…Tyler Cowen attributes the decline in public-sector employment to “a collapse of trust in politics.” In fact, he says, “the reason that we aren’t getting more expansionary macro policy is fundamental: a lack of trust.”
I don’t buy it. I think the reason we aren’t getting more expansionary macro policy is a polarized political system oriented toward gridlock.
If there’s been a decline in trust toward state and local governments, it’s hard to find it in the polling. State and local governments rank as highly trusted. In a March 2011 poll — so, the period when state and local cutbacks were at their worst — Gallup found that most Americans thought state and local governments had “about the right” amount of power. Only 34 percent wanted state governments to have less power, and only 22 percent wanted local governments to have less power. They outpolled banks, corporations, the federal government and the courts. Local government outpolled churches.
I view political polarization as another manifestation of lack of trust. For instance the core voters behind the two major parties do not trust each other in power. In addition Republicans, many independents, and also many Democrats do not trust that tax hikes or rising deficits actually will be used to provide useful public services. (Ezra himself has stressed in the past how far to the right the Democrats have moved on taxes.) They still like their local school teachers, but they also do not trust “Federal-state/local coordinated fiscal stimulus.” Obama stopped boasting about the first round of stimulus some time ago, correctly or not.
I would add that gridlock is endogenous; for instance the Democrats, when they possibly had a chance, did not make hard moves to try to abolish the filibuster and these days they are not keen to present and vote on federal budgets. Politicians do not have enough trust that voters will reward them for being courageous, if that is the right word, and voters do not have enough trust that the political act is in fact one of courage. Yet I doubt if we’ll see gridlock on the Medicare doc fix or the AMT patch, as most people still trust direct cash or in kind benefits to themselves.
On another of Ezra’s points, I don’t think trust has fallen because voters are not getting what they want, but rather because the economy has turned down and they feel less wealthy and face higher risk. (Not getting what you want is more likely to explain trust levels rather than changes.) Here is plenty of evidence that trust in institutions falls cyclically. Although the study does not measure trust in local government, the effect appears to be fairly general.
It’s also not electoral gridlock which stops the Fed from doing more. One major obstacle is simply that voters and many interest groups, rightly or wrongly, view additional inflation as a major vehicle for wealth redistribution and they do not trust that they “will get their money back” through other means.
Addendum: Catherine Rampell adds comment.