As the 2016 US election showed, politics is dividing Americans more than ever before. How can we begin to bridge these ideological divides? A recent series of social psychology studies by Jarret Crawford, Mark Brandt, Yoel Inbar, John Chambers and Matt Motyl suggests one possible solution.
The studies, based on detailed surveys of 4,912 Americans, confirmed that liberals and conservatives look down on one another equally. But crucially, researchers also found that social issues were far more likely to spur conflict than economic issues. This is in part because—distressingly to an economist like me—a lot of people find economics boring. Academia even has an established rule of thumb regarding this point: “Inviting more than 25% of the guests for a university dinner party from the economics department ruins the conversation.” For the average person, it’s hard to get your hackles up about interest rates. And it’s precisely because economic policy is such an unemotional, esoteric subject that it could help narrow the gulf between the left and right.
When politicians do use economics to get a rise out of voters, the message is usually blunt and visceral: “You deserve more money, they deserve less.” Subtler dimensions of economic policies may not work in stump speeches—but they can be the kind of good governance that gets politicians reelected. Voters on both the left and right like policies that lead to healthier job markets and higher GDP. And so, for politicians who hope to garner bipartisan support, the key is to focus on economic policies that get results.
The stakes couldn’t be higher. For one thing, without serious reform to US monetary policy, the Fed will not be prepared to handle the next Great Recession. Meanwhile, aging Baby Boomers will soon put enormous strains on the federal budget, and the national debt is so large that it would take more than a year’s worth of everything our economy produces to pay it off. Since 2003, productivity growth has slowed down for reasons we don’t entirely understand. And in the midst of this critical situation, the Trump administration and Republican Congress are proposing policies that are not only untested, but have the potential to affect the economy in so many disparate ways that it’s impossible to predict what the overall impact would be.
For example, consider the plan proposed by Republican Congressional leaders to raise taxes on imports and cut taxes on exports—so-called “border adjustment.” They hope to kill two birds with one stone: (a) reduce the trade deficit and (b) raise revenue to make up for tax cuts they want to make elsewhere. But border adjustment could be largely self-defeating as a way to reduce the trade deficit because it would lead to a stronger dollar. The trouble is that border adjustment doesn’t do much to give the rest of the world access to the US dollars it would need to buy US goods. Border adjustment is like trying to sell cars by giving car buyers a discount but then failing to give them any financing.
Instead, as I discussed in another column here in Quartz, the best way to get more balanced trade is the much less obvious policy of raising the US saving rate and that American can lend to the rest of the world so they can afford to buy our products instead of borrowing from the rest of the world. This could be achieved by requiring employers to automatically enroll their employees in 401(k)s. (In this plan, employees could opt out, but many wouldn’t.)
With Americans doing more saving, the US wouldn’t need to borrow as much from the rest of the world to build houses and factories—and the trade balance would improve. More exports and fewer imports would, in turn, lead to more of the types of jobs that many people want. In addition to lend abroad to finance US exports, extra saving would mean more funds for investments in the US that would also lead to better-paying jobs.
But instead of working to raise national saving, with all the good effects that would bring, Gary Cohn, head of Donald Trump’s National Economic Council, has been talking with members of the Senate Banking Committee about tinkering with retirement savings accounts in a way that’s actually likely to reduce national saving. Right now, a typical 401(k) allows people to contribute to their account with pre-tax dollars, with the understanding that people will pay taxes on those dollars when they withdraw money during retirement. Cohn’s idea is to tax people first, before the money goes into the retirement account. That means less tax revenue at some future date—but it would provide revenue now to make up for lost revenue from other big tax cuts the Republicans want to do.
This may help procedurally in ramming through a big tax cut. But the effect, while unpredictable, would likely be to reduce savings among middle- and upper-middle-class people (who would not want to pay the upfront taxes).
In this way, the danger of arcane economic policies becomes clear: they can often be used as a way to please the special interests who donate to political campaigns. But sooner or later, the chickens come home to roost. People may not know which policy led to a recession or to stagnant wages, but they do figure out that something is wrong.
The tricky thing about good economic policy is that, as things stand, it’s not so much something you talk about, but something you do. Nonetheless, it’s a worthy cause for politicians on both sides of the aisle to adopt. Given the number of highly politicized issues currently dividing Americans—from abortion to immigration to health care—the party that gets to stay in power the longest will be the one that does a good job handling economic policy when it gets its turn in the driver’s seat.
Meanwhile, it’s up to economists, teachers, and journalists to find more ways to awaken people’s curiosity about economics. It’s clear that American voters on both sides of the political divide are invested in topics like jobs, trade, retirement, and the plight of the working and middle classes. But often, hot-button issues such as immigration come to dominate the conversation about these subjects—perhaps because most people lack a solid grasp of the real forces that have created economic problems, or the mechanisms that might be able to address them.
And so one of the best ways to turn the tide of the partisan US is to make economics a mainstay of the popular conversation—the better to enable Americans to elect officials capable of good governance, and reduce the intensity of the political divisions among us by making everyone happier with the circumstances of their lives.