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To build on its longstanding interest in the evolving transatlantic relationship and to address the serious differences that have emerged between America and Europe after the September 11 terrorist attacks and throughout the ongoing war on terrorism, Brookings announces the launch of its new Center on the United States and Europe. The center offers a forum for research, high-level dialogue, and public debate on issues affecting U.S.-Europe relations.

At the inaugural conference to launch the new center, experts discussed the theme "The United States and Europe: One Year after the War in Iraq." Panelists at this special event included Javier Solana, Robert Kagan, Charles Grant, Klaus Scharioth, Andrew Moravcsik, Martin Indyk, Ulrike Guerot, Pascale Andreani, Cesare Merlini, Reuel Marc Gerecht, Gilles Andreani and others.

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The crisis over Iraq was the latest in a series of international security crises that demonstrated that the European Union has not yet emerged as unified actor on difficult global security issues. Yet since the Iraq crisis, the member states of Europe have shown a renewed interest in creating EU institutions capable of coherent action on controversial foreign policy issues, in articulating a distinct European strategy for promoting security and stability, and in establishing a European role in issues well beyond the European continent.

The Center on the United States and Europe's annual conference brought together renowned experts and policymakers from both sides of the Atlantic to examine Europe's Global Role. The first panel looked at the ongoing efforts by the United Kingdom to steer a course between and "Atlanticist" and "European" foreign policy; the second panel examined the European Union's efforts to manage its relationships with a proliferating number of candidates to the east—at the same time that it sorts out its own political future; and the last panel looked at the integration of a rising China into the international system, an extra-European issue on which the European Union and the United States have already shown signs of discord.

Welcome and Introduction:
Philip H. Gordon, Director, Center on the United States and Europe

Britain Between America and the European Union:
Philip H. Gordon

Panelists:
Anatol Lieven, Carnegie Endowment
Gerard Baker, The London Times
Charles Grant, Centre for European Reform

Where Does Europe End?
Strobe Talbott, President, The Brookings Institution

Panelists:
John Bruton, EU Ambassador to the U.S.
Sylvie Goulard, Institut d'Etudes Politiques, Paris
Andrew Moravcsik, Princeton University
Vladimir Ryzhkov, Russian Duma

The Global Agenda:
James B. Steinberg, Vice President and Director, Foreign Policy Studies, The Brookings Institution

Panelists:
R. Nicholas Burns , Undersecretary of State for Political Affairs
Jean-David Levitte, French Ambassador to the U.S.

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Welcome and Introduction:
Philip H. Gordon , Director, Center on the United States and Europe

Is the European Union Failing? Politics and Policy after the Referendums
Philip H. Gordon , Director, Center on the United States and Europe

Panelists:
Gerard Baker, The Times (London)
Joschka Fischer, Member of Bundestag and former German Foreign Minister
Noëlle Lenoir, President of the European Institute of HEC, former French Minister for European Affairs
Andrew Moravcsik, Princeton University/Brookings

Is Russia Lost? The Future of Russian Democracy and Relations with the West
Fiona Hill, Senior Fellow, The Brookings Institution

Panelists:
Daniel Fried, U.S. Assistant Secretary of State for European Affairs
Anatol Lieven, New America Foundation
Strobe Talbott, President, The Brookings Institution
Dmitri Trenin, Carnegie Moscow Center

Is America above the Law? A U.S.-Europe Dialogue about the War on Terror
Jeremy Shapiro, Director of Research, Center on the United States and Europe

Panelists:
Joschka Fischer, Member of Bundestag and former German Foreign Minister
Tom Malinowski, Human Rights Watch
Pauline Neville-Jones, Chair, British Conservative Party National and International Security Group
Victoria Toensing, former U.S. Justice Department Official
Ruth Wedgwood, Johns Hopkins-SAIS

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On April 30, 2007, the Brookings Center on the United States and Europe held its fourth annual conference. As in previous years, the annual conference brought together scholars, officials, and policymakers from both sides of the Atlantic to examine the evolving roles of the United States and Europe in the global arena. Panel discussions covered some critical issues about Europe and the U.S.-Europe relationship: "The French Elections", "NATO and Afghanistan" and "Islam in Europe". Panelists included, among others, Lt. General Karl Eikenberry, Deputy Chairman of the NATO Military Committee; Ashraf Ghani, former Finance Minister of Afghanistan; Tufyal Choudhury of Durham University; Philip Gordon of the Brookings Institution; and Corine Lesnes from Le Monde.

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On May 20, 2008, the Center on the United States and Europe held its fifth annual conference. As is in previous years, the Conference brought together leading scholars, officials, and policymakers from both sides of the Atlantic to examine issues shaping the transatlantic relationship and to assess the evolving roles of the United States and Europe in the global arena.

Gary Schmitt of the American Enterprise Institute; Sir Lawrence Freedman of King’s College, London; Gideon Rachman of the Financial Times; former Norwegian Foreign Minister Jan Petersen; and Strobe Talbott, President of The Brookings Institution joined other prominent panelists and CUSE scholars for this year’s sessions. The series of panel discussions explored transatlantic relations beyond the Bush presidency, Sarkozy’s plans for France’s EU presidency, and the future of Russia under Medvedev.

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President Barack Obama has established a broad policy of engagement as a central feature of his administration’s foreign policy agenda. From the earliest days of his presidency, the president has reached out to Iran, Russia and other nations around the world, marking not only a turning of the page but possibly a whole new chapter in U.S. foreign policy. While Europeans have advocated for increased bi-lateral and multi-lateral dialogue for some time, several important questions remain. With which nations or groups should the United States and Europe engage and should there be limits to dialogue in some cases? What are the consequences if dialogue fails? Do Europeans and Americans now have the same agenda and goals for engagement?

On May 29, the Center on the United States and Europe at Brookings (CUSE) will host experts and officials from both sides of the Atlantic for the 2009 CUSE Annual Conference to address these issues. Panelists will examine the prospect of engagement with Iran and Russia, and how to deal with groups such as Hamas and the Taliban. After each panel, participants will take audience questions.

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With a U.S. Administration still popular across Europe and a new Lisbon Treaty designed to enhance the diplomatic reach of the European Union, transatlantic relations should now be at their best in years. But this is clearly not the case, with the strategic partners often looking in opposite directions. While the United States channels its foreign policy attention on the war in Afghanistan, counterterrorism and nuclear non-proliferation, Europe is turning inward. Despite its ambitions, the European Union has yet to achieve the great global role to which it aspires, or to be the global partner that Washington seeks. Moreover, the Greek financial crisis has raised questions about the very survival of the European project.

On June 2, the Center on the United States and Europe (CUSE) at Brookings and the Heinrich Böll Foundation hosted experts and top officials from both sides of the Atlantic for the 2010 CUSE Annual Conference. Panelists explored critical issues shaping the future of transatlantic relations in the post-Lisbon Treaty era, including Europe’s Eastern neighborhood and the role Russia plays, and the impact of the Eurozone crisis.

After each panel, participants took audience questions.

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• From the Lisbon Treaty to the Eurozone Crisis: A New Beginning or the Unraveling of Europe?
• From the Lisbon Treaty to the Eurozone Crisis: A New Beginning or the Unraveling of Europe?
• From the Lisbon Treaty to the Eurozone Crisis: A New Beginning or the Unraveling of Europe?

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Americans often think of our country as being one of great opportunity – where anyone can rise from very modest circumstances, if they work hard and make good choices. We believe that often remains true.

But, for children and youth growing up in poverty, such upward mobility in America is too rare. Indeed, just 30 percent of those growing up in poverty make it to middle class or higher as adults. Though we’ve made progress in reducing poverty over the past several decades, our poverty rates are still too high and our rate of economic advancement for poor children has been stuck for decades. That is an embarrassment for a nation that prides itself on everyone having a shot at the American Dream.

What can we do to reduce poverty and increase economic mobility? In our polarized and poisoned political atmosphere, it is hard to reach consensus on policy efforts. Both progressives and conservatives want lower poverty; but progressives want more public spending programs to improve opportunity and security for the poor, while conservatives generally argue for more responsibility from them before providing more help.

Even so, progressives and conservatives might not be as far apart as these stereotypes suggest. The two of us—one a conservative Republican and the other a progressive Democrat—were recently part of an ideologically balanced group of 15 scholars brought together by the American Enterprise Institute and the Brookings Institution. Our charge was to generate a report with policy proposals to reduce poverty and increase upward mobility. An additional goal was simply to see whether we could arrive at consensus among ourselves, and bridge the ideological divide that has so paralyzed our political leaders.

Together we decided that the most important issues facing poor Americans and their children are family, education and work. We had to listen to each other’s perspectives on these issues, and be open to others’ truths. We also agreed to be mindful of the research evidence on these topics. In the end, we managed to generate a set of policy proposals we all find compelling.

To begin with, the progressives among us had to acknowledge that marriage is a positive family outcome that reduces poverty and raises upward mobility in America. The evidence is clear: stable two-parent families have positive impacts on children’s success, and in America marriage is the strongest predictor of such stability. Therefore marriage should be promoted as the norm in America, along with responsible and delayed child-bearing.

At the same time, the conservatives among us had to acknowledge that investing more resources in the skills and employability of poor adults and children is crucial if we want them to have higher incomes over time. Indeed, stable families are hard to maintain when the parents – including both the custodial mothers and the (often) non-custodial fathers – struggle to maintain employment and earn enough to support their families. Investing in proven, cost-effective, education and training programs such as high-quality preschool and training for jobs in high-growth economic sectors can improve the skills and employability of kids from poor families and lift them out of poverty through work.

Another important compromise was that progressives acknowledged that expecting and even requiring adults on public assistance to work can reduce poverty, as we learned in the 1990s from welfare reform; programs today like Disability Insurance, among others, need reforms to encourage more work. And reforms that encourage innovation and accountability would make our public education programs for the poor more effective at all levels. We need more choice in public K-12 education (through charter schools) and a stronger emphasis on developing and retaining effective teachers, while basing our state subsidies to higher education institutions more heavily on graduation rates, employment, and earnings of their graduates.

Conservatives also had to acknowledge that requiring the poor to work only makes sense when work is available to them. In periods or places with weak labor markets, we might need to create jobs for some by subsidizing their employment in either the private or public sector (as we did during the Great Recession). We agreed that no one should be dropped from the benefit rolls unless they have been offered a suitable work activity and rejected it. And we also need to “make work pay” for those who remain unskilled or can find only low-wage jobs – by expanding the Earned Income Tax Credit (especially for adults without custody of children) and modestly raising the minimum wage.

We also all agreed on other topics. For instance, work-based learning—in the form of paid apprenticeships and other models of high-quality career and technical education—can play an important role in raising both skills and work experience among poor youth and adults.  And, if we raise public spending for the poor, we need to pay for it—and not increase federal deficits. We all agree that reducing certain tax deductions for high-income families and making our retirement programs more progressive are good ways to finance our proposals.

As our report demonstrates, it is possible for progressives and conservatives to bridge their differences and reach compromises to generate a set of policies that will reduce poverty and improve upward mobility. Can Congress and the President do the same?

Editor's Note: this piece first appeared in Inside Sources.

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Inequality remained a prominent theme in public debate during 2015, likely helped by the unexpected rise and resilience of democratic socialist Bernie Sanders' run for the Democratic presidential nomination. Although the labor market continued its slow recovery, wage growth remained fairly weak—especially for middle and low earners. The upper middle class continues to pull away from the middle, not least in terms of income and wealth.

But it has also become much clearer that inequality is a geographical issue, as much as a social and economic one. Whether the focus is on the more immediate matter of income inequality or the slower-burning issue of intergenerational mobility, there is huge variation between different places in the United States.

National income trends are important, of course. But they can often disguise deep differences by place. The income required to be ‘rich,’ at least by comparison to those around you, varies significantly between different cities, for example. A household income of $100,000 puts you on almost on the top rung (around the 95^th percentile) of the income ladder in Detroit. But to reach the same heights in San Jose, California, you’d need an income three times as great, according to calculations by my colleague Alan Berube.

There are also very large differences in the extent of income inequality in different metropolitan areas. Using the inequality measure used in another recent paper by Berube, the ratio between incomes at the 20^th percentile and the 95^th percentile, shows that while some cities have large gaps between rich and poor, others look almost Scandinavian in their egalitarian distributions. Here are the 20/95 ratios for the three most equal and unequal cities in the U.S.:

In a groundbreaking research paper in 2014, Raj Chetty and his team at the Equality of Opportunity Project at Harvard showed that rates of intergenerational income mobility also vary considerably between different cities. It was always a stretch to compare the U.S. to Denmark on this front, given the colossal differences between the countries. But such comparisons became virtually unconscionable once the variations within the U.S. become apparent.

This year, Chetty and his co-author Nathaniel Hendren went a step further and a big step closer to showing a causal impact of place on the prospects for children raised in different locations. Again relying on large administrative datasets, the two scholars were able to show the variation in earnings for the folk hailing from, say, Baltimore versus Baton Rouge.

Professor Chetty presented his new research at a Brookings event in June (which you can view here), just weeks after the eruption of protest and violence in Baltimore following the death of Freddie Gray. One striking finding was that the worst place in America to grow up, in terms of subsequent earnings, is Baltimore City. Critically, Chetty’s research design allows him to show that these differences do not reflect the characteristics of the people of Baltimore; but the characteristics of Baltimore itself. This downward effect on earnings is particularly bad for boys, as we highlighted in an earlier blog:

In related work, Chetty and his colleagues also show that children who move to a better place see an improvement in their own earnings—and that the younger they are when they move, the bigger the impact. The children of families who move as a result of the U.S. Department of Housing and Urban Development’s Moving to Opportunity program showed sizable improvements in their own outcomes, as Jonathan Rothwell highlighted in his blog, 'Sociology’s revenge: Moving to Opportunity (MTO) revisited.'

Race, place and opportunity

One of the findings from Chetty’s earlier work is that race, place, and opportunity intersect in important ways. Cities with more segregation, and those with larger black populations, tend to show weaker upward mobility patterns. In order to understand the obstacles to upward mobility, policymakers have to adopt both a place-conscious (Margery Turner) and a race-conscious perspective. This policy was the subject of another Brookings event in November, with contributions from the Deputy Prime Minister of Singapore, the Governor of Delaware, and the Mayor of Newton, Mass. (The event can still be viewed here; for my highlights see this piece.) Being poor and black is generally not the same as being poor and white. Being poor in Cleveland is not the same as being poor in Charlotte.

Many states and cities are upping their game on issues of equality and opportunity, for both bad and good reasons. The bad reason is the relative inertia of the federal government. The good reason is a growing recognition that many of the levers for improving opportunity lie in the hands of institutions and agents at the state and metro level. Colorado has adopted a life-cycle opportunity framework and is pioneering efforts to integrate health and social policy. Charlotte has a high-profile taskforce (which I advise) on improving opportunity. Cincinnati has pledged to lift 10,000 children out of poverty within five years. Louisville is leading a push on school desegregation. Kalamazoo is adding greater student supports to its existing promise of free college. Baltimore’s program to reduce infant mortality has shown remarkable success. Durham, N.C. has rolled out a universal home visiting program.

Many of these efforts are building on the emerging ideas around 'collective impact,' harnessing local resources of many kinds around a clearly-articulated, shared goal. Given the scholarship showing just how much particular places influences individual and broader outcomes, this is likely to be where much of the most important policy development will take place in coming years. In terms of equality—and especially equality of opportunity—we need to think local, and act local, too.

There are lots of good reasons to go to college, but the vast majority of prospective students in this country report[i] that they’ll go to college because they believe that it will improve their employment opportunities and financial wellbeing. And for the most part, they’re right. Despite many suggestions to the contrary, it’s very well documented[ii] that investments in higher education pay large dividends in the form of future earnings. This makes higher education one of the most important tools we have for generating social mobility. Regardless of an individual’s starting point in life, higher education offers access to greater financial well-being. Unfortunately, it’s not a fail proof system.

Investments in education, like investments in the stock market, do not come without risk. In financial markets, access to information is one way investors mitigate risk. Mutual funds, for example, disclose average returns over various time periods for certain categories of investments (e.g. large-cap funds, emerging market funds, technology funds, etc.), in addition to other information. These data, moreover, are widely and freely available through consumer-oriented websites like Yahoo Finance, Vanguard, and E-Trade. Yet, for higher education, students have had access to no analogous information until quite recently.

For decades, economists discussed the average benefits of a college education compared to a high school education with no regard to either field of study or institution. Finally, in 2009, the Census Bureau started collecting data that could be used to assess which majors pay the most,[iii] and then just a few months ago, the Department of Education released data on the earnings of alumni by institution, for all students who receive federal grants or loans. These data can be further analyzed, as we have done, to estimate the economic contribution of schools (or value-added) as distinct from the outcomes attributable to student characteristics (like test scores).[iv] Still, even with these data advances, students cannot compare earnings by major across institutions, except in a handful of cases using state data systems.

Here, we illustrate how data by major and institution can inform the decision of what to study and where using data from Texas. Suppose first that this student is a Texas resident and has decided she would like to pursue a bachelor’s degree at a public institution in her state.

Our data on alumni earnings by major comes from the Texas Higher Education Board, and we combine it with information on the net cost of tuition from the Department of Education’s IPEDS database as reported in the College Scorecard.[v] We use these data to estimate the ten-year return on investment for each institution in the state of Texas by major.   

We calculate an estimate of ten-year return by summing the average earnings faced by graduates over the first ten years following graduation[vi] and subtracting off the wage they would have received as a high school graduate without a degree (taking into account additional years of earnings when they would have been enrolled in college). To estimate this benchmark, we used data on Texas residents from the Annual Social and Economic Supplement to the Current Population Survey, obtained via IPUMS CPS.[vii] We then subtract the institution specific costs[viii] to get the ten-year financial return. Since education pays off over a lifetime, this isn’t the ideal exercise, but it’s still informative. We’ve estimated these returns based on the population of individuals who both complete their degree and do not go on to complete graduate study. Ideally, these estimated expected returns would be adjusted to account for how earnings and costs are affected by non-completion. Indeed, the average rate of completion across these schools is only 48 percent. This is a quick and dirty method for estimating returns that fails to take into account a number of selection issues,[ix] but we believe that it still provides an effective illustration of risk in higher education. 

Figure 1 illustrates the potential average outcome facing our Texas student, who is deciding between bachelor’s degree programs from the set of public institutions in her home state. We’ve plotted the distribution of financial returns for the set of potential expected outcomes, which are defined as all combinations of institution and major. To be clear, the distribution of potential outcomes would be far wider if we were using individual specific variation (i.e. the fact that some students will ultimately earn more than others, even with the same degree from the same institution) and the real possibility of non-completion.

We know that, on average, this student will face a positive return on her investment, wherever she chooses to go. The average rate of return across all possible choices facing this student is quite a sizeable 11.3 percent (or $216,000 in undiscounted 2014 dollars). At a systemic level that’s important.  Still, the standard deviation is 6.7, with a low return of a -6.6 percent (Animal Science at Sul Ross State) and a high return of 79.8 percent (Registered Nursing at UT Brownsville). Out of 1065 combinations of majors and schools, 19 yielded average negative returns. This was true even for two programs at the selective UT Austin campus (Visual and Performing Arts and Classics). 1.1 percent of students who graduated in 2004 were in a major-institution combination that yielded a net return below 4 percent. In such cases, they would have been better off putting their dollars into treasury bills.

Figure 1. Mean return on bachelor’s degree investment by institution and major, for Texas residents who graduated in 2004 from a Texas public college

Students who know what they want to major in could benefit greatly from knowing which school is likely to generate the largest pay off (it would be nice to know this in terms of learning as well as money, but that is another more complicated matter).

We’ve illustrated the distribution of potential outcomes for two different popular majors, Liberal Arts and Sciences and Electrical Engineering.[x] Both majors clearly offer a significant average rate of return across all institutions (12 for Liberal Arts and 20 for Electrical Engineering), but depending on which major they choose the student will face a different level of risk in their future earnings. The variation (standard deviation) in the expected rate of return across institutions is much larger for Liberal Arts majors (5.7) than for Electrical Engineering majors (3.7). Yet, while these facts may discourage people from pursuing a Liberal Arts major in the abstract, the plot below does show that some Liberal Arts majors out-earn their peers in electrical engineering. For example, Liberal Arts majors from UT Austin earned a higher return than electrical engineering majors at UT Dallas, the University of Houston, and three other UT campuses. Thus, these more detailed facts can actually encourage students to pursue majors that look economically bad for the average student but quite attractive at a particular school with a strong program.

Figure 2. Distribution of earnings 10 years after graduation for bachelor’s degree holders with an Electrical Engineering or Liberal Arts degree, for Texas residents and 2004 graduates from Texas public colleges 

The point is that college degrees, like other investments, are risky, but information goes a long way to clarify the nature of that risk and improve the quality of investment decisions. In addition to providing students and the public greater access to data on market performance of alumni, there are a number of innovations both in the policy arena and in the private market that could help make college investments less risky. First of all, innovative financing systems that allow students to pay for their investment over a longer period of time and tie repayment to earnings would greatly limit downside risk for students.  Second, institutions have the capacity to shoulder some of this risk, and a proposal known as risk-sharing[xi] is gaining some traction and would require schools to pay the federal government some portion of loan default losses. On a voluntary basis, some colleges have offered on-time graduation guarantees[xii] and wage guarantees.[xiii] And last, new business models in higher education could help mitigate risk. Part of the problem in the current system comes from the all-or-nothing regime in which students have to invest in a bundle of coursework (i.e. a degree) in order to reap significant returns. The growing prominence of new models, like micro-credentials[xiv] and coding boot camps,[xv] can offer alternatives that don’t require students to put all of their eggs in one basket.

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Low-Income Boys in Higher Inequality Areas Drop Out of School More Often than Low-Income Boys in Lower Inequality Areas, Limiting Social Mobility, New Brookings Paper Finds
“Economic despair” may contribute if those at the bottom do not believe they have the ability to achieve middle class status

Greater income gaps between those at the bottom and middle of the income distribution lead low-income boys to drop out of high school more often than their counterparts in lower inequality areas, suggesting that there is an important link between income inequality and reduced rates of upward mobility, according to a new paper presented today at the Brookings Panel on Activity. The finding has implications for social policy, implying a need for interventions that focus on bolstering low-income adolescents' perceptions of what they could achieve in life.

In “Income Inequality, Social Mobility, and the Decision to Drop Out Of High School,” Brookings Nonresident Senior Fellow and University of Maryland economics professor Melissa S. Kearney and Wellesley economics professor Phillip B. Levine propose a channel through which income inequality might lead to less upward mobility—often assumed to be the case but not yet fully proven. The conventional thinking among economists is that income inequality provides incentives for individuals to invest more in order to achieve the higher income position in society, but Kearney and Levine observe that if low-income youth view middle-class life as out of reach, they might decide to invest less in their own economic future.

See an interactive map of inequality by state, plus more findings »

The authors focus on income inequality in the lower half of the income distribution, as measured by income gaps between the 10th and 50th percentiles of the income distribution rather than income gaps between the the top and bottom of the income distribution, which has been more of a focus in popular culture. They show this "lower-tail" inequality is more relevant to the lives of poor youth because the middle is a more realistic ambition. Furthermore, their research could reconcile a puzzle: social mobility does not appear to be falling, despite the rise in income inequality. But, as Kearney and Levine point out, U.S. income inequality has been rising because the top of the distribution has been pulling away from the middle, not because the bottom is falling farther behind the middle.

The authors look specifically at high school drop-out rates through a geographic lens, noting the link between highly variable rates of high school completion and income inequality across the country. One-quarter or more of those who start high school in the higher inequality states of Louisiana, Mississippi, Georgia, and the District Columbia fail to graduate in a four-year period, as compared to only around 10 percent in Vermont, Wisconsin, North Dakota, and Nebraska—lower inequality states. Their econometric analysis goes on to show that low-income youth—boys in particular—are 4.1 percentage points more likely to drop out of high school by age 20 if they live in a high-inequality location relative to those who live in a low-inequality location.

Kearney and Levine examine a number of potential explanations for this link, including differences in educational inputs, poverty rates, demographic composition, and other factors. Ultimately, the evidence suggests that there is something specific about areas with greater income gaps that lead low-income boys there to drop out of school at higher rates than low-income boys elsewhere. The authors' research suggests that adolescents make educational decisions based on their perceived returns to investing in their educational development: a greater distance to climb to get to the middle of the income distribution could lead to a sense that economic success is unlikely—what they term “economic despair.”

"Income inequality can negatively affect the perceived returns to investment in education from the perspective of an economically disadvantaged adolescent,” they write. “Perceptions beget perceptions."

Digging into reasons students themselves give for dropping out, they find that low-income students from more unequal places are more likely to give up on their educational pursuits. Surprisingly, survey evidence shows that academic performance does not have as large an impact on low-income students in high inequality states: 51 percent of dropouts in the least unequal states reported that they dropped out because they were performing poorly, as compared to only 21 percent of students who dropped out in the most unequal states.

The finding suggests that economic despair could play an important role: if a student perceives a lower benefit to remaining in school, then he or she will choose to drop out at a lower threshold of academic difficulty. They also note that while the wage premium of completing high school should reduce the dropout rate, household income inequality has an offsetting negative effect.

The choice between staying in school and dropping out may reflect actual or perceived differences from the benefits of graduating. For instance, the authors note their past research showing that youth from low-income households who grow up in high lower-tail inequality states face lifetime incomes that are over 30 percent lower than similar children in lower inequality states. They also highlight other research showing that the overwhelming majority of 9th graders aspire to go to college, but by 11th grade, low-SES students are substantially less likely to expect they will enroll in college, even among those students with high test scores.

"There are important policy implications for what types of programs are needed to improve the economic trajectory of children from low-SES backgrounds," they write. "Successful interventions would focus on giving low income youth reasons to believe they have the opportunity to succeed. Such interventions could focus on expanded opportunities that would improve the actual return to staying in school, but they could also focus on improving perceptions by giving low-income students a reason to believe they can be the "college-going type." For example, interventions might take the form of mentoring programs that connect youth with successful adult mentors and school and community programs that focus on establishing high expectations and providing pathways to graduation. They could also take the form of early-childhood parenting programs that work with parents to create more nurturing home environments to build self-esteem and engender positive behaviors."

Read the full paper from Kearney and Levine here »

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• How “economic despair” affects high school graduation rates for America’s poorest students

The mayoral election in Baltimore has brought local economic development strategies to the forefront. In a city in which inequality—by income, by race, and between neighborhoods—has increased in the past five years, the candidates have made it clear that more action must be taken to close disparities and improve economic outcomes for all residents. In a podcast segment, I commend the much-needed focus on equity but argue that the mayoral candidates should not lose sight of another critical piece of the equity equation: economic growth. Citing lessons from my recent paper, I outline strategies that Baltimore’s presumptive leaders should pursue—as well as several they should abandon—to place the city’s residents on the path to a more prosperous, equitable future.

Listen to the full podcast segment here: 

Income and wealth inequality in the U.S. is a stark reality.  Research from a variety of fields demonstrates that children born into poor families tend to end up less educated, less healthy, more prone to contact with the police, and less likely to accumulate wealth over a lifetime.  In contrast, children born into well-off families tend to exhibit better outcomes on all of these dimensions.

How should social scientists and policymakers understand and address intergenerational mobility in the U.S.? This question is difficult to answer—and highly politicized.  To start with, there are several possible mechanisms driving high intergenerational persistence of economic outcomes.  These are often characterized as factors related either to “nurture” or “nature.” 

The “nurture” hypothesis asserts that poor parents lack critical resources such as wealth or information.  Such parents may therefore find it difficult to make the education and time investments that would promote better economic outcomes for their children.  If this is true, then children born into poor families never reach their full potential because of a lack of household resources. 

A second possible mechanism is often referred to as the “nature” hypothesis.  Economically successful parents might be more likely to have successful children.  Such an account hinges on the idea that there are heritable biological traits or abilities that more successful parents “pass on” to their children.

To complicate the matter further, the mechanisms of nature and nurture almost certainly operate at the same time.  Moreover, it is likely that abilities and investments interact in complicated ways. For example, a particular investment might do more to improve the outcomes of a lower-ability child than a higher-ability child, or vice versa.  Understanding this process, and how it affects intergenerational mobility, is notoriously difficult.  However, greater clarity is precisely what is needed to guide effective policy. 

If a lack of investment is the dominant mechanism explaining intergenerational persistence in economic outcomes, then we as a society may be wasting human potential.  Policies correcting under-investments in human capital could therefore be justified as economically efficient. In contrast, if the intergenerational transmission of ability plays a role, then investments in poor children’s human capital may not be enough.  To clarify, it is critical to state that the distinction we make here between “high-ability” and “low-ability” individuals should not be interpreted as a claim that some people are naturally or biologically superior to others.  We use “ability” as shorthand to describe those traits that are rewarded in the existing labor market.  Even if these abilities are linked to heritable biological factors, this does not mean that their impact on life outcomes is immutable or fixed.  Modifying environments could substantially affect genetic disparities. The case of vision and eyeglasses offer one classic example.  There may well be biological factors that explain variation in eyesight “ability,” but these biological differences will matter more or less for life outcomes depending on the availability of glasses and other medical interventions.  In short, it is very possible that the consequences of biological differences can be moderated by appropriate changes in the environment.     

Until now, researchers have typically used variables such as cognitive test scores to measure ability endowments related to human capital.  Yet, these traditional measures are subject to the critique that they are the products of earlier investments in human capital. This makes it difficult to distinguish between the “nature” and “nurture” hypotheses using such data.  Two individuals with similar ability endowments but different levels of household resources are likely to exhibit different cognitive test scores, for example. 

Using genetic information to measure ability endowments can help us better understand the intergenerational transmission of human capital.  As a measure, genetic information has a clear advantage over cognitive test scores because it is fixed at conception. Advances in measuring differences in DNA across individuals, together with very recent advances in behavioral genetics research, now make it possible to link genetic differences across people to behavioral traits.  These new discoveries have even extended to educational attainment, which was once thought to be too complicated and removed from direct biological processes for genetic analysis.

In a recent research paper, we use genetic information to better understand the nature of intergenerational mobility.  We follow the cutting edge in behavioral genetics research, which guides us in computing a type of genetic “score” for any individual.  We compute this so-called “polygenic score” for each person in a sample of over 8,000 individuals from the Health and Retirement Study (HRS). The score, which appears to be related to cognition, personality, and facility with learning, has some predictive power for educational attainment. In particular, it explains between 3.2 percent and 6.6 percent of the variation across individuals (depending on the specification). Thus, knowing the exact value of an individual’s score will tell you very little about that person (over 90 percent of the variation is explained by other factors).  However, the average relationship in the population between the score and human capital outcomes can offer some important lessons.  

Using the polygenic score, we believe we can gain new insights into how ability endowments interact with an individual’s environment to generate economic outcomes.  There is a long-standing debate in the economics literature about how ability and investments interact.  One idea is that both ability and investments are needed for success, i.e., that they complement one another. Though our findings show evidence of this type of interaction, the story that emerges from our analysis is somewhat more nuanced.  We show that ability and the environment (measured by parents’ socioeconomic status or SES) complement one another for generating higher degrees, such as college completion, but substitute for one another in generating lower levels of educational attainment such as a high school degree.  In other words, our findings suggest that ability or being born into a well-off family are enough to get an individual through high school.  For college, however, ability and a well-off family are important predictors of success.

"In other words, our findings suggest that ability or being born into a well-off family are enough to get an individual through high school. For college, however, ability and a well-off family are important predictors of success."

Another set of results concerns the wages of high-ability individuals.  We show that individuals who completed college earned substantial returns on their ability starting in the early 2000s.  Individuals without a college degree did not. The post-2000 rise in returns may be driven in part by “skill-biased technological change.”   As new technologies are adopted in the workplace, the people who benefit most are those with the skills required to adapt to and master new ways of working.  It is not difficult to imagine that people with genetic variants associated with higher education may have found it easier to adapt to computers and other new technologies.  However, we also find that a higher polygenic score was not helpful for individuals who did not complete college, likely because the lack of a college degree shut them out of careers that would have allowed them to creatively use new technologies.  This is a troubling finding given the role of childhood SES in predicting college completion.  It means that poor children with high abilities are less likely to attend college and, subsequently, are less likely to benefit from their ability.  Again, these findings suggest wasted human potential.

Using genetic data to compare individuals from different socioeconomic backgrounds, we also find that children from lower SES backgrounds systematically acquire less education when compared to similarly capable individuals from high SES backgrounds.  Among other things, this suggests that access to education may be an important obstacle, even for the highest ability children.  Our analysis offers some suggestive evidence regarding which environments are especially harmful. For example, acute negative events like physical abuse in childhood can lead to a dramatic loss of economic potential—reducing financial wealth in late adulthood for the highest ability individuals by over 50 percent.

Of course, one must be very cautious when interpreting any genetic association.  In particular, it is important to think carefully about correlation versus causality.  The same parents that pass along genetic material predicting educational attainment may also be more likely to have the resources to invest in their children.  Still, since we base our comparisons on individuals from different socioeconomic backgrounds, but with similar polygenic scores, we offer evidence that economic disparities are not solely due to nature.

In summary, recent advances in behavioral genetics have identified specific genetic variants that predict educational attainment.  The fact that such genes exist confirms previous work (largely using data on twins) showing that “nature” matters for economic outcomes.  Our research demonstrates that “nurture” matters, too.  Perhaps more importantly, our research demonstrates that the roles of “nature” and “nurture” are intertwined and that understanding the role of “nurture” (in the form of human capital investments over the life-cycle) is key to understanding how “nature” (in the form of ability endowments) operates.  In particular, we show that similarly apt individuals with different childhood SES see very different returns to their ability.  This means that policies helping children born into disadvantaged circumstances may be justified not solely for ethical reasons rooted in social justice, but perhaps also as an economically efficient way to mitigate wasted human potential.

Finally, we believe that continued progress in understanding the mechanisms underlying how “nature” affects economic outcomes will eventually lead to policies that help people who are born with different abilities.  For example, our findings suggest that some individuals had more difficulty than others in adapting to new workplace technologies, such as computers. With a fuller understanding of this process, policymakers may be able to devise better training programs or improved school curricula that help individuals of all levels of ability to better respond to a changing technological environment.  In other words we believe that our research shows that learning more about the specifics of “nature” may help us to better “nurture” all individuals in society to help them to reach their full potential.      

Editor’s note: The authors contributed equally to this posting and to the research upon which the posting is based. They are listed alphabetically by last name.

Event Information

With a number elections now underway in Europe and the United States, populist politicians are gaining support by tapping into frustration with the lingering effects of the global financial crisis and the eurocrisis, mounting fears of terrorism, concerns surrounding record levels of migration, and growing doubt over political elites’ abilities to address these and other crises. The global economic order is already beginning to be impacted by the mounting political pressure against it. Trade deals such as the Trans-Pacific Partnership that form the cornerstone of the global economic order have met with significant resistance. Brexit’s reverberations have already been felt in international markets. Fissures within the European Union and American anxiety towards a U.S. global role could have a pronounced impact on the international economic system.

On July 14, the Brookings Project on International Order and Strategy (IOS) hosted an event tied to the recent publication of Nonresident Senior Fellow Daniel Drezner’s new paper, “Five Known Unknowns about the Next Generation Global Political Economy.” The event was an opportunity to discuss the future of the global economic order given rising populism and discontent with globalization. Panelists included Nonresident Senior Fellow Daniel Drezner, professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University; Caroline Atkinson, head of Google’s global public policy team and former White House deputy national security advisor for international economics; and David Wessel, director of the Brookings Hutchins Center on Fiscal and Monetary Policy.

Thomas Wright, director of IOS, provided brief opening remarks and moderated the discussion.

Video

• The future of the global economic order in an era of rising populism

Audio

• The future of the global economic order in an era of rising populism

Transcript

• Uncorrected Transcript (.pdf)

Event Materials

• 20160714_global_economic_order_transcript

Editor's Note: This blog post is part of The Primaries Project series, where veteran political journalists Jill Lawrence and Walter Shapiro, along with scholars in Governance Studies, examine the congressional primaries and ask what they reveal about the future of each political party and the future of American politics.

Even though they have come to dominate political campaigns, Super PACs and their shadowy counterparts are barely old enough to qualify for pre-kindergarten. Since these big-bucks independent groups have only been legal since 2010, we are still groping to understand the long-term role that Super PACs are apt to play in congressional politics—especially primaries.

With the demonization of the Koch Brothers by the Democrats and the attacks on liberal givers like Tom Steyer from the right, it is easy to assume that Super PAC donors are ideologues. Scorched-earth contests like the Mississippi Republican Senate primary further fuel this impression. Thad Cochran versus Chris McDaniel could be viewed as a proxy war between the GOP establishment (personified by Karl Rove's Super PAC American Crossroads) and the Tea Party (working through groups like Club for Growth Action).

But there is another very important, but far less publicized, role that Super PACs are playing in this year's congressional primaries. And when the internecine warfare in the Republican Party dies down, this type of Super PAC involvement in party primaries may become the norm.

Two recent GOP House primaries in winnable districts in New York illustrate this alternative model. In both cases, Super PACs took on the role—once left to the political parties—of vetting the candidates. Super PAC donors and their campaign consultants made their own decisions about who is electable and who has the right political pedigree. And in these New York primary contests without any clear ideological markers, heavy spending by Super PACs made all the difference.

Twenty-nine-year-old Elise Stefanik was a major beneficiary of Super PAC spending in her primary in New York's rural 21st District that runs from the Saratoga racetrack to the Canadian border. Stefanik has never run for public office before, but she boasts all of the right credentials to appeal to Washington Republican politicos. Even though she calls herself a "small businesswoman" in her TV ads, Stefanik served on the White House domestic policy staff under George W. Bush and was in charge of 2012 debate preparation for Paul Ryan.

Small wonder that American Crossroads and Karl Rove invested heavily in Stefanik's primary race, spending  $772,000 in attack ads excoriating her GOP rival, Matt Doheny. This was, by the way, the only House primary in the nation in which American Crossroads has made a significant investment to distinguish between Republicans. And the Super PAC's involvement was certainly not motivated by ideology. As the Watertown Daily Times put it on the eve of the Stefanik-Doheny primary, "It's difficult to point to a single issue on which a big divide exists between the two."

Yes, Doheny—a largely self-funding investment banker who had lost two prior races for the House—was a flawed Republican candidate. And Stefanik was the embodiment of the kind of message discipline beloved by campaign consultants. But it is hard to believe that electability alone prompted attack ads with tag lines like: "Matt Doheny—it would be a big mistake to send him to Congress."

American Crossroads, which spent more than either the Stefanik or Doheny campaigns, prevailed in the June 24th primary. Stefanik romped home with 61 percent of the primary vote.

The same pattern emerged in the Republican primary in New York's 1st District on the tip of Long Island. The major player this time was the US Jobs Council, which is heavily funded by hedge-fund mogul Robert Mercer, whose home is in the district. As Mother Jones reported in an article by Molly Redden, Mercer's Ahab-like obsession has been defeating Democratic incumbent Tim Bishop ever since the congressman voted for the Dodd-Frank financial reform legislation.

Both candidates in the Republican primary to oppose Bishop had their weaknesses in appealing to a conservative electorate. State Senator Lee Zeldin carried the burden of votes in Albany that could be interpreted as raising taxes. George Demos, a former SEC lawyer, was heavily supported by his wife's in-laws who, in normal times, are liberal California Democrats.

In truth, there were scant philosophical differences between the two conservative Republicans. Newsday columnist Lane Filler wrote, "Both oppose abortion, think taxes are too high, support gun rights, hate Common Core, favor a strong national defense, are against 'amnesty' for immigrants here illegally...I have not turned up any meaningful difference between them on policy."

But that didn't prevent the US Jobs Council from spending more than $200,000 on attack ads that portrayed Demos, who had been endorsed by Rudy Giuliani and George Pataki, as a creature of "Nancy Pelosi's people." A typical ad charged that Demos "is trying to use the Pelosi cash machine to buy a seat in Congress."

Even though Demos donated $2 million to his own campaign, it was not enough to hold off the onslaught of Super PAC attacks. In the end, Zeldin defeated Demos in the primary by a 62-to-38 percent margin.

Politico reporter Ken Vogel in his praiseworthy new book, Big Money, likens Super PAC donors to meddlesome "sports junkies who plunk down hundreds of millions of dollars to buy a professional team." Often the motivation of these mega-givers is the arrogant belief that because they are rich, they know more about politics than the pros. With it comes the certainty that they can pick winners and losers in primaries just like they do with stocks on Wall Street.

And that is why the heavy Super PAC influence in these two little-covered New York House primaries may represent the wave of the future in party politics.

Tom Mann and Anthony Corrado recently argued that campaign finance reform will likely have little effect on political polarization. Their new paper has sparked a host of debate over campaign finance, the strength of parties, and the ideological motivations of donors. Today, the Monkey Cage blog hosted Mann and Corrado’s response to a critique from Ray LaRaja and Brian Schaffner.

LaRaja and Schaffner argue that pumping more funding to parties and changing the rules to facilitate that practice will provide a respite from polarization; to argue their point, they examine polarization at the state legislative level. In their response, Mann and Corrado argue that the critique is off point, noting that “no causal link to campaign finance laws (and polarization) is demonstrated.” Ultimately, Mann and Corrado explain: “The link between party financial practices and regulatory regimes is often a matter of strategy than law, and the evidence offered in their (LaRaja and Schaffner) response certainly falls well short of making a case that greater party resources would reduce the polarization that undermines the capacity to govern.”

For more on this debate:

Read Mann and Corrado’s paper, “Party Polarization and Campaign Finance”

Read LaRaja and Schaffner’s critique, “Want to reduce polarization? Give Parties Money”

Read Mann and Corrado’s response, “Don’t expect campaign finance reform to reduce polarization”

And check out some other great research on Washington Post’s Monkey Cage Blog

Editor's Note: This blog post is part of The Primaries Project series, where veteran political journalists Jill Lawrence and Walter Shapiro, along with scholars in Governance Studies and the Campaign Finance Institute, examine the congressional primaries and ask what they reveal about the future of each political party and the future of American politics.

A great deal of attention has been paid to the existence of independent expenditure groups and to the billionaires who fund them. The Koch brothers and Sheldon Adelson, right wing billionaires in politics, and Tom Steyer, the newest left wing billionaire in politics, seem to have had nearly as much ink spilled on them as have the candidates and causes they endorse.  And no wonder. Americans are fascinated and worried about the question Darrell West poses in the second chapter of his new book Billionaires, “Can rich dudes buy an election?”

Tracking the sources and amounts of money in post Citizens United elections is a full time and complex job. Our hats go off to the Campaign Finance Institute who has recently completed the most extensive study ever of the role of independent expenditures in primary elections. Michael Malbin, Founding Director of the Center and author of the upcoming report on this year’s primaries, shows us just how big these groups, often funded by billionaires, have gotten.  In research focusing on independent spending in the 2014 congressional primaries, Malbin points out that in the 15 House races with the most independent expenditure money ($500,000 +) these expenditures counted for 76% as much as the candidates own campaign money. In Senate races, the independent expenditures accounted for 44% as much as the candidates own money.  Even the candidates themselves are worried about this trend since it often seems that outside groups can swamp a candidate’s own message.

Malbin also shows us why it is so hard to figure out what’s going on in an individual election. Only 49 of the 281 organizations that were around in the 2012 cycle spending money on behalf of congressional primary candidates were also around in 2014. That means that there were 232 new and different groups playing in 2014, posing challenges for the journalists and academics trying to track them.

The Campaign Finance Institute, however, has data on all these organizations from 2012 and 2014.  They have categorized them by ideology and, as the following chart shows, there are some interesting developments. For instance, while conservative independent expenditure groups remain the biggest spenders in the 2014 congressional primaries, their overall proportion of independent expenditures is down from 2012.  That year, conservative groups spent $40.5 million, nearly three quarters of total independent expenditures, compared to $9.3 million or 17 percent of total expenditures for Democrats.  In 2014, conservative groups upped their spending to $56.8 million, but their overall share of independent expenditures fell to 68% as liberal groups doubled their spending and increased their percentage of the total to 23%.

Even more surprising is the change in spending patterns within the Republican Party. As the following table shows, this really was the year when the establishment fought back. In 2012 anti-establishment spending by independent expenditure groups in congressional primaries constituted 59% of all such expenditures while spending by independent expenditure groups on behalf of establishment Republicans was only 36% of the total.  In two years, those numbers flipped.  In 2014, with control of the Senate at stake, the establishment mobilized independent expenditure groups which spent 55% of all the money spent by such groups while the anti-establishment groups spent only 37%.

There’s something for everyone in these findings. For the Democrats who have been on the defensive for much of this year but who have gotten through a primary season with few internal divisions, the increase in spending on their behalf and the sense that they will be able to run a good ground game in the key states where it really counts is a plus.

For the Republicans, the heavy spending by establishment groups has paid off in that they haven’t let weak candidates slip into the general election contest. They are probably as strong as they can be going into the fall campaign.

Nonetheless, tracking the money in this new election environment is a complex and full time job. And Darrell West’s question still hangs over us—“Can rich dudes buy an election?”

Totaling more than $111,000,000.00, the 2014 North Carolina Senate contest between Kay Hagan and Thom Tillis is the most expensive Senate election in the nation’s history (not adjusted for inflation). As we investigated earlier this week, outside money has been flowing into American politics in the wake of the Supreme Court’s Citizens United decision in 2010.

When candidate and independent spending are combined, 2014 ranks among the most expensive, if not the most expensive, in history. However, understanding campaign spending takes more than a simple examination of total dollars. Spending differences across states can occur for a variety of reasons, including geographic size, population size, and the expense of media markets.

As a result, a more useful metric for understanding the magnitude of campaign activity is spending per voter, and 2014 offers an interesting case: Alaska. This year, Alaska saw a highly competitive Senate race in which both outside groups and candidates spend substantial amounts of money. Alaska ranks 47th in population with just over 700,000 residents and an estimated 503,000 eligible voters. After adjusting spending (both candidate and independent expenditures) for each state's estimated voting eligible population, Alaska's 2014 Senate race, unsurprisingly, ranks as the most expensive in US history.

Alaska originally ranked 6^th most expensive in 2014, with about $60 million spent total. But it jumps to first place in dollars spent per voter. Candidates and outside groups spent roughly $120 per voter in Alaska this year, about double the next most-expensive race, Montana 2012, where candidates and outside groups spent $66.5 per voter. By comparison, the $111 million Senate race in North Carolina—with a voting-eligible population of about 6,826,610—equaled only $16.25 per voter. That’s still far above the median spending per race for all three cycles ($7.3 per voter) but certainly serves to put the spending in context.

Relative to 2012 and 2014, in terms of both combined and per-voter spending, 2010 could be considered one of the cheaper cycles for Senate races thus far.

These data lend some support to the observation that, since Citizens (and more recently McCutcheon v. FEC) independent expenditures are quickly outpacing contributions to candidates. But given changes in reporting requirements and limited data, there is still a lot about outside spending we still don’t know.

All in all, candidate and outside group spending totaled just over a billion dollars in Senate races in 2014. The fact that North Carolina alone accounted for more than ten percent of that spending is astonishing, but no less remarkable is the intensity of spending per voter in Alaska. But if spending continues to grow as it has the last three election cycles, both of those records will likely be shattered in 2016.

One of the fundamental arguments in the “Political Realism” debate is whether or not strong political parties could make government work better. One way to assess party strength is to look at how much money parties can raise and spend.

In this vein, political scientists Ray LaRaja and Brian Schaffner have claimed that removing limits on party funding activity would make politics less polarized. I’ve been skeptical of this claim. In fact, in a short analysis, I found that the opposite is more likely the case—that states with limits on party fundraising appear to be less polarized, though I cautioned against inferring too much from this pattern.

LaRaja and Schaffner have now responded and previewed their forthcoming book, Campaign Finance and Political Polarization: When Purists Prevail, which will be out this fall from the University of Michigan Press. So, a response to their response is now in order.

I’ll start by granting a point of agreement: LaRaja and Schaffner note that I didn’t re-produce their analysis. I didn’t do this because, based on what they’ve written, it’s not clear exactly which states they consider to be “Parties Unlimited” and “Parties Limited” states. So, until they make their list public, it will be impossible to conduct a precise replication of their analysis.

The good news is they’ve promised to make their data public in the future. As they write in their recent post, “we will be posting all the data necessary to replicate (and challenge) our results upon publication of our book this fall, and we look forward to seeing what others find when they dig into the data.” They also note in their analysis that “11 states changed their laws on party limits during the period of our study (1993-2012).” Assembling this list, they note, was “possibly the most painstaking work we did on this book.” For now, their list of changes remains a well-kept secret, though the changes appear to be driving their analysis. So it will be good when all the relevant data and categorization choices are clear and on the table.

A lot depends on which states fall into which categories. But, there is a more fundamental question: does it make sense to dichotomize states into “Parties Unlimited” and “Parties Limited” states? States with limits vary considerably. Some states limit the money into parties, but allow unlimited flows to candidates; some states allow unlimited money into parties, but limit money from parties to candidates. Some limits are high, some are low. Some have exceptions for party-building activities. Rules vary between primary and general elections, as well.

Consider California. There are limits on how much parties can raise from individuals, but those limits are quite high (they are now at $35,200), and also only cover the party accounts that go to state candidates (so, for example, ballot measures are exempt or general party activities are exempted). California also has no limits on how much parties can transfer to candidates. So should California be a “limits” or “no limits” state? California also has the most polarized legislature, as measured by the distance between party medians. Depending on how you choose to classify states, you can get very different results, especially when you are only working with 20 states (LaRaja and Schaffner limit their claims to the 20 states with the most professionalized legislatures, as per the Squire Index).

LaRaja and Schaffner’s response presents a time series regression model to “calculate the predicted level of polarization over time in a state that limited party fundraising … and spending to on where those limits were removed.” But if states that removed limits became less polarized following the removal of those limits, why not tell us what those states were, and report the actual polarization trends in the states? Put another way: Why rely on model predictions when there are real world data? Grounding this debate in the trajectories of actual states would lend some realism to the claims. Then we could debate examples.

For example, as Thomas Mann and E.J. Dionne note in a recent Brookings paper, two of the states with no limits are Texas and North Carolina. As Mann and Dionne write, “The behavior of their legislatures in recent years cannot, on any plausible definition, be described as 'moderate.'” However, neither Texas nor North Carolina shows up as excessively polarized when polarization is merely a measure of voting patterns. Moreover, if parties are so pragmatic, why did the North Carolina Republican Party (which could raise and spend unlimited sums of money) fail to stop a takeover by multi-millionaire right-wing extremist Art Pope?

This takes us to questions of how party leaders actually behave. LaRaja and Shaffner show evidence in their response that parties give more money to moderate incumbents than to extreme incumbents. This should not be surprising. Presumably, moderate incumbents are more likely to be in competitive races, since moderates are more likely to represent competitive districts.

The more relevant question is what types of candidates parties recruit. Thankfully, we have answers to this courtesy of excellent work by David Broockman, Nicholas Carnes, Melody Crowder-Meyer, and Christopher Skovron, who surveyed 6,000 county-level political party leaders. They found that, “party leaders…use their influence to discourage moderates from seeking office: they strongly prefer candidates at least as ideologically polarized as their median party member. Republican party leaders show this preference especially.”

Their findings also reinforce something that should be apparent to students of polarization—that polarization is asymmetric. Republicans have moved far to the right. Democrats have mostly stayed in place. Let me quote Broockman et al.’s paper at further length, because the findings are extremely relevant to this debate:

“Republicans are much more likely to, unprompted, mention ideology as an important factor for candidates. Our evidence suggests that not only do Republicans care more about ideology, it is also readily accessible when they think of candidate recruitment. It seems likely, then, that Republicans are much more active in recruiting ideologically polarized candidates than Democrats are.”

“Democratic chairs are most inclined to support candidates who are middle-of-the-road or slightly left with respect to the party, while Republicans prefer candidates who espouse an ideology matching or more conservative than their party. In fact, while Democratic chairs are less likely to support very liberal candidates than those nearer to their party average, Republican chairs seem to give very conservative primary candidates the same boost that Democrats give to moderates.”

This does suggest that perhaps giving parties more money and therefore more control over candidates would produce moderation in blue states, but exacerbate polarization in red states. Unfortunately, there is nothing in LaRaja and Schaffner’s analysis that addresses this possibility.

The importance of recruitment also suggests that what we really want to know is who controls the actual recruitment mechanisms in the first place. It’s possible that states with limits might have strong party recruitment mechanisms. If what we really care about is the strength of party machines, why not try to measure that more directly?

LaRaja and Schaffner seem to envision parties being run by hard-headed pragmatists who can determine outcomes with money alone. They seem to assume that if parties can get billionaires to fund them, this will enable party leaders to support more moderate candidates. They seem to ignore that the billionaires may have a few ideas of their own about how they think government should be run (see, e.g. North Carolina).

This gets to a final point, about whether we ought to care if parties rely on small or large donors. LaRaja and Schaffner dismiss the case for small donors, noting that: “the endless romanticizing of small donors as being emblematic of American voters has no empirical grounding.” They go on to note that the ideological distribution of small donors and the ideological distribution of large donors “are nearly identical,” and therefore, “[p]utting more emphasis on ideological small donors may even make our politics worse as politicians streamline their messages to cater to this minority of individuals with more extreme views.”

Let’s grant that large and small donors have the same ideological distribution. If there is no difference, then there’s no reason to think that relying more on small donors would make politics any more extreme. However, since there are many more small donors than there are large donors, a small-donor matching system would allow less extreme candidates the ability to seek out less extreme donors from a larger population of potential donors. We know large donors are polarized, so relying more heavily on them doesn’t give parties much room to moderate. Of course, this presumes that large donors want to shape party positions. But that seems a safe bet.

There are also good (small-d) democratic reasons to support small-donor programs: they bring more participants into the political process; they orient politicians to think differently about whom they represent, and they probably make politics an attractive profession for a broader set of potential candidates. I’d even trade off some polarization for a small donor system. Fortunately, based on their data, it doesn’t appear that I’d even have to.

Finally, and perhaps most importantly, polarization is a function of many, many things, and it’s hard to imagine how changing limits on what parties can raise and spend would have much of an influence given the many other factors. Consider this thoughtful systems map developed by the Hewlett Foundation to analyze American politics as a system: it describes multiple factors that might influence levels of polarization. Systems thinking warns us to be careful of putting too much focus on a single point of leverage without thinking about the larger systems dynamics. This is why many reform skeptics are cautious about unintended consequences—thinking about a single variable in the absence of a larger context usually has unexpected results.

Moreover, as Mann and Dionne explain, we need to be cautious of applying lessons from the states to Washington:

"The gridlock in Washington is a consequence of the ideological polarization of the parties buttressed by vast party networks, their strategic opposition to one another throughout the legislative process fueled by the intense competition for control of the White House and Congress, the prevalence of divided party government, and the asymmetry between the parties that leads Republicans to eschew negotiation and compromise."

"The situation in the states is dramatically different. Most now have unified party governments, and gridlock is the exception, not the rule. There is little evidence of moderation in the Republican- controlled states, whatever their campaign finance laws."

I’m sure we will continue this debate for many months to come, especially after the publication of Campaign Finance and Political Polarization: When Purists Prevail this fall. I’m glad that LaRaja and Schaffner are bringing valuable data to this important question. It’s certainly far from settled.

The rise of SuperPACs, the decision in Citizens United, and intensified polarization in Congress has ignited a flame under the already robust academic debate over the role of money in elections. Last week, Lee Drutman wrote an article for Vox outlining the recent contribution of Raymond J. La Raja and Brian Schaffner made to the debate with their book, Campaign Finance and Political Polarization: When Purists Prevail.

The crux of the book argues that allowing political parties to control more money, not less, is the key to reducing polarization. This runs counter to many pro-reform writings, focused chiefly on empowering small donors in order to counter big-money politics. La Raja and Schaffner counter this narrative, suggesting parties channel money to create moderation, rather than small donors, which are polarizing.

Drutman pushes back on both accounts by taking issue with some of the underlying assumptions in When Purists Prevail, including the weight they place on median voter theory and the extent parties will spend money on moderate candidates in primary elections. He marshals a host of recent research to support the critique, including: a recent Brookings paper on the strength of political parties, data on the power of outside money in congressional elections, and research showing moderate districts do not necessarily produce moderate candidates.

Click here to read the full article on Vox.

Campaign finance is a key issue for the quality of democracy. As we noted in a recently-published book of which we are co-authors, and which we had the honor to present in the Hall of Former Presidents of the Legislative Assembly last February 11 (El costo de la Democracia: Ensayos sobre el financiamiento político en América Latina, UNAM, Mexico City, 2015), it is important because of an inescapable fact: While democracy has no price, it does have an operating cost. The use of economic resources is an essential element for democratic competition. More than a pathology of democracy, political financing, when well-regulated, is a normal part of democratic life.

Yet it is undeniable that money is capable of introducing distortions in the democratic process. Its unequal distribution impacts, first, on the real possibilities enjoyed by the parties and the candidates to take their message to the voters. Second, having money gives individuals and social groups a differentiated possibility of participating in elections and exercizing their influence over the candidates through their contributions. This is vital for democracy. When political power is simply a reflection of economic power, the principle of “one person, one vote” loses meaning. Third, fundraising efforts offer obvious opportunities for the articulation of exchanges between donors and those who make decisions on public affairs, or at least for the continual appearance of conflicts of interest. This can be very problematic in the case of Latin America, where there is a risk of money from organized crime penetrating the campaigns.

And so it is not surprising that the issue is on the political agenda in many countries of the region, just as it has been for a long time in Costa Rica. Costa Rica introduced public financing for political parties in 1956, making it the second country in the world to do so, after Uruguay. Nonetheless, the generosity of the government contribution did not avoid a long succession of scandals associated with the issue, a history that includes figures ranging from Robert Vesco and Manuel Antonio Noriega to Carlos Hank González and the illegal donations from the government of Taiwan. 

The wounds left by each of these episodes gave way to worthy yet incomplete regulatory efforts. Most important has been the reform of the Electoral Code approved in 2009, which among many necessary changes prohibited corporate contributions to the political parties. And not only legislative action has made a difference. The Constitutional Chamber of the Supreme Court has also made a difference by lifting bank secrecy on financing, a very important decision that has been pointed to internationally.

Each of these steps has been moving the country in the right direction. This is worth underscoring: At a time when it is so easy to revile the Costa Rican political system, it should be recognized that in terms of political financing the country is, in general, better situated than it was 20 or 30 years ago. All the evidence we have indicates that private contributions today are less important in our campaigns than one generation ago. We can state with great certainty that our parties are financing more than 80% of the cost of their campaigns with the state contribution. That is good news.

However, the current regulatory framework presents problems such as:

a) It continues to be a regulatory system that is somehow upside down: It meticulously keeps tabs on the use of the state contribution by the parties, which does not give rise to conflicts of interest, while it is much less effective when it comes to verifying the truth of the information the parties provide about their private sources of financing, which do have the potential to compromise the autonomy of the political system. Correcting this imbalance, getting the Supreme Electoral Tribunal to prioritize monitoring private financing and to devote more resources to it, would not only be a way to straighten out its priorities, but frankly, all the parties would also breathe a sigh of relief.

b) The system of advances on the state contribution continues to be very limited (only 15% of the subsidy is disbursed before the presidential election and nothing in the case of municipal elections). It is time to admit that eliminating the system whereby the contributions were distributed in advance payments, which existed from 1971 to 1991 (when 50% was disbursed in advances), caused grave prejudice to the political system. The weakness of the advanced disbursement has ended up leaving the parties at the mercy of banks and lenders during the campaigns. Worse still, today the possibility of a party receiving loans during the campaign against its electoral expectations depends entirely on the fickle behavior of the opinion polls. This is unfair and risky, as the OAS electoral observation missions have noted.

c) The legal framework does little to limit parties’ spending on advertising, one of the most effective ways to reduce outlays during campaigns and to bring about fairness in electoral competition, which is one of the most important objectives in improving the current system. One must evaluate the advisability of adopting a system of advertising slots (provided free of charge by those holding concessions for the radio spectrum or purchased by the Supreme Electoral Tribunal and then made available to the parties) as has been done, with a positive outcome, by other democracies in the region such as Argentina, Brazil, Chile, Ecuador, and Mexico.

d) The current regulatory framework has serious vulnerabilities at the local level. Requiring the parties to file a single financial report with the contribution they receive nationwide (the same system that exists for the presidential election) is insufficient when in practice there are 81 local elections in which each candidate raises and spends money autonomously. Let’s be clear: Relatively little is known about who finances the campaigns at the local level in Costa Rica. This would not matter much except that the experience of other countries – from Mexico to Colombia – shows that local campaigns are the preferred point of entry for organized crime to penetrate the electoral structures. Reinforcing the financial controls on municipal elections is one of the country’s most urgent tasks in relation to campaign finance.

Costa Rica has made major strides in regulating political financing. Yet there is an urgent need to address the weaknesses in the current regulatory framework. There are bills in the legislative pipeline, such as No. 18,739, introduced by the Supreme Electoral Tribunal in April 2013, that incorporate almost all the reforms suggested here and that provide an excellent basis for moving this inevitable discussion forward. 

We will have to address the problems in the current regulatory framework sooner or later. The question is whether we will do so before or after the next scandal. Let’s hope that, for once, we act on time.

This piece was originally published by International IDEA.