INTRODUCTION: REDISCOVERING CIVIL SOCIETY

One of the most fascinating social facts in France is probably the formidable explosion of civil actions. This civil activism has various appearances and goals; however, it seems that people not only increasingly engage in humanitarian causes, they also try to solve institutional problems that fall into the public domain such as pollution, violence, illiteracy, and social exclusion. On the other side, the citizens' desertion from the political arena and the growth of incivilities in schools or suburbs suggest that the French society does not display only such a beautiful side. The point of departure of this chapter is the idea that all those social facts could be linked to each other with the help of an appropriate explanatory framework.

The recognition of the modern growth of civil activism directed to the provision of collective goods has lead to various reactions. Most of them are unsatisfactory since they exclusively rely on preferences such as impulses of solidarity.

INTRODUCTION: STABILITY AND CHANGE OF ELECTORAL SYSTEMS

Civic and economic freedoms depend on the competitiveness of a political system, a competitiveness fostered by the constitutional division of powers, the rule of law, and the contestability of the elective positions. Regarding the last issue, this chapter deals with the citizens or representative relationship and moves from the factual remark that the rules governing the appointment of the members of legislative assemblies are not sanctioned in any contemporary constitution. Leaving the framing of people's consent to statutory laws amounts to entrusting the regulation of political competition to the very ones who should be regulated. Notwithstanding the whims of partisan politics, however, those rules prove to be remarkably stable. Hence a first question, why so much stability? If we agree with Roger Myerson (1999) that political leaders meeting and negotiating in the halls of government cannot be exempt from Adam Smith's remark on the risk of conspiracies against the public, we face a subtler question: Is any trick behind that stability, often accompanied by apparently minor innovations consented to by incumbent representatives?

As often occurs, it is the subtler question to have attracted scholars' attention when discussing political opportunism. The first question, however, remains unasked and political economists resort to assuming, explicitly or implicitly, the constitutional status of electoral rules (see, e.g., Buchanan and Tullock, 1962; Mueller, 1996). A weak assumption indeed in a relationship where it is the agent more than the principal who has the whip-hand.

INTRODUCTION

This chapter looks at solidarity from a rational choice point of view. I begin with some puzzles about the meaning and significance of solidarity and its relationship to social capital, trust, and other concepts. The concept of social capital has been used to mean a number of things, and sometimes it means the same thing as solidarity and sometimes not. But perhaps this is the price for the new-found popularity of the subject. The heart of the chapter is a simple model of how solidarity, social cohesion, horizontal trust, or horizontal social capital – concepts that are interchangeable in this paper – is generated. I describe a production process for solidarity; that is, I explain one way in which it is created. This makes it possible to think more systematically than is usual about the conditions under which solidarity grows or declines. This model and some of its implications are described in the sections, “The Production of Trust” and “Trade in Beliefs.”

The next two sections discuss the relationship of this model of solidarity to certain classical ideas about the formation and properties of group beliefs: Rousseau's “General Will” and the jury theorem of Condorcet. These works, with their emphasis on group decision making and the conditions under which various forms of group decision making are in the group interest, can be used to illuminate some of the social costs of solidarity.

INTRODUCTION

Gathered around a big table, a company consisting mostly of young adults produces much noise and fury. They are arguing about some, in the big scheme of things, inconsequential legislation proposed in parliament. There is much talking past each other, the stentorian voice of the conversation's would-be monopolist, the repetition of cliches from the mass media, but also much wit and belly-laughs. After the company's break-up, discussions linger at home, in some cases threatening domestic tranquility. Bits of the topic are picked up at subsequent gatherings in which new controversies might emerge as the center of argument. Newspapers and magazines, aware of the underlying demand, provide plenty of both serious and lightweight fodder for argument in such gatherings.

NEGATIVE ADVERTISING AND THE QUALITY OF ELECTIONS

Ms. Norden raises two important theoretical questions. I have fleshed out the questions, and given what I believe to be the answers:

1. Q: Is it possible for political candidates to use negative advertising to “put someone down to build yourself up”? This is clearly the popular perception, but is it consistent with an equilibrium model that allows the best response to advertising messages?

2. A: As is often the case, the answer is, “It depends.” If you mean, “Are candidates usually able to win more votes if they ‘go negative,” the answer isYES. If you mean “Are all candidates able to increase their net vote percentages by negative ads, in equilibrium,” the answer is clearlyNO.

3. Q: Is Ms. Norden's “dislike” of mudslinging simply a matter of taste, or is there something deeper at work?

4. A: There is something much deeper at work. Negative ads are individually rational, in the sense that they “work” for the candidates. But the utility citizens derive from living in such a political system is sharply reduced.

In this chapter, I review briefly some of the results on negative campaigning, and then consider the effects of attack tactics on the citizens and the electoral system.

INTRODUCTION: IMPLICIT ASSUMPTIONS IN DEMOCRATIC ANALYSIS

Modern scholars may disagree about the merits of alternative forms of democracy, but generally agree that democracy is self-sustaining in the sense that once in place it continues uninterrupted. Donald Wittman's (1995) book, The Myth of Democratic Failure, makes this presumption explicit with its title, but essentially all rational-choice-based analyses of democracy use this assumption as an uncontroversial point of departure. That is to say, modern analysis of democracy generally presumes that democratic governance is always a feasible method of making policy decisions. The question addressed in this chapter is whether this presumption is defensible. Are there implicit assumptions about the cultural or economic environment that are implicitly being made when the feasibility of democracy is taken for granted?

To get some sense of the problem that I am interested in here, recall the optimistic forecasts that were widely made by economists in the early 1990s as the Iron Curtain disappeared overnight. Economists evidently believed their models, which seemed to imply that a market only requires unimpeded trade to achieve competitive results.

INTRODUCTION

It is often argued that democratic polities, being founded on the principle of the sovereignty of the people, are inherently limited in their capacity to make binding commitments. Because a present parliament cannot effectively bind future parliaments, the argument goes, a commitment made at some point in time “in the name of the people” may be overturned by a parliament representing the respective constituency at a later time. In his “Distinguished Lecture on Economics in Government” the former chairman of the Council of Economic Advisors, Joseph Stiglitz, identifies this as a principal source of government failure when he notes: “The problem of commitment stems from the inherent nature of government itself. Government is the primary enforcer of contracts. It uses its monopoly on the legal use of force to create the possibility of private commitment. There is no one, however, whose job it is to guard the guardian. The government cannot make commitments because it always has the possibility of changing its mind, and earlier ‘agreements’ cannot be enforced.”

To be sure, to the argument that by contrast to private contracting parties within an established legal order the constituents of self-organized democratic polities have no external enforcing apparatus to which they could turn to give binding force to their commitments, one might respond that democratic politics operates at various levels (e.g. the level of local communes, of states or Länder within a federal union, of nation-states, up to the level of multinational arangements), andthat constituencies at any one level may choose to use an arrangement at the next higher level to give binding force to commitments that they wish to make.

INTRODUCTION

The discussion of the rational foundations of democratic politics includes at least two senses in which democracy can be seen as binding individual agents, and these two senses pick out two aspects of democracy: an institutional aspect and a more human aspect. The institutional aspect focuses on the procedures, rules, and institutions that in one sense constitute democratic politics and which might be seen as binding, constraining, or otherwise structuring the political activity of individuals. The more human aspect focuses on the individuals who live in democratic societies, are bound together into a polity, and must make democracy work. Furthermore, the institutional aspect of democracy highlights one view of economic analysis, by emphasizing the analysis of rational individual responses to democratic institutions and rules, in much the same way as we might analyze individual responses to relative prices. However, the more human aspect of democracy highlights a different economic perspective, by emphasizing the analysis of individuals committing to a common enterprise that offers both intrinsic and instrumental rewards. Very often the former, institutional aspect dominates the economic discussion of democracy to the exclusion of the latter, human aspect – so much so that we often focus on the analysis of narrowly self-interested individuals in democratic settings without asking ourselves whether individuals of that sort have the resources to operate a fully democratic society.

INTRODUCTION

Constitutional rules (or, more generally, constitutional variables) must be analyzed in competitive settings. These rules can constrain the behavior of public sector actors and ensure that political competition remains active and vigorous. Political competition, in turn, can affect the capacity of constitutions to constrain political action. Among the different ways of modeling political competition in the case of democratic societies, we retain two: a) electoral competition, as understood in the probabilistic voting model; and b) competition among centers of power in compound governments (Breton, 1996).

In that framework, the preferences and opinions of citizens in their capacity as voters or demanders of public policies necessarily count. In the literature, these preferences are usually restricted to goods and services; in what follows, they are defined over constitutional variables as well. Moreover, we assume that there will necessarily be trade-offs or compensations between goods and services on the one hand and constitutional variables on the other. This is often the case at the level of individual citizens, but it will obtain at the collective level as a matter of necessity. By itself, this creates a first strong linkage among all issues, including the constitutional ones. In addition, a second linkage derives from the fact that decision-makers in the public sector normally function in institutional settings – parliaments, cabinets, political parties, for instance – that make it natural and easy to bring together apparently unconnected issues.

With the ideal point estimates from Chapter 3, this chapter tests the model's predictions from Chapter 2. For each Fed appointment opportunity, I use the ideal point estimates to order the appointing president and the Senate median among the Fed members who remain after the retiree leaves. This ordering produces a point prediction for the Fed median, which we can compare to the actual Fed median in the data.

The model is used to test two sets of hypotheses for the FOMC and the BOG. The first set of hypotheses answers the question of whether political influence on monetary policy occurs through Fed appointments. The second set concerns the question of influence by whom: the president alone or both the president and Senate. The chapter first considers these hypotheses for the FOMC and then for the BOG.

The results for both the FOMC and the BOG show that political influence occurs. On the FOMC, influence is by both the president and Senate, while on the BOG, it is unclear who influences. But because the FOMC is the more important monetary policy-making body, the results show generally that appointments are an important avenue of political influence on monetary policy by both the president and Senate rather than the president alone.

The chapter proceeds by describing the appointments data. I then restate the model's predictions and enumerate the exact procedures by which I test the predictions. Finally, I present the results in turn for the FOMC and for the BOG.

When Clinton nominated Edward Gramlich and Roger Ferguson to the BOG in the fall of 1997, the Senate reaction was notable for its absence. In stark contrast to the critical attack on Rohatyn, the senators barely commented on these nominations except to praise the nominees' “extraordinary backgrounds” (Senator D'Amato, Chairman of the Senate Banking Committee, quoted in Wessel 1997: A10). The hearings were short, and the full Senate voted quickly to appoint Gramlich and Ferguson.

Clinton had learned a great deal from the Rohatyn nomination. He had discovered that Rohatyn was too far on the easy side relative to what the Senate would tolerate. Perhaps even Rivlin was a bit problematic; the Senate's confirmation vote on her appointment was not unanimous – a rare occurrence. Clinton needed to nominate someone like Meyer, who supported the current Fed policy and thus seemed likely to be a future median member of the FOMC. According to this criterion, Gramlich and Ferguson were good choices. At the time of their confirmation hearings, the FOMC was split into two factions; one side expected an imminent inflation rise while the other side claimed the possibility of a golden age with continued low inflation and high growth. In the hearings, Gramlich and Ferguson both staked a middle position with neither taking sides in the FOMC debate. Satisfied with this anticipated choice by Clinton, the Senate approved both the nominees.

This chapter presents a formal model of the process by which the president and Senate appoint members to the Fed. The model lays out the president and Senate's strategic considerations when they are faced with an appointment opportunity posed by either the retirement or by the expiring term of a Fed member. The president moves first with his power of nomination and thinks about how to exploit that first-mover advantage, while the Senate tries to maximize its veto power over the president's choice of nominee. Once they agree on a nominee, the president and Senate face constraints on how far they can move Fed policy with a single appointment; the Fed's multimember decision-making structure forces the president and Senate to work around the existing Fed members. In sum, the model details how preferences work within the constraints of the appointment process to produce monetary policy.

The model encompasses several of the theories of appointments discussed in Chapter 1. The first is presidential anticipation: in the model presented here, the president always anticipates the Senate's preferences. Under a certain set of circumstances, this means that the president dominates, and at other times, the president compromises with the Senate. Under still other circumstances, neither dominates, and both in a situation of deadlock simply maintain the current policy. Thus given presidential anticipation, the model demonstrates that presidential dominance, presidential compromise, or deadlock can occur.

In the previous chapters, the appointment process is exogenous; I take the process as given and explain how it affects policy. In this chapter, the appointment process is an endogenous object of choice – a dependent variable. I examine the development of the appointment process and claim that it is related to the centralization of the Federal Reserve System. Specifically, I compare and contrast the different appointment structures envisioned in the banking bills from 1903 to 1935.

THE THEORETICAL FRAMEWORK

Assumptions and Definitions

1. The Dependent Variable: Appointment Power. Appointment power is the extent to which the president and Senate can influence policy through appointments. It is related to the appointment structure, the structure of the appointment process and its effects on policy. The appointment structure's components are:

THE NUMBER OF APPOINTED MEMBERS. This variable refers to the number of members appointed by the president and Senate to the Fed's central decision-making board. On the FOMC, by appointing a larger proportion of the central board, the president and Senate have greater control over its decisions, because there is a greater likelihood that the FOMC median is one of their appointees. Because of political uncertainty, the president and Senate will not necessarily advocate a board composed totally of political appointees. With such a board, once in office, opponents can quickly reverse policy gains made by the current president and Senate.

THE LENGTH OF TERMS. This variable refers to how long each central board member serves.