Tuesday, April 1, 2008

Partisan Influence on Incomes

Dani Rodrik points us to an interesting chart in Larry Bartels' forthcoming book:

Look at the figure below, and then look at it again, and again, and again. It is the most telling picture about the U.S. political economy I have ever seen. What it shows is the difference that the President's party affiliation makes to the distribution of income during the four years of the president's term. (The distributional outcomes are shown with one year's lag.) When a Republican president is in power, people at the top of the income distribution experience much larger real income gains than those at the bottom--a difference of 1.5 percent per year going from the bottom to the top quintile in the income distribution. The situation is reversed when a Democrat is in power: those who benefit the most are the lower income groups. If you are in the bottom quintile, the difference between having a Democratic or a Republican president in office is an income gain (or loss) of more than 2 percent per year! Strikingly, compared to Republicans, Democratic presidents generate higher income gains for all income groups (although the difference is statistically significant only for lower income groups).
While this chart is highly interesting, Bartels apparently argues in the book that the president's party affiliation is more than merely correlated with higher average income gains across all income groups:
Bartels shows in his book that this difference is not a statistical artifact or a fluke. It is not the result of Democrats coming to power during better economic times, or of Republicans reining in the unsustainable excesses of Democratic administrations they replace. (It turns out that the same pattern prevails even when a Republican president is succeeded by another Republican.) These numbers are real and they are the outcome of partisan differences in policy. So if you are one of those who have bought the story that income distribution is the result of pure market forces and technological changes, with politics playing no role--think again.
Obviously I haven't read the book or seen Bartels' full methodology, but I'm still not convinced. Presidents don't immediately implement all their policies upon taking office. Rodrik indicates that Bartels solves this by having the distributional outcomes lag one year. But I don't think lagging the results one year is nearly enough. It's true that presidents' agendas generally get passed at the beginning of their terms, but when a piece of legislation is enacted, many of the substantive provisions that will have the greatest effects -- administrative regulations -- are still unwritten. Congress increasingly delegates significant legislative authority to the federal agencies, so the substantive impact of the policies embodied in the legislation won't be felt until after the rulemaking process has been completed. The rulemaking process is a long and drawn-out give-and-take between agencies and (usually) the industry being regulated. Only when all the administrative regulations have come into force do the President's policies truly begin to have an effect. This is the main reason I'm still skeptical of claims that presidential party affiliation has a statistically significant effect on income gains. It's simply not enough to say that the policies in place one year after a president is innaugurated necessarily reflect that president's policies. Bartels might well have done more than just lag the distributional outcomes one year; I guess I'll have to read the book to find out. But until I get a closer look at his methodology, I remain skeptical of the claim that presidential party affiliation has a statistically significant effect on income gains.