The economic consequences of political polarization

The rise in political polarization in the United States Congress over the past four decades has been well-documented by social scientists and discussed at length by journalists. In fact, the ideological chasm between Congressional Republicans and Democrats is the widest it has been in the post-WWII period. Research scholars have posited two sets of factors/explanations – external (e.g. polarized electorate, Southern realignment, Gerrymandering, primary elections, economic inequality, money in politics, and media environment) and internal (rule changes, majority-party agenda control, party pressure, teamsmanship, and the breakdown of bipartisan norms) – as causes of political polarization, and have identified a number of implications (e.g. reductions in Congressional power vis-à-vis the President, decreases in legislative productivity).  This paper contributes to this voluminous literature by positing/exploring a third set of factors: White House Occupant (WHO), and then, investigating the relationship between Congressional polarization and the economy. We consider this third factor to be important in view of the changing landscape of the American electorate. Specifically, we explain how WHO – in terms of gender, race, and likeability – will contribute to a more extreme polarization and then explore whether changes in political polarization have altered the contours of Congressional legislation, and whether this has in turn impacted economic growth. In other words, we examine the effects of political polarization on aggregate and sector-specific growth in the period 1970 – 2010. In addition to introducing a novel element to the ongoing research on the consequences of political polarization, this paper is also expected to contribute to broader literature on determinants of economic growth and contraction.