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RSF Review

The Decline of Bipartisan Campaign Contributions Among Elite Individual Donors

Jen Heerwig , New York University
May 30, 2013

One of the most pressing questions facing social scientists is how rising material inequality has manifested itself in the political process. In contrast to other rich democracies, the United States lacks a system of public financing for its federal elections. Thus, the system of campaign finance is one of the most significant ways that material inequalities affect our democracy. Wealthy individual and organized interests continually 'vote with dollars' before most Americans make it to the ballot box. As the cost of American elections has escalated, candidates for office have become ever more dependent on these donors.

At the same time as money has grown to play a bigger role in our elections, the policy positions of the two major political parties have diverged dramatically. Political scientists Nolan McCarty, Keith Poole, and Howard Rosenthal have developed a standardized measure of how far apart the two major political parties are based on the roll call histories of members of Congress. These scores show that, since the early 1980s, the parties have moved apart rapidly. In fact, the two parties are now farther apart from each other than at any other time since Reconstruction when the nation struggled to unify in the wake of the Civil War. The distance between the parties has been driven, in large part, by the sharp rightward shift of the Republican Party. You can see the overall trend toward polarization in the figure below, which plots the distance measures since 1879.

What explains this dramatic shift in American politics? Many observers of American politics have pointed to the system of campaign finance and the role of corporations—and their fundraising organizations called corporate political action committees (PACs)—as playing a crucial part in this transformation. But, in fact, the available evidence on corporate PACs suggests that they have largely continued to support both political parties through their campaign contributions, rather than lining up behind one party to advance an agenda. Corporate PACs, in sum, have remained what social scientists have broadly referred to as “pragmatic” contributors—they continue to donate to secure access to important members of Congress, rather than to pursue ideological goals.

New Census Research on a Changing America

May 23, 2013

Over the past four years, the Russell Sage Foundation's U.S. 2010 project has sponsored high-quality, peer-reviewed research on key social and economic trends in American life revealed by the 2010 census and related national surveys. The results of this initiative are now available on our U.S. 2010 website, which includes two main resources:

This chart, taken from Edward N. Wolff's report on Americans' personal wealth, shows that the median net worth fell a staggering 47 percent between 2007 and 2010. It is an example of the rich variety of indicators and research available on the U.S. 2010 website.

Lotteries and the Poor

May 20, 2013

Someone in a small Florida town has the winning ticket for the largest Powerball jackpot in history—nearly $600 million. The prize has reignited the debate over lotteries, which produce much-needed revenue for state governments by encouraging, as critics argue, a form of gambling. At ThinkProgress, Bryce Covert argues that lotteries amount to a regressive tax, as poor people are more likely to purchase tickets than wealthier citizens:

[Poor people] spend a larger percentage of their income on the lottery, and many studies of state lotteries have found that low-income Americans account for most of the sales and that sales are highest in the poorest areas. One study found that a reason for this is that “lotteries set off a vicious cycle that not only exploits low-income individuals’ desires to escape poverty but also directly prevents them from improving upon their financial situations.” The loss in income of buying tickets that provide no reward is harder to bear on a slim budget.

Covert offers the standard explanation for lottery ticket purchases among the poor -- the cost of the ticket seems to be a small price to pay for the possible chance to "escape poverty." In a chapter for our book, Insufficient Funds, however, economists Sendhil Mullainathan and Eldar Shafir suggest that the reality may be more complicated:

Community Well-Being and the Great Recession

May 15, 2013

Our partner website, Recession Trends, has published a report on how the Great Recession has impacted neighborhoods in America. Here is an excerpt:

Although most research has focused on individual-level outcomes, many of the conventional narratives about the Great Recession are in fact neighborhood-level narratives. In discussing the housing crisis, for example, we don’t just focus on individuals facing foreclosure but on entire neighborhoods that were hard hit by the housing crisis, where one can find house after house on the same streets all in foreclosure. Likewise, the unemployment crisis is often understood to be spatially clustered, with areas that depend disproportionately on construction, manufacturing, and other heavily-affected industries typically presumed to be especially hard hit.

Teaching Financial Literacy: The Case of Compound Interest

Melissa Sions, Russell Sage Foundation
May 9, 2013

Calls for increasing financial literacy have grown louder recently, as the soaring costs of health care and education, high unemployment, and the effects of the Great Recession all converge to strain the budgets of governments, businesses, and individuals. Many agree that financial education benefit those who participate, but the results have been underwhelming. According to a recent column in The Economist, not only is financial literacy a major stumbling block for most people, but interest in—and success in teaching—financial education is incredibly low, regardless of age or life circumstances. Last September, the SEC released its own report on financial literacy among Americans, and its results of which were fairly discouraging. Some argue that the main problem is the ability to engage students in the material, but as we’ve written before, the problem may be more fundamental than that.

In their paper “Misunderstanding Savings Growth,” published in the RSF-funded Journal of Marketing Research, Craig McKenzie and Michael Liersch argue that the failure to begin saving early for retirement—or to reach retirement savings goals—comes down not just to a lack of financial knowledge, but also to gross misunderstandings of how savings grow over time. Conventional economic wisdom holds that people are able to “[calculate] future values and [make] trade-offs with present values.” However, through a series of experiments, McKenzie and Liersch notice that not only do people systematically underestimate how much retirement savings grow exponentially, but that understanding how compound interest works doesn’t always help to motivate them to save earlier.

In fact, what helps the most in motivating people to save is demonstrating the effects of exponential growth. Offered a graphical representation of how compound returns accumulate over time (see below), participants were markedly better able to determine whether early saving would prove beneficial over the course of a career. Not only that, but they were better able to think their way out of the fallacy that saving twice as much later might yield the same returns at the point of retirement. This finding was successful without any interventions that told participants explicitly what compound interest was or how it could be calculated. Interestingly, this approach increased motivation in participants at different stages of their careers. McKenzie and Liersch did experiments with undergraduate students as well as employees at a Fortune 100 company, and found that workers’ reactions to exponential savings growth were similar to those of the undergraduate sample. As the authors point out, this finding indicates that it isn’t an understanding of compound interest that motivates people, but demonstrations of its effects over time.

Favoritism and Racial Inequality

May 7, 2013

racial inequalityThe New York Times has published an essay by RSF author Nancy DiTomaso on the relationship between social networks and racial inequality. In the essay, DiTomaso draws from her research in The American Non-Dilemma, which argues that economic racial disparities are perpetuated not by explicit racism, but by seemingly innocuous processes, such as networking, that institutionalize racial bias:

The mechanism that reproduces inequality, in other words, may be inclusion more than exclusion. And while exclusion or discrimination is illegal, inclusion or favoritism is not — meaning it can be more insidious and largely immune to legal challenges.

Favoritism is almost universal in today’s job market. In interviews with hundreds of people on this topic, I found that all but a handful used the help of family and friends to find 70 percent of the jobs they held over their lifetimes; they all used personal networks and insider information if it was available to them.

The Great Recession and the Racial Wealth Gap

May 2, 2013

The Urban Institute has released a report that analyzes the Great Recession's impact on the racial wealth gap in America. Here is the abstract:

Income inequality understates the size of the economic gap between whites and minorities in the United States. In 2010, whites on average had two times the income of blacks and Hispanics, but six times the wealth. Analyses of wealth accumulation over the life cycle show that the racial wealth gap grows sharply with age. Wealth isn't just money in the bank, it's insurance against tough times, tuition to get a better education and a better job, savings to retire on, and a springboard into the middle class.

The study shows that the 2007-2009 downturn sharply decreased the wealth holdings of white, black and Hispanic families, with Hispanics experiencing the largest decline:

Like a lot of young families,many Hispanic families bought homes just before the recession. Because they started with higher debt-to-asset values, the sharp decline in housing prices meant an even sharper cut in Hispanics’ wealth. As a result, they were also more likely to end up underwater or with negative home equity. Between 2007 and 2010, Hispanics saw their home equity cut in half, compared with about a quarter for black and white families.

In contrast, black families lost the most in retirement assets, while white families experienced a slight increase. On average, blacks saw their retirement assets fall by 35 percent during the Great Recession,compared with a smaller(but still substantial) decline of 18 percent for Hispanic families.

Wealth Disparities Before and After the Great Recession

April 23, 2013

With the support of the Foundation, Fabian T. Pfeffer, Sheldon Danziger and Robert F. Schoeni have published a working paper entitled, "Wealth Disparities Before and After the Great Recession." Here is the abstract:

The collapse of the labor, housing, and stock markets beginning in 2007 created unprecedented challenges for American families. This study examines disparities in wealth holdings leading up to the Great Recession and during the first years of the recovery. All socioeconomic groups experienced declines in wealth following the recession, with higher wealth families experiencing larger absolute declines. In percentage terms, however, the declines were greater for less-advantaged groups as measured by minority status, education, and pre-recession income and wealth, leading to a substantial rise in wealth inequality in just a few years. Despite large changes in wealth, longitudinal analyses demonstrate little change in mobility in the ranking of particular families in the wealth distribution. Between 2007 and 2011, one fourth of American families lost at least 75 percent of their wealth, and more than half of all families lost at least 25 percent of their wealth. Multivariate longitudinal analyses document that these large relative losses were disproportionally concentrated among lower income, less educated, and minority households.

New Paper: On the Origins of Gender Roles: Women and the Plough

April 16, 2013

RSF Visiting Scholar Paola Guiliano has co-published a paper in the February 2013 issue of Oxford Quarterly Journal of Economics, drawing on research undertaken here at Russell Sage on the agricultural roots—and persistence—of gender roles. The abstract begins:

The study examines the historical origins of existing cross-cultural differences in beliefs and values regarding the appropriate role of women in society. We test the hypothesis that traditional agricultural practices influenced the historical gender division of labor and the evolution of gender norms.

Building off of the hypothesis put forth by Ester Boserup (1970), that “gender roles have their origins in the form of agriculture traditionally practiced in the pre-industrial period,” Guiliano and her co-authors gathered data culled from pre-industrial ethnographic data as well as contemporary surveys individuals’ views on gender roles and women’s place in society. In particular, the authors looked for the adoption and persistence of plough agriculture, which requires “significant upper body strength, grip strength, and bursts of power…to either pull the plough or control the animal that pulls it.” Because of such intense physical demands, plough agriculture offered more opportunities for men in agricultural roles, relegating most women to work inside the home. The authors continue:

We find that, consistent with existing hypotheses, the descendants of societies that traditionally practiced plough agriculture today have less equal gender norms, measured using reported gender-role attitudes and female participation in the workplace, politics, and entrepreneurial activities. Our results hold looking across countries, across districts within countries, and across ethnicities within districts. To test for the importance of cultural persistence, we examine the children of immigrants living in Europe and the United States. We find that even among these individuals, all born and raised in the same country, those with a heritage of traditional plough use exhibit less equal beliefs about gender roles today.