Thursday, December 29, 2011

economic historians on the job market, 2011-2012

The start of a continuing series.

A brief look at a few of the top mainstream departments (Harvard, Berkeley, Chicago...) does not reveal much in the way of budding economic historians (... I guess I shouldn't be surprised. Check back soon for more interesting candidates). However, one of Daron Acemoglu's students is working on some interesting projects related to political economic history: his name is Pablo Querubin. His job market paper is an econometric study of rent-seeking by U.S. politicians in the second half of the 19th century. Abstract and other papers (some of which are also on economic history) here.

The story according to mainstream economists is as follows. Politicians are assumed to be self-interested profit maximizers who seek to gain from the system by acting on their own interests -- interests which do not necessarily line up with the interests of their constituents. The amount of this rent-seeking behavior, furthermore, is strongly related to the accountability of the underlying political system (how fair the electoral system is and so on). In short, a democratic government such as what we have in the U.S. would probably have relatively fewer rent-seeking politicians than a despotic one would.

Now, if we consider the second half of the 19th century-United States, "democratic" usually isn't the first word that comes to mind. Nevertheless, the question is, what would we expect given the postbellum United States? Was there significant rent-seeking? How would you test for it? Querubin uses a methodology which allows him to test whether politicians who were elected by a close margin saw their incomes increase more than the losers of that close electiono over the course of the rest of their careers.

He finds that this was not the case for politicians who were elected in the 1870s, but that it was the case during the Civil War. He interprets this finding as suggesting that in periods when a democracy is in some kind of (political or economic or both) crisis, the space is opened for rent-seeking. Otherwise, a democracy like the U.S. operates pretty well at insulating against such behavior. This is further supported by evidence that a team headed by Acemoglu found recently supporting the idea that "financial firms connected to Timothy Geithner experience an abnormal return of 15% after his nomination as Treasury Secretary," which, since it took place during the financial crisis, qualifies in his story. Although it really doesn't, since Geithner is just one person and I'm not sure that the other contenders for the Treasury Secretary position are necessarily doing any better or worse than him (which would be the true test of the hypothesis).

But should we be surprised that in a capitalist democracy we find such results as Querubin's? Politicians already occupy certain class positions before they gain power, suggesting that if there is some disturbance to democracy, it occurs before anyone approaches the ballot box. If you're looking for a malfunctioning democracy, rent-seeking behavior is not necessarily the first place you would look. I suggest you look instead at the politics of the capitalist state itself: why didn't we see a full democratization of the south after the Civil War (indeed, the period under which Querubin finds no rent-seeking!), for example? The story that we usually find is that different groups of elites are fighting over public policy, often ignorant of the mass of workers, poor people, women and blacks below. It's not rent-seeking, but it is politics from a privileged position in the economic system.

In summary, Querubin's paper seems to present solid evidence against the public choice thesis that politicians are rent-seekers. And he seems to have some good things to say about our political system in the end -- we have a fair amount of checks in our electoral system to counterbalance any self-interested behavior by politicians. But it's only 2 cheers for democracy. Capitalist democracy may not produce rent-seeking politicians but it certainly does produce a situation in which not everyone has equal say in designing the "rules of the economic game".

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