INTRODUCTION

A primary purpose of this book is to understand how politics affects public policy. In the previous chapter, we considered two possible scenarios. One had politics leading to middle-of-the-road policies as the result of electoral competition between electoralist parties. This approach was refuted both theoretically, because of the inability of candidates to make credible campaign promises, and empirically, because of widespread observations of party polarization. The other scenario had partisan politics with alternation between the relatively extreme policies pursued by two polarized parties.

This second scenario is also likely to be inaccurate because it ignores the institutional structure that leads to policy formation. In the United States, the Constitution provides for “checks and balances”. Legislation, including measures that affect economic policy, requires congressional majorities and a presidential signature. Regulatory agencies, important in policymaking (like the Federal Reserve), are subject to congressional oversight. The need for some degree of concurrence between the executive and legislative branches of government contributes to policy moderation.

In this chapter, we consider the effect of institutional “checks and balances” on policy moderation in a highly stylized manner that is, nonetheless, empirically descriptive. We build on the case of fully divergent and “immobile” parties of section 2.4: if the executive has full control of policy, the two parties implement their ideal policies. We posit, however, that the influence of the executive in policymaking is mediated by the legislature: policy depends on which party holds the presidency and on the composition of the legislature. We view policy as a compromise between the executive and the legislature.