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When it comes to income inequality, politics matters

The increasing income gap between the rich and poor in this country has come to be looked upon as inevitable.  Expanding economic inequality is seen as the unavoidable result of globalization, technological change, demography and other social and economic forces.  

The magnitude of the income gap is startling, even to those aware of its existence: In 2005 the New York Times reported that the wealth of the 400 richest Americans was equal to the gross domestic product of Canada. At the other end of the income scale, the real value of the minimum wage has declined by 40 percent since the 1960s. In between, middle-class incomes have stagnated in spite of impressive productivity increases. 

Expanding economic inequality is a very real threat to those with low and middle incomes, but it is also a threat to our political system. Inequality of income may solidify or increase inequality of political influence. The wealthiest among us can take “extra helpings of those rights that are supposed to be equally distributed,” as Kermit Gordon once put it.

Is it inevitable?
But is the expanding income gap inevitable? Is it, as Treasury Secretary Henry Paulson said, “simply an economic reality” not tied to either party’s policies? Princeton University professor Larry M. Bartels answers no to both questions. In his book, “Unequal Democracy” (Princeton University Press, 2008), he provides evidence that our incomes have been affected by politics. Using U.S. Census Bureau data, he examined income distributions during each president’s term from 1948 through 2005. He excluded the first year of each president’s administration, reasoning that economic change during that period would not reflect a new president’s policy.

Bartels found that the average annual pre-tax income of middle-class families grew twice as fast when the nation was led by a Democratic president as when a Republican occupied the White House. For poor and working-poor families, the difference was six-fold! Average family incomes for those at the high end of the income distribution did equally well with either party.  Bartels found a “strikingly similar” pattern when he examined after-tax incomes. He was unable to find a relationship between income distribution and congressional composition. 

To appreciate the size of these income differences, consider the following scenarios. Had the income-growth characteristic of Democratic administrations been in effect throughout the past 50 years, “income inequality would actually have declined slightly” (italics in original).  Conversely, with Republicans in control throughout the same period, we would have seen even greater economic inequality, “a Platinum-Gilded Age.”

The question of how
Bartels’ results prompt many questions. First, how did presidents bring about these different income patterns? He suggests that, “Democratic administrations are more likely than Republican ones to run the risk of higher inflation rates in order to pursue expansive policies designed to yield lower unemployment and extra growth.” Six of the seven recessions since 1951 occurred during Republican administrations. They were “either intentionally created or passively accepted, at least for awhile, in order to fight inflation.” 

The data support Bartels’ explanation. “The average level of unemployment over the entire post-war era has been almost 30 percent higher under Republican presidents than under Democrats, while the average rate of real per capita GNP growth has been more than 40 percent lower.” In spite of the Republicans’ emphasis on curbing inflation, “the average inflation rate has been virtually identical under Republican and Democratic presidents over this period.”

Another question about partisan differences is: How is it that voters haven’t noticed them?  Bartels finds that partisan effects were greatest during the second year of a presidential term but almost disappeared by the fourth or pre-election year. American voters are famous for our short memories, so Democrats were punished and Republicans rewarded for an “unrepresentative sliver of economic performance” right before the upcoming election.

A final question is: Why haven’t political influences on economic equality been noticed earlier? Perhaps too many have come to believe that economic outcomes are natural and inevitable and didn’t bother to look. Bartels’ work shows that, “Economic inequality is, in substantial part, a political phenomenon” (italics in the original).  

Put simply, “Politics matters.”

Elaine Handelman, of Minneapolis, is the author of “Cracks in the Foundation — Refuting the Conservative Case for Low Taxes and Small Government,” 2004. Leonard Robins, of Minnetonka, is professor emeritus, Public Administration Program, Roosevelt University, and co-author of “Health Politics and Policy,” 4th edition, 2008.

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Comments (1)

  1. Anonymous Submitted by Anonymous on 11/03/2008 - 09:45 am.

    This study reminds me of Greg Easterbrook’s comment that “torture numbers, and they’ll confess to anything.”

    The impact of changes in fiscal, tax and monetary policy are complex to yield answers from such a simple analysis.

    Furthermore, inflation is a tax on wealth, pure and simple. Just like a property tax. Devalues all savings, across the board. Provides a disincentive for capital formation, which, together with education and low taxes, are the three things, the only three important things, that drive productivity and growth and consequently prosperity.

    Talk to anyone in a country that has undergone a recent bout of severe inflation and see what they have to say.

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