Presidents and Income Inequality

With an incoming Democratic president, should we expect some reversal of the rise in income inequality that has characterized much of the past generation? The following chart, from Larry Bartels’ book Unequal Democracy, suggests reason for optimism. Using Census Bureau data covering the period from 1948 to 2005, Bartels finds a much more egalitarian pattern of income growth under Democratic presidents than under Republican ones.

Bartels’ book is social science at its best: careful empirical research on questions at the forefront of current political and policy debate. His finding of a strong association between president’s party and income inequality is just one of the many interesting and important ones in Unequal Democracy.

That finding seems to have become accepted as an empirical fact by economic and political commentators. A sampling: Dan Balz, Alan Blinder, Tyler Cowen, Kevin Drum, Andrew Gelman, Ezra Klein, Paul Krugman, Andrew Leigh, Brendan Nyhan, Dani Rodrik, Theda Skocpol, Michael Tomasky, Will Wilkinson, Matthew Yglesias, Julian Zelizer.

Is it correct? The story struck me as convincing for the period through the end of the 1970s, but less so for the years since then. So I went to the data. Here’s a summary of my conclusions:

Bartels’ account of the first portion of the post-World War II era seems to me compelling. From the late 1940s through the 1970s, Democratic and Republican presidents tended to have sharply contrasting fiscal and monetary policy orientations. This difference in policies appears to have contributed to sizable differences in income growth for families at various points in the income distribution. Families near the top tended to do equally well irrespective of the president’s party, but families in the bottom 80% fared better under Democrats. Income inequality in the United States changed little over the period as a whole, as increases under Republican presidents were balanced by declines under Democratic presidents.

Since the 1970s the story has been very different. Income inequality has risen sharply, and the correlation between president’s party and movement in inequality has been much weaker.

If we focus on the bottom 95% of the income distribution, as Bartels does, we observe a notable partisan difference in inequality trends and in patterns of income growth in the lower half of the distribution during this period. Contrary to Bartels’ conclusion, this partisan difference exists mainly for pretransfer-pretax income, suggesting that transfer and/or tax policy differences have not been a key driver. To the extent presidents have mattered, the effect seems more likely to have operated via union strength and/or the minimum wage.

To fully understand post-1970s trends in income inequality in the United States, it is critical to include developments at the top of the distribution, which Bartels does not do. If we turn to data that include the top 1%, we find only a weak association between president’s party and changes in inequality since the 1970s. Republican and Democratic presidents have pursued contrasting tax policies, and those policies appear to have made a difference for inequality. But their impact has been swamped by trends in pretax income. At the moment we know relatively little about the factors driving the dramatic increase in the share of economic growth going to those at the top of the distribution, and even less about what role presidents have played.

The following chart is, I think, the best representation of what’s happened since the late 1970s:

The full paper is here.

8 thoughts on “Presidents and Income Inequality

  1. Pingback: Income inequality and different ideas over time about the ability of presidents to intervene successfully in the economy | Red State, Blue State, Rich State, Poor State

  2. A nattering (as in nattering nabobs..) point: On p. 13 of your paper, you write:

    And it is heavily influenced by a single year: 2001. After
    rising continuously between 1993 and 2000, the top 1%/bottom 60% ratio fell
    sharply in 2001. This was due to the stock market plunge. Since that plunge was
    in large part a product of the collapse of the dotcom-driven bubble, it is not clear
    whether we should attribute it to anything the Clinton administration did or did
    not do. If we ignore 2001, the average ten-year change under Democratic administrations
    balloons from +7.0 to +13.9.

    Except for 19.5 days, Bush was president in 2001. So, it seems that this loss should have been attributed to the GOP not the Dems, in any event.

    If you want to ignore this point as an outlier, then (a) the Dems have a much higher 10 year change, but the GOP must have a much lower 10 year change, no? Including this point puts the beginning of GWB’s administration at a very low value that allows for major postivie growth in the 1/60 ratio, which almost automaticallly means that the ratio will grow substantially during his reign. Ignoring it means that the calculation should start in 2002, and the positive growth of the ratio is bound to be lower.

  3. Great paper, Lane. Nice to see Bartel’s excellent work further unpacked.

    The short story that I get from it: It’s all about Clinton. (The Carter years seem to have little impact on the analysis, and Republican trends were largely similar in the pre- and post-’79 periods.)

    Clinton didn’t manage to continue the equality/prosperity trends of earlier Democrats. One could be charitable and say that he had Gingrich and Co. (and the still quite popular Reagan ideology) to deal with, or one could say that he (and Rubin) had drunk of the Reaganomics kool-aid (question: Ken Kesey, or Jim Jones?), and that he barely gagged while swallowing Reagan’s seed.

    Probably both are true.

  4. How come no discussion of the wage impact of immigration, off-shoring, and the H1-B non-immigrant visa program? Has the law of supply and demand been repealed for labor? Please explain how the millions of low skilled migrants that have flooded the US labor market over the last 20 years have not increased income inequality? Explain how the H1-B program has not lowered wages for American programmers, engineers, scientists and other skilled workers. Surely this has had a greater impact that which party has the presidency. The last time I looked, the president did not sign my paycheck.

  5. Well, Andrew Gelman’s caution that “sample size issues are a concern” has to be the understatement of the year. And you’re kind of scraping the bottom of the barrel by noting that Kevin Drum and Will Wilkinson (and several other bloggers who have no statistical expertise whatsoever) accept the results.

  6. @A. Zarkov, if supply of labor increases while demand for it remains the same, wage rates should fall. That said, what evidence do we have that demand has remained the same? The new workers are demanding goods and services too, no? Can we really say that adding new workers to an economy drives wage rates down in the long run? If so, perhaps we might institute a One Child rule as China has done… What’s the difference between a new college grad, an H1-B, or an immigrant – it’s just another unit of labor supply… In my view, there’s probably more to wage economics than a single principle of “keep the population down to concentrate the wealth.”

  7. Pingback: #Die #Geburt #eines #Bewusstseins von Stephan Groschwitz [via] | aufwachenundmitmachen

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