How Political Conflict Shapes Macroeconomics: Alberto Alesina’s Intellectual Legacy

One of the most respected economists of his generation, Harvard professor Alberto Alesina suddenly died at 63. His friend and colleague Guido Tabellini recalls how Alesina changed the way scholars study the interactions between politics and economics.

I met Alberto Alesina for the first time at Bocconi University, when he was writing his undergraduate thesis on inflation and asset price indexation. I still recall his happy smile the first time I saw him. We remained very close friends since then.

Alberto was one of the most creative economists of his time. He had two characteristics that made his work so important and influential.

First, he asked new fundamental questions, which nobody had asked before. Second, he had a powerful intuition, which enabled him to single out the key aspects of the problem. His explanations often seemed so simple and obvious, that you often wondered why nobody had thought that way before. And yet, they were new and surprising and opened up new thoughts and ideas.

Alberto was trained as a macroeconomist, and his PhD thesis opened the field of political economics. Those were the heydays of rational expectations and applied game theory. Alberto was the first to apply the insights of these powerful new tools to explain policy choices by rational and strategic politicians.

The themes he explored in the first phase of his research reflected his Italian background.

He grew up in Italy in the 1970s. This was a period of stark ideological and political conflicts, with extreme polarization leading to frequent strikes, left-wing terrorism, capital flight.

It was obvious that these conflicts had a large impact on the economy, and yet they were neglected by frontier economic research in the 1980s.

Politics was at the heart of the School of Public Choice, but the focus of this line of research was on agency problems, or lobbying by special interests. And macroeconomics was devoted to general equilibrium analysis of representative agent models, where politics did not matter.

The main contribution of Alberto’s early work was to show that political conflict has a central role in explaining several macroeconomic phenomena.

In his early work, he took seriously the idea that politicians are also motivated by partisan ideologies, and not only by opportunistic motives. This seems obvious now, but until then politicians were seen as exclusively guided by the desire to win votes, and policy convergence at the election was taken as the norm.

He then went on to study how election outcomes affect business fluctuations, and how political polarization and harmful policy divergence are moderated by voters at the elections, or by cooperation between politicians alternating in office.

He then took some of the insights of his earlier papers to dynamic economies.

He showed that political conflict and polarization are central to explain the accumulation of government debt and the procrastination of painful policy choices. He also explored how redistributive conflict influences economic growth. In a number of pioneering contributions, he then explored the implications of political and economic conflict for the choices of secession and integration by sovereign nations.

This first phase of economic research was mostly, though not exclusively, theoretical. It was also firmly grounded on the assumption that voters and policymakers are rational. But while the assumption of rationality is appropriate to study the behavior of professional politicians, it is much less convincing when used to explain how people vote.

Alberto was amongst the first economists to acknowledge this limitation, and to adapt insights from sociology to explain voters’ behavior. In several pioneering contributions, he showed how slow-moving cultural traits influence economic, political, and administrative behavior in a number of domains, including courts of justice, how conflict resolution is easier amongst co-ethnics or people who trust each other, and what consequences this has for public good provision and preferences for redistribution.

This more recent line of research is primarily empirical. The microeconometric revolution changed how evidence is brought to bear to economic analysis and imposed new standards for causal inference. Alberto was again amongst the first to realize what was happening. Directly with the example of his work, and indirectly through his leadership of the NBER program, he had a huge impact in changing how frontier research is done in political economics.

What once was a field of applied theory is now primarily an empirical field of research.

This transformative impact on the field of political economics continued until his last days. The collection and analysis of original survey data is now an important step to understand voters’ behavior, and Alberto’s most recent and ongoing contributions in this area provide key new insights on how voters form their preferences and beliefs.

Besides being a founder and pioneer of political economics, Alberto always retained a keen interest in public policy. His latest (prize-winning) book shows that the consequences of contractionary fiscal policies differ depending on how they are carried out.

He was an influential contributor to policy debates, through his academic work and through a regular column in the main Italian newspaper il Corriere della Sera.

Last but certainly not least, he was a fundamental mentor and source of inspiration for innumerable graduate students and colleagues, who are now first-rate economists throughout the world. This was no chance: it reflected his warm and engaging personality, and his genuine and intense caring for the world around him. We will all miss him enormously.