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.

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.

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.

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.

Yes, Greenspan (1987-2005, Bush, Clinton, Bush) certainly was willing to break the back of inflation. Wait, what, you mean that's not right?

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.

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.

John Pertz -- what a great description of the modern Republican party.

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

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.

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?

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.

"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*.

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?

"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!

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.

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.

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