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Tuesday, April 01, 2008

The President's Party Affiliation and Changes in Inequality

Will Wilkinson says he has questions about a result in Larry Bartels' new book concerning the relationship between changes in inequality and whether the president is Republican or Democrat:

Unequal Democracy, by Will Wilkinson: I’m three pages into the first chapter of Larry Bartels’ forthcoming Unequal Democracy: The Political Economy of the New Gilded Age and I have questions:

My examination of the partisan politics of economic in equality, in chapter 2, reveals that Democratic and Republican presidents over the past half-century have presided over dramatically different patterns of income growth. On average, the real incomes of middle- class families have grown twice as fast under Democrats as they have under Republicans, while the real incomes of working poor families have grown six times as fast under Democrats as they have under Republicans. These substantial partisan differences persist even after allowing for differences in economic circumstances and historical trends beyond the control of individual presidents. They suggest that escalating inequality is not simply an inevitable economic trend— and that a great deal of economic inequality in the contemporary United States is specifically attributable to the policies and priorities of Republican presidents.

Fascinating if true! But, congress writes the laws, not the president. So why not look at the party tilt of congresses rather than presidents? Or the alignments between the party controlling congress and the part in the White House. What happens under divided government, I wonder.

This is not to say that presidents don’t have a lot of policymaking power... The cabinet agencies’ considerable discretion in creating and enforcing regulations and their ability to selectively apply and enforce legislated mandates should be troubling — in itself and independent of issues of partisan slant — to those, like Bartels, who start with the Dahl’s “Who governs?” question.

Because growth effects, for good or ill, follow policy changes with a pretty long lag (in political time at least), I guess this effect is supposed to be largely a function of redistributive policy that can take effect within a president’s term?

I’m looking forward to reading pages 4 - n. ... I find that I’m completely convinced by the main premise .. that a great deal of the increase in inequality has been an effect of Republican approaches to taxation and redistribution. I’m simply not convinced that this is pernicious. I do think economic stratification is pernicious, but that has more to do with the Democratic Party standing in the way of fundamental structural reform in education as it has to do with Republican tax cuts for rich people, doesn’t it? ... Page 4, here I come!

Dani Rodrik has already read past page three, and he is quite convinced by what he has read:

American political economics in one picture, by Dani Rodrik: Look at the figure below, and then look at it again, and again, and again.  It is the most telling picture about the U.S. political economy I have ever seen.

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...What it shows is the difference that the President's party affiliation makes to the distribution of income during the four years of the president's term. (The distributional outcomes are shown with one year's lag.)  When a Republican president is in power, people at the top of the income distribution experience much larger real income gains than those at the bottom--a difference of 1.5 percent per year going from the bottom to the top quintile in the income distribution. The situation is reversed when a Democrat is in power: those who benefit the most are the lower income groups. If you are in the bottom quintile, the difference between having a Democratic or a Republican president in office is an income gain (or loss) of more than 2 percent per year! Strikingly, compared to Republicans, Democratic presidents generate higher income gains for all income groups (although the difference is statistically significant only for lower income groups).

Bartels shows in his book that this difference is not a statistical artifact or a fluke.  It is not the result of Democrats coming to power during better economic times, or of Republicans reining in the unsustainable excesses of Democratic administrations they replace. (It turns out that the same pattern prevails even when a Republican president is succeeded by another Republican.) These numbers are real and they are the outcome of partisan differences in policy. So if you are one of those who have bought the story that income distribution is the result of pure market forces and technological changes, with politics playing no role--think again.

Bartels' findings raise an important puzzle: if Democrats produce better income results for everyone, and particularly for the more numerous lower-income groups, why do they not always win?  Bartels offers a rather complicated, but well-supported answer to this question having to do with voter myopia and psychology.  (You will have to wait to read his book to get the full story). But Bartels does demolish two of the standard arguments regarding Republican advantages at the polls: the idea that poor Americans vote Republican for cultural reasons, or that Americans do not care about inequality.

    Posted by on Tuesday, April 1, 2008 at 12:52 AM in Economics, Income Distribution, Politics | Permalink  TrackBack (0)  Comments (107)

          

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