Mortgage interest is not tax-deductible in Canada. The result, not surprisingly, is to induce less private investment in housing than there has been in the United States, where mortgage lending is exceptionally tax-advantaged. Further, the federal tax system in Canada includes the functional equivalent of a VAT. This national impost, supplementing provincial sales taxes, is levied on most goods and services including newly constructed homes. Although buyers of such homes may qualify for partial rebates, on net, the tax treatment of home buying is, again, considerably less favorable to consumers than it is on this side of the border. Indeed, consuming in general is a bit less of a great national pastime in Canada, in part, because it is more heavily taxed.

Limits of the Canadian Lesson

Clearly, there is something to be said for studying Canada’s more centralized, and apparently better-coordinated, regulatory bodies. America’s assortment of financial watchdogs, jealously guarding their turfs and leaving gaping holes unmonitored, appears in dire need of correction. But let’s not kid ourselves: Even Canada’s seemingly comprehensive arrangements almost certainly fall far short of constituting a “systemic risk regulator,” capable of foreseeing and averting every imaginable form of financial excess. The Canadian system seems to have done a commendable job managing risk in one sector—mortgage lending. Given that the world’s financial meltdown originated with the U.S. sub-prime bust, the way Canada dodged it was no small accomplishment. Whether Canadian regulators and financial companies will remain as unscathed by crises begot from other sources, including novel mutations of financial assets likely to be invented in the future, remains very much an open question.

Also, here’s another caveat: In retrospect, cautious Canadian-style risk-management looks highly desirable. Yet before the crash, that same prudence might have seemed like too much of a good thing. In fact, financial systems such as Canada’s, which are less reliant on versatile non-bank capital markets, could seem insufficiently entrepreneurial. With twenty-twenty hindsight, we now know that Wall Street’s risk-takers were reckless. But during the boom, few of us were as skeptical of the borrowing binge they facilitated. Rather, their innovative financial instruments were mostly deemed creative ways of leveraging and deepening scarce capital. In other words, it is not too much to say that when times are rotten, we wistfully look to exemplars of moderation. When times are good, moderation often looks like a virtue only in moderation.

In any event, much of what helps support the Canadian model is probably beyond the grasp of the American political process. Eliminate mortgage-interest deductions? Forget it. Temper the pursuit of what the Left calls “affordable” homeownership, or what the Right calls the “ownership society”? Fat chance. Shift more of the tax burden’s target from earnings to consumption? Don’t hold your breath.

Authors

John C. Courtney
Pietro S. Nivola

In Defense of Partisan Politics

Pietro S. Nivola — Wed, 08 Apr 2009 12:07:19 -0400

Pietro Nivola outlines an upside to the intense polarization taking shape in U.S. politics. William Galston offers a response in “ One and Half Cheers for Bipartisanship .”

From the steps of the Capitol on January 20^th, President Barack Obama appealed for an end to the politics of “petty grievances” and “worn-out dogmas.” The year 2009 was supposed to mark the dawn of a post-partisan era. With any luck, Democrats and Republicans would stop quarreling, and would finally get down to work together. The time had come, exhorted the new president drawing from Scripture, to lay “childish” polemics aside.

But childish or not, America’s partisan politics have remained as stubbornly intense and polarized as ever. To paraphrase more Scripture, the lambs remain unwilling to lie down with the lions. And there are few signs of partisan swords being turned into plowshares. Far from opening a new age of bipartisan comity in the House of Representatives, the president and the Democratic majority received not a single Republican vote in their first big legislative test, the roll call on the so-called American Recovery and Reinvestment Act (the “stimulus”). More recently, not one Republican in the Senate or the House voted for the concurrent resolution on the president’s budget. More, not less, of such party-line voting probably lies ahead.

So here’s a heretical thought: Maybe, among the many inflated expectations that we attach to the Obama presidency and should temper, those about the advent of “post-partisanship” ought to be lowered, drastically. In other words, get over it. The rough-and-tumble of our party politics is here to stay. What’s more—and this is even greater heresy—not everything about that fact of political life is horrible.

Majoritarianism

The Democratic and Republican parties today are each more cemented in their ideologies and more distinct than they were a generation ago. In Congress, party lines used to be blurred by the existence of so-called liberal Republicans and truly conservative Democrats. Now those factions are dwindling species. Why they are dying out is a long story that has been the object of an extensive study titled Red and Blue Nation? cosponsored by Brookings and the Hoover Institution at Stanford University. For present purposes, suffice it to recognize that the disputes between Republicans and Democrats are about more than “petty grievances” (though there are plenty of them, too); the party differences run deep and fundamentally reflect differing convictions held by large blocs of voters, not just their elected representatives. An example: Whereas a staggering 84 percent of Democrats seem to believe “it’s the government’s responsibility to make sure that everyone in the United States has adequate health care,” only 34 percent of Republicans evidently concur, according to a reputable national poll taken last November.

Because both parties are more cohesive, they are also more disciplined. If you are a member of Congress and you basically agree with your party’s position on most salient issues, why defect to the other side on key votes? Americans of the baby-boom generation are not accustomed to seeing this high degree of party unity. They remember the old days when the main way to do business on Capitol Hill was to cobble together ad-hoc coalitions. Want a civil rights bill? Get northern Democrats and Republican moderates on your side, and hope that you have enough votes to overpower the conservative phalanx of southern Democrats and states’-rights Republicans. Want more money for the Vietnam War in the 1960s? Combine solid support from that bipartisan conservative bloc with plenty of other hawkish stalwarts in both parties (think reliable GOP loyalists like Everett Dirksen but also Scoop Jackson Democrats), and you’d get the funds.

Increasingly, the contemporary party system bears scant resemblance to the one that prevailed a half-century ago. What it resembles instead is politics in most other periods of American history, for example the late nineteenth century when the two parties were also internally coherent and keenly at odds. During such periods, the American parties have behaved more like political parties in parliamentary regimes—where the in-party (the governing majority) rules, and the out-party (the minority) consistently forms a loyal opposition.

Notice this distinctive feature of the parliamentary model: Not only can the majority, voting in lockstep, prevail with no help from opposition members; all it needs on board in order to legislate is a simple majority of the legislators. Supermajorities—the requirement in the U.S. Senate to override a filibuster—are never the norm. A parliamentary system, in other words, operates much like our congressional budget reconciliation process where as little as a one-vote margin in the House and as little as 51 votes in the Senate suffice to adopt a bill.

There is much handwringing about the trend toward majoritarian—that is, parliamentary-style—politics in the United States. Democrats moaned when the GOP, led by George W. Bush, drove tax cuts through Congress on nearly a party-line vote with Vice President Cheney casting the tie-breaker. Now, Republicans will groan if the Obama administration and the Democratic congressional leadership opt to use the reconciliation procedure to ram health-care reform into law.

But is all the lamentation justified?

Accountability

One of the advantages of parliamentary democracy is that the electorate knows what to expect. What you see (or vote for) is what you get. As America becomes parliamentary, if voters elect a Republican president and congressional majority, here’s a good bet: Tax cuts will be on the way. If voters elect a Democratic president and congressional majority—running on a party platform that declares universal health care to be a “moral imperative”—guess what? Health-care legislation to extend coverage will happen. Now, granted one can debate the policy merits of either party’s priorities. Robotic tax-cutting runs up deficits—and so almost certainly will health care that covers everybody. But if the voters have explicitly empowered their elected officials to do either of these things, who are “we” to stand in the way?

Further, the voters have plenty of opportunity to change their minds. If they decide that mistakes are being made—or that they prefer an alternative agenda to the one being proffered by the party in power—they can throw the rascals out. Indeed, in this country, unlike practically every other democracy, the public gets a chance to entertain that option with extraordinary frequency: every two years.

Nor, from the standpoint of democratic theory, is it easy to make an airtight case for why Congress and the president should be forced to muster supermajorities to enact their most important priorities. Ours, like any sound democracy, has to balance principles of majority rule with minority rights. But a political order in which technically just over 7 percent of a legislature—that is, a sub-group that possibly represents as little as 10 percent of the population—can have the last word, as our Senate arithmetic can imply, raises serious questions of democratic accountability and even legitimacy. Let’s face it; making a regular practice of putting, in effect, veto-power in the hands of a minority is hard to square with a government of the people, by the people, for the people.

The Virtues of a Choice, Not an Echo

There is one other thing to say in defense of heightened partisanship: It has succeeded in making elections more interesting.

Voters have a tendency to become indifferent and apathetic when asked to choose between alternatives that display not “a dime’s worth of difference,” as the old saying went about our two-party system during the heyday of bipartisan comingling.

By contrast, as Marc J. Hetherington of Vanderbilt University demonstrates in a key chapter of Red and Blue Nation?, voter participation has surged as the partisan divide has grown sharper.

The electorate is not turned off by the chasm, and contestation, between the parties. On the contrary, Hetherington finds, the polarized political parties have animated voters of all stripes—liberals, conservatives, and moderates. Growing civic engagement and voter turnouts are hallmarks of a vibrant democracy, not of a “broken” one.

Authors

Pietro S. Nivola

Center-Left America?

Pietro S. Nivola — Wed, 01 Apr 2009 12:00:00 -0400

Executive Summary

The Republican Party’s center of gravity has shifted to the right in recent decades. And notwithstanding the “post-partisan” style of President Obama, the Democratic Party has sidled leftward. Among most objective analysts of American politics, there is not much dispute about these trends. They are well documented in a comprehensive study titled Red and Blue Nation? co-published by Brookings and the Hoover Institution at Stanford University.

On the substance of the issues, if not the demeanor of the presidential candidates, last fall’s election plainly reflected the polarized parties—contrary to an impression, or hope, held out by numerous commentators. As several of the Brookings-Hoover scholars quickly noticed, the respective party platforms, for example, had actually drawn farther apart in key respects.

Consider the Republican plank on immigration, which not only stepped conspicuously away from the Democrats in 2008 but from the GOP’s own consensus in 2004. Whereas that earlier platform had stressed “humane” reform of the nation’s dysfunctional immigration system, the emphasis in 2008 was on the “grave risk” posed by illegal immigrants, and the need for federal legislation to bar them from obtaining such things as driver licenses.

The Democrats of 2008, if anything, repositioned themselves on even more fronts. In 2004, the party had vowed to “win the peace in Iraq.” Four years later, that pledge had given way to insistence on a rapid timetable for “ending this war.” On trade, the Democrats now spoke not of “open markets” (the 2000 plank) but of amending NAFTA. With respect to health care, “covering all” was elevated to a “moral imperative.” Such stances were all well to the left of where the party had stood in the previous two presidential elections.

The contents of platforms are but partial indicators of partisan positioning, of course, which is a multi-dimensional, dynamic process. Depending on the circumstances, political parties may gravitate toward their bases, or, in due course, drift away from them. Either party, or both, could retreat or depart from the markers they’ve laid down so far. A lot of factors influence such adjustments, not least the perceived success or failure of policies championed by the party in power, and the receptivity of the general electorate.

Which way does the American public lean—left or right—on the dominant questions of public policy these days? The following essay takes a look at public attitudes within five domains: the economic crisis, health care, the environment, immigration, and foreign affairs. Judging from recent surveys, Americans appear to have tilted toward the Democrats on some matters but not others. Indeed, the data would appear to counsel caution for Democratic policymakers eager to press too radical a progressive agenda. Much of the public remains divided or doubtful about the capacity of government to meet the nation’s greatest challenges. In this climate, tolerance for new policy excesses and misadventures, or even mere underperformance, may prove quite limited. The governing party, in other words, is operating with precious little margin for error.

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Pietro S. Nivola

The Long and Winding Road: Automotive Fuel Economy and American Politics

Pietro S. Nivola — Wed, 25 Feb 2009 12:00:00 -0500

Executive Summary

For more than thirty years, the government of the United States has been trying to reduce the nation’s voracious consumption of petroleum by regulating the fuel economy of motor vehicles. The project has not been a notable success. As of 2007, the average fuel economy of brand new passenger vehicles in this country was, for all practical purposes, about the same as it had been twenty years earlier (under 27 miles per gallon). Counting all passenger vehicles on the road, old as well as new, the average miles traveled per gallon of fuel stood at just 20.4.[1] That fact, combined with a relentless increase in the amount of driving, meant that three decades after Congress initiated the automotive energy conservation program, we were actually consuming more fuel per capita than we had averaged when driving around in the gas-guzzlers of 1975.[2]

Last year, lawmakers congratulated themselves for finally facing up to this disappointing performance; they enacted legislation requiring new cars and light trucks to attain a combined level of efficiency of 35 miles per gallon by the year 2020. The legislators claimed this change would not only advance (somehow) “energy independence and security” but also substantially curb the heat-trapping gases that are warming the earth’s atmosphere. Were the kudos warranted? Thirty-five mpg may seem like a major step compared to today’s 27.5 mpg, but it pales in contrast with the efficiency standards set by the European Union and Japan. The EU’s vehicular fleet is scheduled to average around 50 mpg within the next four years (2012).[3]

Why does America’s effort to moderate the use of oil in automotive transportation continue to fall so woefully short? The following paper tackles this question, proceeding in six segments. First, the essay outlines in a bit more detail the “energy-saving” regulatory regime on which our politicians have fastened for more than a third of a century. Second, I describe this system’s failures—including the fact that its impact on greenhouse gas emissions has been perforce minimal. Third, the paper shows how other advanced nations have achieved far better fuel economy, and hence are able to aim much higher in their prospective efficiency standards. Fourth, I discuss the political reasons for this country’s lag and for Europe’s big lead. Fifth, that analysis segues to some basic reflections about what animates our regulatory politics. Finally, the framework for a more enlightened U.S. policy mix is proposed.

_[1]_{Federal Highway Administration, Highway Statistics, Table VM-1. Figure is for 2006, the most recent year for which data are available.}_[2]_{U.S. Census Bureau, Statistical Abstract, 2008, Tables 2 and 1070. These figures apply to the U.S. population taken as a whole, and only to fuel used in cars and light trucks.}_[3]_{The EU’s target for 2012 is the equivalent of 47 mpg for automobiles with gasoline engines, 52 mpg for diesels. Environment for Europeans: Magazine of the Directorate-General for the Environment}_{http://ec.europea.eu/environment/news/efe/24/print_ article_4119_wn.htm}

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