* * * * *Professor Rodrik has kindly invited me to respond to some of the questions and comments generated by his recent post describing my analysis of partisan differences in income growth. I’ll briefly address what I take to be the most important points. The relevant chapter of Unequal Democracy includes much more detail regarding these points and others; I hope everyone will read it before deciding to believe or disbelieve the results. Other chapters of the book focus on cultural issues and voting behavior, partisan biases in economic accountability, the Bush tax cuts, the politics of the minimum wage, the relative political influence of rich people and poor people, and more.
Are the partisan differences in income growth merely coincidental? It is never possible to rule out coincidence in historical analyses of this sort, but the odds are very much against it. The differences in average growth rates for middle-class and poor families are “statistically significant” by conventional social-scientific standards. (A post at www.conservativescientist.com suggests otherwise, reproducing my figure with ludicrously wide “error bars”; but those “error bars” are based on a simple confusion between the standard deviations of income growth reported in one of my unpublished papers and standard errors of the average growth rates, which are quite another thing.) More importantly, the differences appear consistently in the pre-1974 (high growth) and post-1974 (low growth) eras; they persist even when any one or two administrations (or election years, or transition years) are omitted from the tabulations; and they persist even after taking account of a considerable variety of potential confounding factors.
Isn’t it unrealistic to consider presidents in isolation from all the other forces affecting income growth? My book includes a variety of statistical analyses embedding the partisan presidential effects in more general models of real income growth incorporating linear and non-linear time trends, oil shocks, changes in labor force participation, “trickle down” effects of growth at the top of the income distribution, and other factors. The partisan differences in income growth implied by those analysis are, if anything, slightly larger (and more precisely estimated) than the raw differences summarized in my figure.
Aren’t all presidents different? Yes, but the parties’ distinctive ideological priorities shape their policy choices with remarkable consistency. Every Republican president in the past 60 years has presided over increasing income inequality, including Dwight Eisenhower in the midst of the “Great Compression” of the post-war decades. And every Democratic president except one (Jimmy Carter) has presided over decreasing or stable inequality. Bill Clinton managed to stem the trend of accelerating inequality, producing significant real income growth for middle-class and poor families, in marked contrast to Republicans Ronald Reagan, George Bush, and George W. Bush.
Isn’t Congress more important than the president? Congress probably has an additional impact on the income distribution, over and above the impact I attribute to presidents. However, there is too little historical variation in the partisan composition of Congress in the post-war era, and that variation is too strongly correlated with time, to produce a reliable estimate of how much Congress matters–so I relegated it to a footnote.
What about post-tax income? Most of my analyses focus on pre-tax family income from 1947-2005 because that is the longest data series included in the Census Bureau’s Historical Income Tables. Post-tax income data are available beginning in 1979, and the pattern of partisan differences in post-tax growth over that period are similar in magnitude to the pre-tax differences in Figure 2.1, with large disparities for poor and middle-class families and smaller disparities for affluent families.
Could income growth patterns be causes rather than consequences of presidential election outcomes? Incumbents of both parties do well when incomes are growing in the election year; there is no consistent tendency for voters to choose Democrats when income growth is robust or when growth rates for different income classes are more equal. In any case, the largest partisan differences in income growth, by far, occur in the second year of each administration. It is very hard to see how those differences could cause election outcomes two years earlier (and I show that they have no bearing on election outcomes two years later). However, it seems quite plausible to see them as reflecting the policy choices of new (or newly reelected) presidents in their first “honeymoon” year, when their political influence tends to be at its peak.
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.