The past year has revealed deep fractures in our economy, polity, and society, endangering not only lives but also long-term livelihoods. As policymakers chart a transition to a more inclusive recovery, how do we heal these fractures?
The tenth annual conference of the Julis-Rabinowitz Center for Public Policy & Finance, Healing the Big Fractures in the Economy, Politics & Society, virtually convened a distinguished array of prominent researchers from the fields of economics, psychology, public policy, finance, law, government, and behavioral science to take an interdisciplinary, evidence-based approach to answer this question, with an eye on pragmatic policy solutions.
The first day of the conference focused on politics, examining political partisanship, polarization, and misinformation in the United States and around the world. The second day focused on economics, investigating the question of how to increase investment to meet the challenges of 2021 and beyond in an equitable, inclusive, and sustainable way.
Barely four weeks after the inauguration of President Joe Biden, amid continuing economic, health, and climate crises and a rise in political tensions, the speakers offered insight in deciphering the unprecedented events of 2020, as well as a roadmap for where to go from here.
For Better or Worse: The Role of Social Identity During a Pandemic
Jay Van Bavel, Associate Professor of Social Psychology, Cognition and Perception, and Neural Science, and Director of the Social Identity & Morality Lab at New York University, delivered the first keynote address. Eldar Shafir, Class of 1987 Professor of Behavioral Science and Public Policy, Professor of Psychology and Public Affairs, and the Inaugural Director of Princeton’s Kahneman-Treisman Center for Behavioral Science and Public Policy at Princeton University, introduced Van Bavel and moderated the subsequent question and answer session. Van Bavel’s talk examined the challenges of responding to a pandemic that calls for social cohesion and national unity during a time of fierce social and political divides in the United States, and how the country’s pandemic response compared to other nations.
Van Bavel highlighted the mechanisms through which partisanship in the U.S. mediated Covid-19 outcomes in different states and counties. He noted that party affiliation was a strong predictor of the public’s feelings about the severity of the pandemic in its early stages, as was the consumption of news media from different sources and even different news anchors. For many Americans, political party affiliation is deeply intertwined with personal identity. “The country is polarized, the politicians are polarized, the media is hyper-polarized...and individuals have polarized,” he said. Psychologically, Van Bavel explained, “when you see information that’s presented a certain way...for hyper-partisan individuals...it gets filtered through these identities,” including party identification. When our goals for affirming our identities and the groups we belong to outweigh our goals for accuracy, it can lead us to interpret facts differently.
“Polarization in the interpretation of crowd sizes doesn't matter, of course. They’re politically significant, but they don’t affect people’s life or death. But when you have something like this–a virus, a pandemic–filtered through that lens, it can become incredibly devastating.”
During the pandemic, political affiliation has been predictive of the public’s compliance with health and safety guidelines. Data from 15 million smartphones demonstrated “a significant partisan gap” in people’s social distancing behavior, with people living in counties that voted for Hillary Clinton in 2016 socially distancing far more than people who live in counties that voted for Donald Trump in 2016. Interestingly, this gap could be accounted for by the news sources that were most watched in that county. “The impact of leaders is filtered or amplified by mainstream media,” Van Bavel explained.
Van Bavel closed his talk by discussing his most recent research on the topic: a global survey administered in 67 countries, with a final sample size of 46,500 that showed that national identity (closely identifying as a citizen of one’s country) predicted adherence to Covid-19 public health guidelines, whereas national narcissism (an inflated belief in the greatness of one’s country) predicted the opposite within countries, especially in the United States and Brazil. Polarization, which can undercut public health behavior, especially when identity leaders downplay risks, is at odds with national identity. This finding offers a path forward, said Van Bavel. Leaders who can rally people around a common “us” and promote social cohesion, along with more balanced media platforms and personalities, may remedy hyper-partisanship and ultimately save lives during a pandemic.
How can we move beyond post-truth politics?
Following Van Bavel’s keynote, Nolan McCarty, Susan Dod Brown Professor of Politics and Public Affairs at Princeton University and moderator of the session, kicked off the first panel of the conference by highlighting the urgency of the topic. “The importance of misinformation, distrust, partisanship, and polarization for the current crisis of democratic governance is pretty self-evident,” he said, noting a recent survey that showed nearly one-third of Americans would rather the nation be broken up into four regional countries. The three panelists examined this partisanship in detail, discussing affective polarization, political violence, and practical steps to combat misinformation and reduce polarization.
Yphtach Lelkes, Assistant Professor of Communication and Political Science at the University of Pennsylvania, began by asking, “Are we driven by hate or fealty?” The period between 2016-2020 saw the largest jump in affective polarization, defined as the difference between the feelings for one’s own party and the feelings toward the other party, in 40 years in the United States. Though many assume that negative partisanship, or animosity towards the opposing party, is driving polarization, Lelkes expressed skepticism. Social psychology research shows “ingroup attachment is more important than outgroup hate,” he noted. Lelkes cited his own survey research, in which respondents were more driven by affirmational identity (identification with their own party) than negational identity (opposition to the other party). While acknowledging the rise in negative partisanship, Lelkes closed on a somewhat positive note, saying, “politics is still about wanting to help your side, not hurt the other side.”
Next, Lilliana Mason, Associate Professor of Government and Politics at the University of Maryland, College Park and author of Uncivil Agreement: How Politics Became Our Identity, spoke about the links between political violence and partisan identity in the U.S. To measure radical partisanship, Mason investigated the trends in moral disengagement–defined as beliefs that the other party is a serious threat, downright evil, or are less than human–and support for political violence in the U.S. The results are illuminating. Around 60 percent of Americans agree that the other party is a serious threat to the American people, half say the other side is evil, and nearly one-third say outgroup partisans are like animals. Mason noted that a strong social connection with fellow partisans was a predictor of both moral disengagement and condoning political violence, regardless of political affiliation, although feelings of racial resentment and hostile sexism predicted moral disengagement and condoning political violence only among Republicans. Leaders have an important role to play in addressing hyper-partisanship and political violence, Mason concluded, noting that strong partisans who read an anti-violence message from their leader are much less likely to condone violence than those in a control group. “While these are all very worrying phenomena, we know that our leaders can change people’s attitudes,” she said. “To the degree that we can encourage our leaders, and even our media, to discourage violence and discourage this dehumanization, we should be encouraging them to do that.”
Concluding the panel, Sander van der Linden, Professor of Social Psychology in Society, Director, Cambridge Social Decision-Making Laboratory, and Fellow in Psychology, Churchill College at the University of Cambridge, noted the problems with the retroactive correction, or the debunking and fact-checking, of misinformation. Drawing on part of his forthcoming book, The Truth Vaccine: An Antidote to Fake News and Misinformation, Van der Linden argued for “prebunking,” or inoculation against misinformation, to complement existing debunking strategies. Via an online game, Bad News, Van der Linden and his collaborators attempted to train roughly 15,000 participants to recognize six different components of misinformation. After exposure to the game, participants were significantly more likely to rate fake news sources as less reliable, regardless of political affiliation. A randomized controlled trial showed the same effect, and a longitudinal study showed that there is a decay of this effect over time, meaning that individuals must periodically re-train themselves to recognize misinformation in order to sustain “immunity” to fake news. A global version of the game translated into different languages has demonstrated similar cross-cultural results. These developments are promising, van der Linden concluded, but the ultimate goal is herd immunity, or having a critical number of people inoculated against misinformation to limit its spread.
A Mission Economy
Mariana Mazzucato, Professor in the Economics of Innovation and Public Value at University College London (UCL) and Founding Director of the UCL Institute for Innovation & Public Purpose, kicked off the second day with a keynote talk featuring lessons from her new book, Mission Economy: A Moonshot Guide to Changing Capitalism. Modern societies have to catalyze more economic investment and ensure reinvestment of profits to make progress toward the Sustainable Development Goals (SDGs), she argued, proposing a framework for achieving these goals in a sustainable, equitable way.
Starting from the premise that “deep change is needed” in capitalism and how we approach the global challenges, Mazzucato highlighted three big dysfunctions in the current system. One, the channeling of investment into non-growth sectors such as financial services, insurance, and real estate. Two, the business sector’s “short-termist and extractive” focus on increasing shareholder value rather than stakeholder value. And, three, how governments remain “stuck fixing and tinkering” market failures rather than being proactive, innovative drivers of change. To achieve bold, ambitious goals for progress on the SDGs, Mazzucato argued that we should take the same approach towards fixing the problems of our time as the United States did to get astronauts to the moon and back. When President John F. Kennedy declared that the U.S. would send humans to the moon and back in one generation, the nascent National Aeronautics and Space Administration (NASA), established in 1958, had neither the technology nor the organizational capacity to succeed. But by setting an ambitious target, building a purpose-driven partnership with innovative businesses, and strengthening the organization itself, NASA achieved its goals and contributed tremendous value through the technological innovation and new knowledge that spilled over from the project into the broader economy. To meet the urgency of our current moment, the government must lead boldly, she said.
“We need to think differently. We need to admit that value is created collectively, not just from business, but also from different types of actors in the public sector and the third sector, and none of the big challenges that we have that are underneath the 17 Sustainable Development Goals...none of these are going to be solved by one actor alone.”
Although NASA’s approach to the moon landing is worth emulating, it is important, Mazzucato emphasized, not to ignore the problems that characterized U.S. society during the moonshot era. The U.S. did not address racial and economic inequities with the same ambition and investment as it did its mission to get to the moon. Inclusive and sustainable growth, not growth alone, must be the goal.
In closing, Mazzucato offered a framework for bringing a mission-oriented approach to everyday policy design for governments. “The key lesson is you begin with the challenge,” she said. To meet these challenges, Mazzucato concluded, we will need to refocus economics towards the value that is collectively created, markets that are co-created and not just fixed, organizations that are reshaped, finance that is focused on outcomes-based budgeting, proactive distribution, stakeholder value that drives partnerships, and participation that is accessible to citizen engagement.
How can we increase investment?
Following Mazzucato’s call for investment in innovation to tackle the SDGs, the first panel, moderated by Mian, featured two speakers, each of whom had recently released an influential book on how to do so. Simon Johnson, the Ronald A. Kurtz (1954) Professor of Entrepreneurship and Professor of Global Economics and Management at the MIT Sloan School of Management, summarized the key points of his 2019 book, Jump-Starting America: How Breakthrough Science Can Revive Economic Growth and the American Dream. Johnson highlighted the geographic segregation of innovation in the United States, which is disproportionately concentrated on the East and West coasts, as a barrier to participation in the “innovation economy” for most Americans. He argued for more public investment in research and development as well as greater private investment, with the goal of “spread[ing] that innovative spirit around the country and creat[ing] something...much closer to what we had before in the 1940s, 50s, and 60s” in order to catalyze investment and inclusive growth in the United States.
Thomas Philippon, the Max L. Heine Professor of Finance at the Stern School of Business at New York University, followed with a talk on “The Low Investment Puzzle: Technology, Share Buybacks, and Concentration,” that drew on his 2019 book, The Great Reversal: How America Gave Up on Free Markets. Philippon began by highlighting that total U.S. after-tax corporate profits are very high as a percentage of GDP. Despite high profits, net investment by private companies is low. Most of the profits are not being plowed back into existing or new businesses, but are being saved as cash or extracted as share buybacks and dividends to shareholders. However, not every industry exhibits this pattern, Philippon said. “The investment gap is exclusively coming from industries that have become more concentrated,” he concluded. Part of the issue explaining historically low private investment, then, is lack of competition. According to Philippon, addressing this lack of competition will be crucial to spurring private investment in the United States in the future.
How can we make growth more equitable?
Moderated by Ilyana Kuziemko, Professor of Economics at Princeton University, the last panel honed in on the structural changes required to make the growth process more equitable. While redistribution can reduce inequality today, how can we ensure that future growth is also inclusive and shared? Trevon D. Logan, Hazel C. Youngberg Distinguished Professor of Economics at The Ohio State University, began by talking about the racial fractures in U.S. economic policy. In answering the question of how to create equitable growth, Logan emphasized the need to look more deeply at how our nation has deliberately made growth unequal to this point. Logan highlighted reconstruction, legalized segregation and discrimination, and civil rights and the post-civil rights eras as the most salient “historical fractures” for understanding these inequalities. “What I want to stress about each of these experiences is not simply the exclusion of African Americans or discrimination against African Americans. It is the fact that the federal government itself has redistributed wealth to White Americans at the exclusion of Black Americans,” Logan said. To create equitable growth in the future, Logan concluded, “requires acknowledging the ways in which race has shaped our history.”
Katharina Pistor, Edwin B. Parker Professor of Comparative Law at Columbia Law School and author of the 2019 book, The Code of Capital: How the Law Creates Wealth and Inequality, focused on the idea of predistribution, or how wealth is created before it is distributed. She emphasized how historical inequities in access to the legal code, which enforces private property rights in the U.S., have contributed to inequalities in the present-day. Pistor advocated rolling back the private law “steroids” that have maintained these inequities, as well as a larger legal “recoding project” to eliminate state-sanctioned discrimination and strengthen legal insurance against risk.
Gabriel Zucman, Professor of Economics at the University of California, Berkeley, followed with a discussion of “Progressive Wealth Taxation: Past and Future.” Summarizing key points from his book, The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay, Zucman began by acknowledging the demand for progressive wealth taxation today in the United States. This demand has been sparked by growing income inequality and the proliferation of billionaires whose wealth generates little taxable income. In evaluating the potential for an effective wealth tax in the U.S., Zucman highlighted the shortcomings of European systems of wealth taxation, namely: tax competition between countries, tax evasion, and low exemption thresholds. The history of taxation in the U.S. is “full of U-turns,” he argued, however, an American wealth tax could work, with the right policy choices.