Economic policymaking during recessions takes such a long time that the benefits of ameliorative governmental action can be reasonably questioned. This represents a policy problem as crafting policy during recessions is fraught with uncertainty and doubts about effectiveness. It also represents a political problem for the policymakers. Elections---and careers---hang in the balance given that the economy is a highly salient issue on which voters base their decisions at the ballot box. This motivates the basic question for my research: Why is it that policy responses to American economic downturns are often late and incomplete?
The answer I offer lies in the inter-institutional politics of highly technical and diffuse policymaking. I show that economic policymaking during times of crisis is hampered by the inability of policymakers to recognize the onset of a recession, craft an appropriate response, and win adoption of such policies in a timely manner. While others have pegged such delay on partisan politics or the limitations of divided government and institutional procedures, I focus on the role of uncertainty inherent in economic information. I argue that the difficulty of predicting an economic downturn and the effects of proposed responses makes building inter-institutional consensus around policy priorities exceptionally challenging. Perversely, policymakers find it most difficult to act in a timely manner when timely action is most needed.
I examine the three dyadic relationships that shape macroeconomic policy: Congress and the Federal Reserve, the Executive Branch and the Federal Reserve, and the Executive Branch and Congress. My theory considers the political processing of economic information, where each institution signals to its relevant pair important political and policy-related information. These information flows are conditioned by political incentives, issues of expertise and reputation, and credible commitment. The members of each institution have their own political aspirations, whether it is a member of Congress seeking reelection or a bureaucrat maintaining autonomy; their own concerns about reputation and expertise, whether it is a committee in Congress maintaining its turf or a President avoiding blame for a poor economy; and their own limitations on commitment, such as the Fed's willingness to print money or the President's ability to veto legislation. Accordingly, the signals transmitted between the institutions provide the coordinating mechanisms needed to create both fiscal and monetary policy responses to downturns.
I employ a multi-method approach for the empirical examination of each institution's signaling and responses to economic information over the period 1958-2011. This period encompasses nine distinct recessionary periods.
For Congress, I collect a dataset of committee hearings that focused on the economy and the witness lists to those hearings as a basis for assessing the degree to which Congress relies on Fed and Executive Branch officials for policy- and politically-relevant information. For the Executive Branch, I collect presidential speeches and statements of administrative policy to measure the President's attention to the economy and substantive focus through qualitative analysis. Bureaucratically, I also examine the number of and size of economic forecast revisions. For the Fed, I collect Open Market Committee minutes and economic summaries published in the so-called ``Beige Book.''
My analyses include both an aggregate analysis of recession politics over the 1958-2011 period and a set of empirically-based case studies of inter-institutional information processing for the three sets of dyads noted above. The aggregate analysis is based on the timing of each institution's responses to different objective economic indicators, such as unemployment and the value of Treasury Bonds, and the types of information to which each institution attends. The case studies are based on archival research and interviews with policymakers. A unique aspect of the cases is the use of textual analysis software to characterize and compare the content and types of information located in hearing testimony, speeches, and bureaucratic reports. This provides the basis for showing how information processing presents a problem in its own right beyond partisan politics and procedural limitations.
This dissertation uses established methods of inquiry in new ways to delve into an important and timely subject. I integrate several strands of institutional analysis to analyze where the myriad blind spots that hinder macroeconomic policymaking performance arise, and why those sources of friction limit the ability of our policymakers to win adoption of effective policies in a timely manner. This analysis offers a view of policymaking across institutions rather than examining the institutions in isolation. For scholarship in American politics, this dissertation contributes a detailed study of an often overlooked variable in the study of institutional relationships: information. For policy process scholarship, this work adds to the literature on information and attention by focusing on how friction can develop across institutions. Many policies are reactionary and a ``day late and a dollar short'' and this study proposes a research agenda that seeks to uncover the informational reasons for such failures.
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