Name your stimulus

Posted Dec. 24, 2008, at 6:20 p.m.

What makes politicians tick? Do their votes on legislation usually support their own constituents’ interests? Do they vote to favor special interest groups that make large contributions to their campaign war chests? Or do they vote according to their personal beliefs or ideologies? Or, finally, is the answer all of the above?

These questions are especially important right now because President-elect Obama is developing a huge $850 billion economic rescue package. If we learn what makes politicians tick, we can better figure out how they will try to shape this legislation — and also how we, as individuals, might influence them.

Fortunately, recent research by three University of Chicago economists, Atif Mian, Amir Sufi and Francesco Trebbi, provides sharp insights into the legislative process. These authors examined how all members of the House of Representatives voted on two bills. One, the Housing Rescue Act of 2008, allows the federal government to insure $300 billion of refinanced mortgages. The other bill, the Economic Stabilization Act of 2008, enables the Treasury to spend $700 billion supporting critical financial institutions. The first act transfers taxpayer resources to borrowers in danger of mortgage default and the second transfers resources to financial institutions.

The three authors measured “constituent interest” pressure for the Housing Rescue Act by the increase in a congressional district’s mortgage default rate. And indeed they found that representatives from districts with big increases in defaults were likely to vote for the act.

The authors measured “special interest group” pressure favoring the Economic Stabilization Act by the size of financial industry contributions to a representative’s campaign funds. Not surprisingly, they found that representatives receiving large financial-industry contributions tended to vote for this act.

What about representatives’ ideology? The study classified representatives as more or less ideologically conservative based on previous studies of their voting records. The most conservative Republicans, the authors found, tended to vote against both bills, presumably because both boost government’s role in the private economy. Also, the most conservative Republicans were less easily swayed than other Republicans by pressures from constituent and special interests.

So if you believe that all three types of influence — constituent interests, special interests and ideology — play roles in motivating politicians, this study supports your view.

The final vote on a bill is often less important, according to several studies, than the horse trading that goes on early in the bill’s development. Special interests and constituent groups start early to shape a bill. They try to strike compromises with other groups to build support for proposed amendments that they favor.

The analysis of Mian and his colleagues helps us understand the influences that, at this moment, are being brought to bear on Obama’s $850 billion stimulus package. These researchers undoubtedly would have predicted that many interest groups would enter the fray quite early and that conservatives would favor the smallest possible role for government.

And, indeed, that is happening. The construction industry already is pushing for a quick start on many new construction projects. Environmental groups warn that some of these projects would harm the environment, and they favor, instead, boosting research on green energy.

Some senators favor additional aid to auto makers, while others want massive aid to their state governments. And, yes, conservatives do want the stimulus package to include large tax cuts.

This early, active lobbying shows that we are on a path to a large Christmas tree laden with expensive gifts for everyone, including, no doubt, several bridges to nowhere.

Some analysts favor a different path, to avoid spending on bridges to nowhere. They recommend a small initial stimulus package designed to push cash rapidly into the economy. This package would include a payroll tax holiday and immediate aid to the poor — so poor and middle class people could immediately increase their consumption spending — and aid to the states, so they can avoid cutting back existing programs. A second package would come later, after we’ve had time to assess proposed projects carefully.

Which path will we take? You could influence the process by contacting your representative or your favorite interest group and presenting the case against Christmas tree gifts and for a small initial package designed to push cash rapidly into the economy.

Edwin Dean, an economist and seasonal resident of Vinalhaven, writes monthly about economic issues.

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