PERI Review: Spring 2023 Quarterly Research Summary
MTSU Political Economy Research Institute
Engaging students with faculty in research that will further the understanding of business and economic principles.
The Political Economy Research Institute at Middle Tennessee State University is pleased to share the Spring 2023 quarterly summary of research conducted by faculty and student fellows. Published research appears in a variety of academic journals, including a forthcoming piece in Public Choice, as well as Southern Economic Journal and the Journal of Economic Behavior and Organization.
Examining the Public Interest Rationale for Regulating Whiskey with the Pure Food and Drugs Act
By Macy Scheck , PERI Ph.D. Fellow and Daniel J. Smith
Was there legitimate public interest justification for regulating whiskey with the Pure Food and Drugs Act of 1906? High and Coppin (1988) provide evidence for a public choice interpretation of the application of the act to the whiskey industry. The existence of public choice factors, however, does not preclude the simultaneous existence of genuine public interest rationales. The public interest justification was that rectifiers, who flavored neutral spirits to replicate straight whiskey, were commonly adulterating whiskey with poisonous ingredients. We examine these claims using alcohol consumption data, chemical tests of whiskey, trade book recipes, and reported deaths and poisonings from whiskey. We fail to find evidence that whiskey commonly contained known poisonous ingredients. While there is evidence that some poisons were used in whiskey, these ingredients were either not fully understood to be dangerous at that time or were demanded in underground markets. The historical evidence bolsters the public choice interpretation of High and Coppin (1988).
The U.S. Postal Savings Banks System and the Collapse of B&Ls During the Great Depression
By Steven Sprick Schuster (PERI), Matthew Jaremski, and Sebastian Fleitas. Read in the Southern Economic Journal. (March 2023)
Building and loan associations (B&Ls) financed over half of new houses constructed in the United States during the 1920s but they lost their predominance within the following decades as they were pushed to convert into Savings and Loans (S&Ls). This study examines whether the U.S. government-insured Postal Savings System attracted funds away from B&Ls precisely when they needed them the most in the Great Depression. Annual town- and county-level data from 1920 through 1935 for three states show that the sudden rise in local postal savings was associated with local downturns in B&Ls. Using a panel vector autoregression, we find that postal savings significantly reduced the amount of money in B&Ls, yet B&Ls had no significant effect on postal savings banks. Alternatively, postal savings had no significant effect on commercial banks. The results suggest that this competitive dynamic prevented B&Ls from rebounding in the mid-1930s and helped contributed to Great Depression's local real estate lending decline.
The Persuasive Power of the Fourth Estate:? Estimating the Effect of Newspaper Endorsements 1960-1980
By Steven Sprick Schuster
This paper estimates the persuasive effect of newspaper presidential endorsements on its readers over five elections (1960-1980), a period when the vast majority of newspaper endorsements were for the Republican candidate. I find that newspaper endorsements caused a large, significant change in readers’ preferred candidate and Republican endorsements, despite being more common, were at least as effective as Democratic endorsements. Because my empirical strategy allows me to estimate causal effects for a large sample of U.S. newspapers in each election year, I can calculate the cumulative effect of newspaper endorsements. I estimate that over the 5 elections covered in my sample, U.S. newspapers shifted more than 17 million voters toward Republican candidates.
PERI Working Papers
Testing the Lange-Lerner Hypothesis: Does a Monopolized Financial Sector Undermine Democracy?
by Gabriel Frank Benzecry , Nicholas Reinarts , and Daniel J. Smith , Ph.D.
Is a monopolized banking sector a threat to democracy? While Lange and Lerner (1944) recognized that socialism was a threat to democracy, they also held that a tendency towards banking sector monopolization under capitalism would undermine democracy through the inevitable concentration of political power in the hands of banking elites. This led them to exclude the banking sector from their more general support for private ownership of the means of production in their early defenses of democratic socialism. We examine whether banking concentration under capitalism necessarily leads to concentrated political power and the undermining of democracy using Lerner’s Index, V-Dem’s Power Distributed by Socioeconomic Position, and V-Dem’s Political Civil Liberty index. We find no relationship between banking concentration as measured by the Lerner Index and the measures of democracy. We also find no relationship between banking concentration and the concentration of power by socioeconomic status. The results indicate that population growth rates and human capital are the primary determinants of democratic strength.
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Economic Freedom Matters a Lot More for Economic Development than You Think!
By Sean-Patrick Alvarez , Macy Scheck , and Vincent Geloso, Ph.D.
The literature connecting economic freedom indexes to income levels and growth generally points in the direction of a positive association. In this paper, we argue that this finding is a highly conservative one as the data is heavily biased against finding any effects. The bias emerges as a result of the tendency of dictatorial regimes to overstate their GDP level. Dictatorships also tend to have lower scores of economic freedom. This downwardly biases any estimations of the relation between income and economic freedom. In this paper, we use recent corrections to GDP numbers – based on nighttime light intensity – to estimate the bias. We find that the true effects of economic freedom and its components on income levels are between 1.1 and 1.33 times greater than commonly estimated. For economic growth, the bias is far smaller and only appears to be relevant for some individual components such as size of government and property rights.
The Itch to Regulate: The Political Economy of U.S. Barber Licensure in the Progressive Era
By Sean-Patrick Alvarez , Macy Scheck , and Daniel J. Smith
Were public interest or public choice factors the primary reason for the adoption of state barber licensure in the United States during the Progressive Era? The primary public interest rationale for licensure was to protect the public from a communicable disease known as the “barber’s itch.” This paper uses historical newspapers to craft a novel dataset of the reported cases and outbreaks of barber’s itch, advertisements for barber’s itch cures, and advertisements for safety razors for eighteen states that adopted and maintained licensure from 1897 to 1920. While barber’s itch was a troublesome disease, we fail to find evidence that licensure was adopted in response to high caseloads. The data also show that licensure failed to reduce the incidence of barber’s itch. Using newspaper reporting, we also detail the investments that barbershops made to assure patrons of health and safety, further undermining the public interest rationale. Rather, we find that barber’s unions used barber’s itch to advance licensure to thwart competition from discount barbershops and to restrict the supply of barbers coming from barber colleges. There was an increased incidence of newspapers reporting on increased barber prices following licensure, with the reported price of haircuts and shaves increasing 44.4% and 54.9% on average. While licensure was ineffective at stopping barber’s itch, it was effective at restricting competition.
You Have Nothing to Lose but Your Chains? Re-examining the Hayek-Friedman Hypothesis on the Relationship Between Capitalism and Political Freedom
by Gabriel Frank Benzecry , Nicholas Reinarts , and Daniel J. Smith .
Is capitalism a necessary condition for political freedom? Friedrich Hayek argued that capitalism is necessary for political freedom in what is now known as the Hayek-Friedman Hypothesis. While previous empirical work using economic freedom as a proxy for capitalism has somewhat confirmed the hypothesis, these results are sensitive to the definition of capitalism and political freedom. We argue that while Milton Friedman claimed that political freedom could not exist without economic freedom, Hayek argued that political freedom could not exist without private ownership of the means of production. Since indices of economic freedom include factors beyond government ownership of the means of production, this distinction could affect empirical results. We test the Hayek Hypothesis using V-Dem’s measurement of state ownership of the economy and its political civil liberties index, which provides annual data going back to 1789. Our primary results find only one robust instance where a country with heavy to complete state ownership of the economy maintained political freedom: Belarus during the fall of the Soviet Union in 1991. Relaxing our definition to include mixed economies with moderate to heavy ownership of the economy also overwhelmingly confirms the Hayek Hypothesis with only a few robust violators.
ADA to Ph.D.? The Americans with Disabilities Act and Post-Secondary Educational Attainment
by Nicholas Reinarts and Vitor Melo
The Americans with Disabilities Act (ADA) of 1990 requires employers and universities to provide accommodations to employees and students with disabilities. Previous research on the ADA has focused primarily on labor market outcomes. Yet, little is known about how the ADA affected the educational attainment of people with disabilities. This paper fills this gap by examining the effect of the ADA on the decision-making of disabled Americans regarding post-secondary education. Using data from the CPS, we implement difference-in-differences and synthetic difference-in-differences empirical approaches to estimate this causal effect. We find that the ADA substantially negatively impacted post-secondary educational attainment, which is the opposite of its intended objective.
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