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The High Cost of Bankrupt Politics

By Christopher Farrell Political partisanship sells. Michael Moore's anti-Bush diatribe Fahrenheit 9/11 is a rousing box-office success. Polarized voters are snapping up books like Al Franken's Lies and the Lying Liars Who Tell Them and Sean Hannity's Deliver Us from Evil: Defeating Terrorism, Despotism, and Liberalism.

While entrepreneurial ideologues take home huge profits, the invective is taking a toll on American democracy. Political scientists have documented the role increasing partisanship plays in turning off the average citizen from politics. That research came home to me the other day when my 18-year-old son wanted to talk politics. He's now old enough to cast his ballot. He has been closely following the campaign, avidly following the swings in the contest for the Presidency at various Web sites. But he's increasingly disillusioned by the rhetorical excesses and lack of policy debate. Less-appreciated is that there's an economic cost to the political bile. The economic bill will compound until reform reigns in the excesses (at a minimum) and restores a climate of trust and compromise.

COMPETITION AND VITALITY. Not convinced that partisanship can be economically devastating? Look at the "Curley Effect." That's the term devised by Harvard economists Edward L. Glaeser and Andrei Shleifer for the incentive of political entrepreneurs to increase their power base through policies that reduce wealth. The Curley Effect is named after the legendary Boston Mayor James Michael Curley. He ran in six mayoral races in Boston between 1913 and 1951, and won four terms in office. The Irish-Catholic Curley built his base on the city's poorest and most ethnically distinct Irish. He also nurtured a lifelong hostility toward Anglo-Saxons. Boston's Brahmins returned the favor, looking down on the mayor for his policies, rhetoric, and religion, and they consistently tried to block many of his initiatives.

The mayor decided that it was smart politics to drive his Anglo-Saxon nemeses out of town. He tried to do that through a mix of incendiary rhetorical assault on Yankees and policies, such as allowing areas favored by Anglo-Saxons to decay while pouring money into Irish neighborhoods and offering public employment at inflated wages to his Irish base while cutting salaries elsewhere. Curley's combination of political patronage, financial transfers, and other means of redistributing wealth and unbridled hatred made the Yankees feel unwelcome in the city.

Glaeser and Shliefer argue that Curley's politics -- aimed at getting rid of the competition and ensuring him reelection -- carried a steep economic price tag. Between 1910 and 1950, Boston had the lowest population-growth rate of any city in the U.S. The relative wealth of the city fell compared to other major metropolitan areas. As for the Boston Irish, they may have stuck it to Anglo-Saxons but many were worse off in 1950 "than they or their families had been in 1914, and Curley was the major reason why," concludes Jack Beatty, author of The Rascal King: The Life and Times of James Michael Curley, 1874-1958.

LUBRICANT OF COMMERCE. What is the driving force in local politics today? Gathering the like-minded in one place and getting rid of dissenting voices through gerrymandered districts. Just ask Tom Delay. The House Majority leader was the power that sliced and diced the Texas political map that solidified Republican control and isolated minority voters into a few districts. The economics of the Curley Effect suggest that when political leaders craft policies that reinforce orthodoxy -- whether in a Republican or a Democratic stronghold -- local economies end up eviscerated. As a result, state and local governments are finding it harder and harder to reach the kinds of compromises that fund public goods like education. The bottom line: Political competition is good for economic vitality.

The national economy is also at risk. For the past decade or so, economists have been studying the concept of "social capital." It represents the complex, dense networks of connections, values, norms, and reciprocal relationships in a community. Like any other kind of capital, social capital affects economic growth and vitality. The stronger the ties that bind, the greater the potential for civic cooperation -- and the level of personal trust that improves everyone's quality of life. Economic studies suggest that low levels of trust lead to less efficient judiciaries, more corruption, and lower-quality government bureaucracies, as well as low levels of spending on public goods such as health care and welfare, according to economists Dora L. Costa of MIT and Matthew E. Kahn of Tufts University, who wrote about this in Civic Engagement and Community Heterogeneity: An Economist's Perspective.

Economists believe the more trust there is in a society, the greater a country's financial development and economic wealth. That makes sense. After all, trust is the lubricant of commerce. If you assume the store selling CDs is trying to rip you off, you won't buy from it. The same goes for any other business. As one commentator recently put it, the reason capitalism isn't thriving in Iraq is that no two adult men trust each other.

FROM BAD TO WORSE. When rabid partisans assign the worst motives to their political opponents and pour scorn on the skills of statesmanship and compromise, trust becomes an even scarcer commodity. The political climate becomes inhospitable to the kind of measured bipartisan discussion that makes for bold free-trade agreements, education initiatives, health-care reform, and other building blocks of national wealth.

America's traditionally vibrant democracy is at risk. That is bad enough. But the factors that are disillusioning millions and millions of everyday voters now threaten to shape the economy -- and for the worse. Trust me. Farrell is contributing economics editor for BusinessWeek. His Sound Money radio commentaries are broadcast over Minnesota Public Radio on Saturdays in nearly 200 markets nationwide. Follow his weekly Sound Money column, only on BusinessWeek Online

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