INTRODUCTION

The previous chapter did not address three important questions about the American political economy. How do economic conditions affect voting behavior? Does the electorate care about administrative competence in addition to ideology? How does economic policy depend upon the interaction between the administration and Congress?

We address these issues by enriching the model of the economy developed in the previous chapter. First, we allow different administrations to exhibit different levels of competence in handling the economy. Competence-based voting provides a basis for explaining, in a rational choice perspective, the observation that voting in presidential elections is influenced by the state of the economy just prior to the elections. Second, as in the first part of this book, we allow Congress to have a moderating influence on economic policy. Thus, a Republican president's macroeconomic policies are less extreme if Congress is controlled by the Democratic party. We apply the voting model developed in chapter 4 to this specific macroeconomic policy question. The general model of the American political economy which we build in this chapter will be tested with data for the period 1915–1988 in chapter 9.

Let us begin by outlining our rational choice model of voting based on the state of the economy, which is the novel element introduced in this chapter. We posit that administrations differ in competence as well as in policies; more competent administrations achieve higher rates of growth, without increasing inflation. In the previous chapter, since competence played no role, growth was determined solely by inflation policies. But once competence comes into play, voters will face a trade-off between their partisan preferences and efficiency.