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February 13, 2014

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"Money Makes People Right-Wing and Inegalitarian'

Posted: 13 Feb 2014 12:24 AM PST

Andrew Oswald has an excellent research record:

Money makes people right-wing and inegalitarian, by Andrew J Oswald, Vox EU: Why are you right-wing, left-wing, or in the middle? You probably believe that you made a genuine, calm, and ethical choice. But what were the deep causal forces upon those political preferences?
The scientific roots of people's political views are poorly understood. One possibility (View 1) is that individuals' attitudes to politics and redistribution are motivated by deeply moral views. Another possibility (View 2) – and this is perhaps some economists' presumption -- is that voting choices are made out of self-interest and then come to be embroidered in the mind with a form of moral rhetoric. Testing between these two alternative theories is important intellectually. It is also inherently difficult. That is because so many of our attitudes as humans could stem from early in life and are close to being, in the eyes of the researcher, a 'person fixed-effect'.
In most data sets, rich people typically lean right. The fact that high income and right-wing views are positively correlated in a cross-section has been repeatedly documented in quantitative social science (recently, for example, by Brooks and Brady 1999 and Gelman et al. 2007 in US data, and by Evans and Tilley 2012 in British data). An analogous result is reported, using quite different kinds of methods, in Karabarbounis (2011). Economists such as Di Tella and MacCulloch (2005) have also studied political views and their implications, and other influences have been examined using causal evidence on political views (such as in Oswald and Powdthavee 2010 and Erikson and Stoker 2011).
Fine – so the rich favour the right not the left. The difficulty is to know how to interpret this famous correlation of political science. Is it actually cause-and-effect, and if so in what direction? It would be nice to run a real randomised experiment where a treatment group are showered with cash, but that would be too expensive for social-science funding agencies. Hence it is necessary to look elsewhere for inspiration.
New evidence from the lottery
Our new study, Powdthavee and Oswald (2014), tries to get to the bottom of the issue. By looking at lottery winners through time, it provides longitudinal evidence consistent with the second, and some might argue more jaundiced, view, namely the View 2 of human beings. We exploit a panel data set in which people's political attitudes are recorded annually. Our work builds upon an interesting cross-sectional examination by Doherty et al. (2007), which we learned about late in our own research.
In our data set, many hundreds of individuals serendipitously receive significant lottery windfalls. We find that the larger is their lottery win, the greater is that person's subsequent tendency, after controlling for other influences, to switch their political views from left to right. We also provide evidence that lottery winners are more sympathetic to the belief that ordinary people 'already get a fair share of society's wealth'.
We are able to observe people before and after a win. Access to longitudinal information gives us advantages denied to most previous researchers on this topic. One reason this is important is because it seems plausible that personality might determine both the number of lottery tickets bought and the political attitudes of the person, and this might thereby lead to a possible spurious association between winning and right-leaning views. We provide, among other kinds of evidence, a simple graphical demonstration that winners disproportionately lean to the right having previously not been right-wing supporters.
The formal study draws upon a nationally representative sample from the British population. In our regression equations we focus particularly upon a sub-sample of people (a fairly large proportion, given the lottery's popularity in the UK) who have ever had a lottery win. Within this group, we are especially interested in the observed longitudinal changes in political allegiance of the bigger winners compared to the smaller winners. Our key information stems from 541 observations on lottery wins larger than £500 and up to approximately £200,000. Figure 1 gives a flavour of our results; fixed-effects equations are given in the formal paper and have more tightly defined error bars.

Figure 1. Evidence on switchers: The percentage of people who switched right (conservative), and previously did not vote conservative, after a lottery win

Oswald fig1 12 feb

Notes: There are 48,177 observations of £0 win (or people who did not participate in the lottery); 5,675 observations of small win, i.e., £1-£499; and, in this particular sub-sample, 354 observations of medium-large wins, i.e. £500+. Four standard error bars (2 above and 2 below). These are raw, unadjusted means in the data set. Source: BHPS Data, Waves 7-18.
The consequences of winning even a modest sum of money are fairly large – certainly a number of percentage points extra on your chances of favouring a Mrs Thatcher or a Ronald Regan. Thus money makes people right-wing and inegalitarian. Perhaps even you.
References
Brooks, C and D Brady (1999), "Income, economic voting, and long-term political change in the US, 1952-1996", Social Forces, 77, 1339-1374.
Di Tella, R and R MacCulloch (2005), "Partisan social happiness", Review of Economic Studies, 72, 367-393.
Doherty D, A S Gerber and D P Green (2006), "Personal income and attitudes toward redistribution: A study of lottery winners", Political Psychology, 27, 441-458.
Erikson, R S and L Stoker (2011) "Caught in the draft: The effects of Vietnam draft lottery status on political attitudes", American Political Science Review, 105, 221-237.
Evans, G and J Tilley (2012), "How parties shape class politics: Explaining the decline of the class basis of political support", British Journal of Political Science, 42, 137-161.
Gelman A, B Shor, J Bafumi and D Park (2007) Rich state, poor state, red state, blue state: What's the matter with Connecticut? Quarterly Journal of Political Science, 2, 345-367.
Karabarbounis, L (2011) "One dollar, one vote", Economic Journal, 121, 621-651.
Oswald, A J and N Powdthavee (2010), "Daughters and left-wing voting", Review of Economics and Statistics, 92, 213-227.
Powdthavee, N and A J Oswald (2014), "Does money make people right-wing and inegalitarian: A longitudinal study of lottery winners", Warwick University Economics Working Paper 1039, February.

Links for 02-13-2014

Posted: 13 Feb 2014 12:03 AM PST

'Is Increased Price Flexibility Stabilizing? Redux'

Posted: 12 Feb 2014 04:08 PM PST

I need to read this:

Is Increased Price Flexibility Stabilizing?, by Redux Saroj Bhattarai, Gauti Eggertsson, and Raphael Schoenle, NBER Working Paper No. 19886 February 2014 [Open Link]: Abstract We study the implications of increased price flexibility on output volatility. In a simple DSGE model, we show analytically that more flexible prices always amplify output volatility for supply shocks and also amplify output volatility for demand shocks if monetary policy does not respond strongly to inflation. More flexible prices often reduce welfare, even under optimal monetary policy if full efficiency cannot be attained. We estimate a medium-scale DSGE model using post-WWII U.S. data. In a counterfactual experiment we find that if prices and wages are fully flexible, the standard deviation of annualized output growth more than doubles.

'The Impact of Unemployment Duration on Compensation Growth'

Posted: 12 Feb 2014 08:21 AM PST

Why has the Phillips curve "generally underpredicted compensation growth since 2009"?:

The Long and Short of It: The Impact of Unemployment Duration on Compensation Growth, by M. Henry Linder, Richard Peach, and Robert Rich:  How tight is the labor market? The unemployment rate is down substantially from its October 2009 peak, but two-thirds of the decline is due to people dropping out of the labor force. In addition, an unusually large share of the unemployed has been out of work for twenty-seven weeks or more—the long-duration unemployed. These statistics suggest that there remains a great deal of slack in U.S. labor markets, which should be putting downward pressure on labor compensation. Instead, compensation growth has moved modestly higher since 2009. A potential explanation is that the long-duration unemployed exert less influence on wages than the short-duration unemployed, a hypothesis we examine here. While preliminary, our findings provide some support for this hypothesis and show that models taking into account unemployment duration produce more accurate forecasts of compensation growth. ...

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