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Not So Strange Bedfellows

Economic Trends

Not-So-Strange Bedfellows

Why pols get entwined with PACs

Congress may not be, as Mark Twain opined, America's native criminal class, but his quip hasn't lost its pertinence. For as long as anyone can remember, people have worried about lawmakers bending their legislative efforts to benefit those who offer them substantial financial support.

To economists, who believe economic rationales explain much of human behavior, all of this is predictable. In their view, political markets function like other markets, with legislators and private groups each seeking to further their interests--by getting reelected in the case of lawmakers and by influencing legislation in the case of interest groups.

Writing in the latest American Economic Review, Randall S. Kroszner of the University of Chicago and Thomas Stratmann of Montana State University argue that the current congressional committee system evolved precisely to promote such dealing between legislators and interest groups. Unlike many parliamentary systems, which set up temporary committees to deal with specific issues, America's system features specialized standing committees whose members enjoy long tenure. This permits committee members to establish records that foster repeated interactions with private interests concerned with pending legislation.

The authors' case in point: the House Banking Committee and legislative efforts in recent decades to let commercial banks expand into the securities and insurance businesses--efforts avidly opposed by the affected industries.

Analyzing campaign contributions from political action committees from 1983 to 1992, the two economists found that Banking Committee members garnered five times as much, on average, from commercial banks as did other House members. And their combined receipts from securities firms, investment banks, and insurance companies were twice as large (chart).

The study also showed that the longer a Banking Committee member sat on the committee, the more his campaign contributions tended to come from financial-services PACs--and particularly from one or another of the rival industry groups. By contrast, such contributions declined sharply for members who announced their intention to switch to another committee or to retire. All of which suggests that the committee system not only helps lawmakers to build reputations that attract increasing contributions, but also enables rival groups to focus their contributions on legislators receptive to their respective interests.

Is this harmful to the democratic process and social welfare? While some argue that such activities by competing special interests result in better-informed legislative decisions, most people are dubious. Kroszner and Stratmann take no position, but they observe that proposals to impose term limits on committee memberships imply a shift of contributions--and power--away from committees and their members to political parties.BY GENE KORETZReturn to top

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Deciphering the Jobless Rate

Why it may not portend inflation

There's little question that the U.S. jobless rate is low--slipping back to 4.3% in December and posting an average rate of 4.5% last year. At that level, the lowest full-year reading since 1969, many observers believe the employment situation should have started kindling inflationary fires some time ago.

While there is no shortage of explanations why it hasn't, economists Robert Horn and Philip Heap of James Madison University believe one is that the official unemployment rate exaggerates the strength of economic activity. In an article in Challenge, a magazine concerned with economic issues, they point out that the age and sex composition of the labor force has changed considerably over the past three decades. Since jobless rates vary by age, and to a lesser extent by sex, shifts in the relative importance of these groups affect measures of unemployment.

From 1970 to 1995, for example, teenage workers, who suffer from high unemployment, fell from 8.8% of the workforce to 5.9%. The labor-force share of men aged 45 to 64 declined from 20.1% to 15.1%, while the share of women aged 25 to 44 rose from 14.1% to 24.3%. These changes have tended to push down the reported jobless rate.

What would the unemployment rate look like if the age and sex composition of the workforce had remained constant since 1970--the last time the rate came in below 5% for several years in a row? Horn and Heap estimate that it would be about 0.5% higher than today's official number. And that, they say, suggests that the threat of a pickup in inflation is even smaller than many people believe.BY GENE KORETZReturn to top

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