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The Political Business Cycle

Prior to Michal Kalecki [1943] were there other economists who anticipated

the possibility of a political business cycle?

Not that I know of.

To what extent could the deep UK recession of 1979–82 be viewed as being

politically induced? For example, it can be argued that the then Prime Minister,

Margaret Thatcher, used high unemployment in order to restore the

health of British capitalism, a development consistent with Kalecki’s model.

Thatcher’s recession was the result of the need for disinflation. I am not sure that

unemployment is needed ‘in order to restore the health of capitalism’. Unemployment

is in part a cyclical phenomenon, in part the result of supply-side

rigidities. This latter influence is particularly strong in the European economies.

How important are macroeconomic variables for voting behaviour?

In the USA, the rate of GNP growth is extremely important, inflation and

unemployment somewhat less so. In other countries the evidence is less clear

cut, in part due to differences in the electoral systems. In general, the state of

the economy is very important for elections but how this effect manifests

itself may vary dramatically from one country to another.

Nordhaus’s [1975] model is intuitively very appealing. What do you regard to

be its main strengths and weaknesses?

Its main strength is that it makes a simple powerful point which is easily

testable. Its main weaknesses are that it is based on the assumption of extremely

naive behaviour, and also has very weak empirical support.

How can voters (principals) ensure that their agents (the politicians) refrain

from opportunistic behaviour which creates economic inefficiencies?

Mainly with the threat of voting them out of office.

Non-Rational Partisan Theory

What do you regard to be the important contributions of Hibbs [1977] to the

development of politico-economic models?

Hibbs played an important role by introducing ideological–partisan differences

and moved attention away from models in which it was assumed that

all politicians have identical motivations.

How strong is the evidence that inflation is more harmful to higher income

than lower income groups?

The evidence on this is not very strong. How harmful inflation is depends on

the level of inflation and various institutional arrangements, such as indexation.

For the post-war period as a whole, is the empirical evidence supportive of

the partisan view that left-of-centre governments favour and achieve lower

unemployment than right-of-centre governments? Have left-of-centre administrations

also been associated with higher inflation than right of centre

administrations?

To some extent yes. However, the success of left-wing governments in reducing

unemployment has only been temporary. After taking into account

structural breaks such as the break in exchange rate regime in the early

1970s, the oil shocks and so on, it is true that left-of-centre governments have

been associated with higher inflation than those right of centre.