succumbing to peer pressure

Thursday, April 03, 2008

Income distribution

Ezra Klein has a very interesting graph up (apparently from Larry Bartel's new book) that seems to show "...that income growth during Democratic presidencies is both more progressive -- which is to say, more of it accrues to the poor -- and higher for everyone." He also offers up some quotes from Krugman about being unable to explain mechanism behind this particular phenomenon. I'd love to hear another economist's take on this (Steve - I'm looking at you). Firstly, of course, is it even real? Klein does a pretty reasonable job of hedging his bets about what the appropriate interpretation should be, but I'm wondering about the sources of the data themselves.


Blogger Steve said...

Summoned, I come.

I haven't seen the book - so I can't be too sure about the statistical controls behind this to make sure its just not timing coincidence. But if Krugman is cool with the empirics, I would probably trust it.

As for mechanism, my best guess would be something like oversight. The President can't really directly affect much about the economy, but he can tell, for example, the SEC or the IRS to ease off or be tough.

When there is not much oversight, companies and CEOs can play fast and loose with the rules, taking advantages of lots of little things to benefit themselves in ways that don't necessarily benefit their shareholders or the economy at large. As one of my professors says, if not checked by the board, a CEO can "buy a jet at a 99% discount".

So my guess is that Republican presidents have permissive oversight policies, which allow individuals and companies to take self-serving actions that don't generate as much growth. Tighter rules keep them honest under Democratic presidents, and then the more progressive tax code leads to the slight downward shift. But this is just a guess.


8:35 AM  
Blogger Steve said...

I found the paper this comes from here.

The analysis looks solid. Seems like the partisan effect on the income growth at the various levels are fully explained by partisan effects on overall unemployment, inflation and GDP (democrats are better on the former and the latter). There's also some interesting election cycle and administration-year patterns. The biggest difference is in the second year of the administration.

8:46 AM  
Blogger Megan said...

Yay! Thanks Steve!

9:21 AM  

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