Has the US reached peak political fragmentation?
In this paper we quantitatively investigate the degree of political partisanship in the US legislative chambers. Not only is political fragmentation in the US agreed to be high, but there is broad consensus that excessive levels of political fragmentation can have negative knock-on effects for the economy and much besides.
We leverage a novel dataset of Congressional representatives’ ideological scores and propose proxies to quantify intra-party partisanship in the US through its Congressional history. We find, irrespective of proxy, that the US is at or near peak polarisation in both chambers of Congress.
We also find heightened inter-party fragmentation and note that the recent, post-WW II increase in partisanship is at least partly explained by conservatives becoming more conservative, and not symmetrically matched by liberals.
We finally determine what, if any, relationship exists between political partisanship and financial markets using a look-back period that extends to the founding of the Republic. We generally find no relationship between partisanship proxies and returns, all else being equal, but observe a relationship with the volatility of US bonds (equities) which tends to be higher (lower) during periods of elevated levels of partisanship, albeit with unconvincing statistical significance
Read the full report here.