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Larry Bartels, and how Republican Presidents drive income inequality
He writes:
In any case, the largest partisan differences in income growth, by far, occur in the second year of each administration.
The link, by the way, answers many objections to his basic thesis. View this graph if you don't already know the argument. The core claim is that Republican Presidents are better for the rich and Democratic Presidents are better for the poor, and to a striking degree.
I view the statistical significance of the Bartels result as stemming from monetary policy. Republicans are more willing to break the back of inflation and risk an immediate recession. Alternatively, it could be said that central bankers expect enough support for tough, anti-inflation decisions only from Republican Presidents. (Note that Jimmy Carter, who did support Volcker, is in fact the single Democratic outlier.) Note that without the monetary policy effect, only a few data points, mostly from very recent times, support the basic claim. Without the monetary policy effect, I do not think that statistical significance would remain. Furthermore other plausible channels for income inequality effects, such as tax and regulatory decisions, would not be concentrated in the second year of each administration. Monetary policy decisions would be. A recession, by generating more unemployment, hurts the poor the most in proportional terms.
So what does this all mean?
Inflation is good for the poor in the short run, since many poor are debtors. But inflation is bad for the poor in the long run. Just ask anyone who lived through the New Zealand inflation of the 1970s.
So Bartels could have entitled his key graph: "Democratic Presidents live for the short run and we need a Republican President every now and then."
Addendum: Even Paul Krugman wonders about the basic mechanism driving the result.
Posted by Tyler Cowen on April 7, 2008 at 11:20 AM in Political Science | Permalink
Comments
"The core claim is that Republican Presidents are better for the rich and Democratic Presidents are better for the poor, and to a striking degree. "
The chart shows Democrats as better that Republicans for everyone.
Posted by: richard at Apr 7, 2008 11:43:26 AM
The analysis is completely static!
"People at the top" do better than "people at the bottom" makes no sense if the people are different day to day.
The average wage that an unskilled person earns may remain the same for many years - but what matters is whether the unskilled person is still making the same money 10 years later.
Growth in absolute economic mobility is what matters. Otherwise you're potentially just saying that when Republicans are in power, today's recent Mexican immigrant doesn't make twice as much as yesterday's all of a sudden; while a Democrat in power is more likely to increase the minimum wage, causing unemployment, stagnating the unskilled worker's career, but adding nominally to the static picture of an "increase in wages of the poor."
Economic growth should also lift the entry-level wage, but much slower than the increase in non-entry positions. You may still start at the bottom, but how soon are you doubling your salary? But a static picture can't tell you that.
Posted by: liberty at Apr 7, 2008 11:44:28 AM
Having read both Rodrik's and Krugman's posts, I still cannot figure out if this is pre- or post-tax real income. This is a significant point that needs to be addressed before any worthwhile discussion can occur.
Posted by: zach at Apr 7, 2008 11:53:07 AM
The economic mobility argument has become the fall-back position for conservative defense of a more and more indefensible economic paradigm.
"The myth of economic mobility "
http://www.epi.org/content.cfm/webfeatures_snapshots_archive_07192000
Economic Mobility Project
http://economicmobility.org/
EMP Latest Findings...
[All Americans do not have an equal shot at getting ahead, and one’s chances are largely dependent on one’s parents’ economic position.
...
The chances of making it to the top of the income distribution decline steadily as one’s parents’ family income decreases.]
Posted by: ideogenetic at Apr 7, 2008 12:15:33 PM
ideogenetic: Those links discuss relative, not absolute, mobility. My argument is not that people's parents don't influence whether they end up at the top of the income distribution, but rather that looking only at the absolute wages of a certain static part of the distribution tells one little about whether or not people are doing better.
A flood of new immigrants and high school students will be making up the new entry-level poor; while 90+ % of those that start out there are no longer in that quintile 10 years later (see the Cox and Alm or the Treasury paper on absolute mobility).
The static analysis simply tells us nothing about whether the people who are "poor" when the President enters office are doing better when the term ends.
Posted by: liberty at Apr 7, 2008 12:56:03 PM
Umm, Tyler, you got any data to go with that totally unsupported opinion about monetary policy? It shouldn't be too hard for a good economist to come up with something.
Posted by: vorkosigan1 at Apr 7, 2008 12:56:40 PM
Yes, Greenspan (1987-2005, Bush, Clinton, Bush) certainly was willing to break the back of inflation. Wait, what, you mean that's not right?
Posted by: F at Apr 7, 2008 1:10:12 PM
To echo Richard. Let's be clear, according to the research, Democrats are better for the rich, the poor, and everyone in between. Tyler mis-blogs when he writes, "The core claim is that Republican Presidents are better for the rich and Democratic Presidents are better for the poor, and to a striking degree." Dems are just strikingly better for the poor and only marginally better for the rich.
Posted by: KJ at Apr 7, 2008 1:12:19 PM
Actually I think its better to run far far far away from this analysis and go straight to the core claim, which is that high taxes, lots of government spending, a FED that is largely unconcerned with inflation, and a quasi-socialist form of social organization is obviously the best way for human beings to co-exist.
I take Krugman, Rodick, and Bartels with a grain of salt because I simply cant take that plunge. I cant believe that such a state affairs would be good for society over the long run. I also dont think that its fair claim to scapegoat moderate laissez faire ideology because Nixon was not a good president.
Posted by: John Pertz at Apr 7, 2008 1:19:40 PM
<>
The graph only includes outcomes for quintiles. Maybe the very rich (e.g. top 1%) or ultra rich (top 0.1% or 0.01%) actually have done better under Republican administrations.
Posted by: a student of economics at Apr 7, 2008 1:33:49 PM
Boy, Krugman can't refrain from embarrassing himself. Love this comment, "Sure, Republicans want an oligarchic society." They do? I don't know what planet that guy lives on, but it ain't planet earth.
Posted by: Paul at Apr 7, 2008 2:22:16 PM
{Those links discuss relative, not absolute, mobility.}
Au contraire!
[Previous chapters have shown that family background exerts a strong influence on the position adult children reach in the income distribution and on both their absolute and relative mobility.] - "Getting Ahead or Losing Ground: Economic Mobility in America"
By Julia B. Isaacs, Isabel V. Sawhill, and Ron Haskins
http://economicmobility.org/assets/pdfs/Economic_Mobility_in_America_Full.pdf
Link currently on the home page of the Economic Mobility Project.
Posted by: ideogenetic at Apr 7, 2008 2:26:44 PM
John Pertz -- what a great description of the modern Republican party.
Posted by: spencer at Apr 7, 2008 2:57:05 PM
ideogenic:
I am aware of that study. In fact, I contributed a small part to the International Comparisons of Economic Mobility chapter.
I retract my statement that all of your links refer to relative mobility (though be careful in what you take away from each of those studies, as much of it still is partly or entirely based on relative comparisons, or controls for age such that only sideways mobility counts). However, the rest of the point stands.
Posted by: liberty at Apr 7, 2008 2:59:42 PM
European countries and Japan have had little or no increase in inequality since WWII, which would imply that government policy matters beyond just controlling inflation
http://www.visualizingeconomics.com/2007/03/14/
comparing-income-of-top-01-percent-in-five-countries/
Comparing their policies with the US policies under Republican and Democratic presidents will probably provide some of the reasons for Bartel's results. Democrats will almost certainly have more in common with the policies of social welfare states
Posted by: joan at Apr 7, 2008 3:01:58 PM
The deeper issue, one that I'm really starting to wonder about, is how often do economists commit a correlation-causation falacy when it comes to politics? It seems like they often say, "A happened while B was in office, therefore B caused A." But C, D and E also occurred in that time span. And F, G and H occurred a few years earlier, but their effect wasn't felt until then. Throw in some confirmation bias with somebody like Krugman and you have some really bad reasoning.
Take the downturn in the '70s. Yes, you went from Democratic presidents to Republicans, but other events occurred as well. Significant events, like the invention of the microchip and the introduction of the Toyota Corrolla (it commoditized autos), occurred outside the world of politics. But all many economists seem interested in is what government policies were put in place during these periods.
Sometimes I feel economists love order and they seek it where it may not exist. If governement policy is the main cause of economic events, then order can be created through "better" policies (whatever that means). But the reality is it probably cannot.
Posted by: Ted Craig at Apr 7, 2008 3:29:02 PM
1. Way too small of a data set to yield much data.
2. Congress holds as much power as the President in domestic policy.
3. Economically IMO Carter and Clinton governed more conservatively than did Bush 1 and 2 or Nixon (Mark Shields calls Nixon the last liberal president). LBJ seems to have been the only democrat who enacted the policies that democrats say that they stand for.
Posted by: Floccina at Apr 7, 2008 3:34:04 PM
Can there possibly be enough comparable data points to make this meaningful?
Posted by: Scott Wood at Apr 7, 2008 3:54:31 PM
For most of my life, the rich in Britain have tended to do better under Labour Governments than under Conservative Governments. I do not think that either British party has conciously desired that result. It has always looked like an unintended by-product of policies pursued for other reasons.
Surely I have heard somewhere of a Law of Unintended Consequences that sometimes operates in the USA, as well as in Europe? Has Bartels managed to reject that hypothesis?
Posted by: David Heigham at Apr 7, 2008 4:02:17 PM
David Heigham,
Based on the two posts cited, there are no claims regarding intentions that I know of - only that the correlation exists. You seem not to be disputing this.
Posted by: meter at Apr 7, 2008 4:39:31 PM
Those of you attributing the part about the Fed fighting inflation under Republicans to Tyler obviously didn't click through to the link:
From Bartels, on Rodrik's site:
"How do presidents produce these substantial effects? One of my aims in writing Unequal Democracy was to prod economists and policy analysts to devote more attention to precisely that question. Douglas Hibbs did important work along these lines in the 1980s, documenting significant partisan differences in post-war macroeconomic policies. He found that Democrats favored expansionary policies producing substantially higher employment and growth rates, while Republicans endured and sometimes prolonged recessions in order to keep inflation in check. (Not coincidentally, unemployment mostly affects income growth among relatively poor people, while inflation mostly affects income growth among relatively affluent people.) In recent decades taxes and transfers have probably been more important. Social spending. Business regulation or lack thereof. And don't forget the minimum wage. Over the past 60 years, the real value of the minimum wage has increased by 16 cents per year under Democratic presidents and declined by 6 cents per year under Republican presidents; that's a 3% difference in average income growth for minimum wage workers, with ramifications for many more workers higher up the wage scale. So, while I don't pretend to understand all the ways in which presidents' policy choices shape the income distribution, I see little reason to doubt that the effects are real and substantial."
As for me, I fail to understand how Bartels has separated out a Presidential effect from any Congressional effect or Fed effect, and that link didn't help.
Posted by: CJS at Apr 7, 2008 5:37:12 PM
"I also dont think that its fair claim to scapegoat moderate laissez faire ideology because Nixon was not a good president."
Yep, and don't forgot Hoover. Those two can drag the average down a *lot*.
Posted by: Chuck at Apr 7, 2008 6:59:07 PM
"I also dont think that its fair claim to scapegoat moderate laissez faire ideology because Nixon was not a good president."
Yep, and don't forgot Hoover. Those two can drag the average down a *lot*.
Posted by: Chuck at Apr 7, 2008 6:59:26 PM
Eh? In the quote above, Bartels seems to be claiming that expansionary policies and a disregard for inflation were good for the poor until some unspecified "recent decades", at which point the opposite apparently becomes true.
Posted by: Bernard Guerrero at Apr 7, 2008 8:47:23 PM
I would say that the real question is what makes the middle class prosper? The underlying principal is, of course, that a strong middle class makes for a strong America. Making the wealthy wealthier is certainly nice for the wealthy, but is it healthy for America?
Posted by: lxm at Apr 7, 2008 10:50:47 PM
Tyler Cowen echoes Douglas Hibbs when he writes that "Republicans are more willing to break the back of inflation and risk an immediate recession."
According to Bartels' data, the rate of inflation has been essentially identical under Republican and Democratic presidents. The same is true if we look at the year over year change in inflation rates, rather than at the inflation rates themselves. Hibbs, at least in the article I give below, doesn't use data on inflation rates at all; he cites the economic theory that there is a tradeoff between unemployment and inflation, and then works with unemployment data. So Bartels seems to have it right when he says that, "While differential sensitivity to inflation may account for partisan differences in unemployment and GDP growth, ... it is less obvious that Republican presidents have been more successful than Democrats in containing inflation."
Bartels' 2004 article on income inequality is available on the web at:
http://www.princeton.edu/~bartels/income.pdf
Higgs' 1977 article is available at:
http://douglas-hibbs.com/HibbsArticles/APSR%201977.pdf
Posted by: Kenneth Almquist at Apr 8, 2008 1:51:03 AM
"Umm, Tyler, you got any data to go with that totally unsupported opinion about monetary policy? It shouldn't be too hard for a good economist to come up with something."
LOL! Obviously you're new here :).
Data is for wimps, real economists like Tyler don't need any data!
Posted by: Laurent GUERBY at Apr 8, 2008 5:12:51 PM
I find it hard to believe that the Federal Reserve has given Democratic presidents a free pass on inflation. Volcker raised rates through the roof in 1979. I was LUCKY to get a 12.25% mortgage. Greenspan spent most of Clinton's tenure raising interest rates to fight inflation, not that anyone noticed any inflation at the time. We've seen negative real returns on the prime rate under both Presidents Bush, so I'm inclined to think it is the Republicans who get a free pass on inflation.
P.S. There has been a good, proven explanation since the early 1930s. Go to the library and dig up some articles on the New Deal. No, we'd don't need phlogiston to explain things.
Posted by: Kaleberg at Apr 8, 2008 10:49:54 PM
The issue of a static analysis of income inequality is an obvious canard. What, exactly, is the criticism of this analysis? That the fact that some people (not many, mind you, since income growth is measured for a particular year, so unless there are huge and fast compositional changes and income mobility that I don't know about, it's measuring the income growth of a particular, relatively unchanging, group of people) may move into different quintiles doesn't change the result that under Democratic presidents, EVERYBODY'S income rose more than under Republic presidents.
Posted by: PA at Apr 9, 2008 1:07:43 PM
Don't recessions hurt the rich more than the poor?
Equality was flat to increasing during the first half of Bush's admin. It wasn't until into 2005 that inequality started picking up steam again.
Posted by: aaron at Apr 9, 2008 3:27:37 PM
This was a study of income NOT wealth. This is why the graph is skewed toward the Democrats.
Were the 70s really better than the 80s. No sane person would say so. 80s saw wealth (home values and markets) soar... people got wealthier.
When looking at the poor, two things affect them most - payroll taxes and minimum wage. Although the minimum wage went up under Reagan, it did not go up by much, but payroll and state taxes did go up a lot in the 80s.
That is a macroeconomic recipe that really skews the #s for the poor. Purchasing power might have been a better measure.
Similarly, under Clinton, huge payroll tax rebates (earned income tax credit) and child tax credits were enacted, as well as another increase in the minimum wage.
Since this study was based on income, policies like the Clinton's really look like they help the poor a lot more.
Republican's reward risk, Democrats try to create stability. Republicans encourage the expansion of wealth, over the expansion of wages.
It would be pretty easy to reason this out, even ignoring Nixon floating the dollar and the crazy stagflation of the 70s.
Posted by: Chris at Apr 10, 2008 4:15:02 AM
Has anybody attempted to differentiate between successfully passed POLICIES, as opposed to who's in office?
What I mean is this:
- Many Nixonian-era economic policies would be regarded by the modern (post-Reagan) conservative movement to be unacceptably leftist.
- Bill Clinton spent most of his two terms hemmed in by a Republican Congress who vastly limited his original economic policy intentions. It may be unrealistic to label his as a "Democrat" presidency (for the purpose of this study, I mean) if he wasn't able to enact much in the way of "Democrat" policies. Furthermore he had the benefit of being a post-Cold War but pre-Jihadi War president, and the luxury of a tech boom.
- G. W. Bush actually had the best test-case scenario as far as Republican policy is concerned (both houses of Congress) but also had an inherited recession (albeit a small one), the 9/11 attacks, two regional conflicts, and so on.
So it seems to me that a comparison of income improvements between the Presidential Terms of the different parties is pretty useless.
The only analysis which would have significance for making policy decisions (and therefore, for choosing both President and Congress) would be an analysis which did the following:
(1.) Get both left-wing and right-wing "think tanks" to "grade" on a scale of 1 to 10 their satisfaction with the economic policies in force during any given year. (The right-wing "think tanks" would presumably give Reagan-esque policies a 10 and Carter-esque policies a 1; the left-wing "think tanks" would do the reverse.) This would establish which policies were, in and of themselves, "right wing" policies or "left wing" policies.
(2.) Once each year's actual policies in force had been established as being right-wing or left-wing, run the income analysis.
(3.) Account for the lag-time between a policy change (e.g. a tax cut) and its impact on the economy somehow.
(4.) Account for the effect of external events beyond the control of policy makers (e.g. 9/11) somehow.
If someone will generate an analysis like THAT, I think we'd have something worth talking about.
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