Friday, April 4, 2008

EzraKlein Archive | The American Prospect

Dani Rodrik: "It is the most telling picture about the U.S. political economy I have ever seen."

What Professor Rodrik is referring to is a chart from Princeton Professor Larry Bartels, which (in Rodrik's words)shows what:
"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).

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."

For Rodrik, the puzzle is why the Democrats don't always win. Puzzles me, too. But, interestingly to me, some on the Left are surprised! But, not simply by the fact that Republicans get elected, or that electing Republicans matters to economic performance. They are surprised that the statistics are as stark as they are.

Matthew Yglesias: "That's striking stuff. Indeed, it's almost too striking. The president's control over domestic policy is pretty circumscribed and public policy has only a limited influence over the economy, so it's surprising to see such a strong effect."

Paul Krugman: "I’ve known about this result for quite a while. But I’ve never written it up. Why? Because I can’t figure out a plausible mechanism. Even though I believe that politics has a big effect on income distribution, this is just too strong — and too immediate — for me to see how it can be done. Sure, Republicans want an oligarchic society — but how can they do that?"

EzraKlein riffing off Krugman:
"nor can I. To some degree, there are a lot of outside variables here. Economic growth is not really under the president's control, and you wouldn't necessarily expect policy to take effect quite so quickly."

"But it reminded me of a quote by Justice Louis Brandeis: "Our government... teaches the whole people by its example. If the government becomes the lawbreaker, it breeds contempt for law; it invites every man to become a law unto himself; it invites anarchy." And when it favors the rich, so too does the culture. Distribution is affected by a thousand little decisions every day. Whether a boss feels he needs to give a raise, or whether he imagines he can keep excess profits for himself. Whether a corporation decides to unionbust, or whether they decide they'd rather not get into a fight with the National Labor Relations Board. Whether a Congress decides to raise the minimum wage, or whether they block its increase. The causality here is, of course, complicated. It may be that the election of Democratic executives happens, in general, in times when the culture is trending in a more egalitarian direction, and so the Democrat is being elected for the same reason distribution is improving. And, conversely, it can be the example set by presidents -- as when Reagan fired the striking air traffic controllers to usher in the era of unionbusting, or Bush cut taxes for the rich and opposed increases in the minimum wage -- that help steel the will of the greedy and lower the working class's expectations and estimation of their own power.

"So the bottom line is that, like Krugman, I don't really know why the graph is as stark as it is, and how much of it is the result of Democratic governance."

It does not surprise me that the statistics are as stark as they are. In fairness, I think Democrats benefit a bit from the luck of the draw, in that they did not succeed in selling the kind of policies that might have dampened growth a bit. If Carter-Mondale had had a 12 year run, or if Gore had been elected, the Democratic preference for energy conservation had been the nation's choice, economic growth would have been slower for a time. That still would have been a wiser set of choices than the ones made by Reagan-Bush and George W. Bush. The Savings & Loans would not have been wiped out, and we would not be in Iraq, and the economy would not be sucked dry by the expense of paying for massive imports of foreign oil.

But, the larger point is that politics is about choices. Democrats don't want what Republicans want.

And, Government is massive and pervasive. Ezra Klein comes closer I think to understanding the truth. The full array of government policy choices is pretty broad -- there's a lot more besides taxes, spending and the National Labor Relations Board -- but there's also a social and cultural multiplier as people and companies take directive cues that affect everything from labor relations to corporate fraud to whether a boss gives a raise.

But, while we're watching fools like Chris Matthews (a multimillionaire) babble on about bowling, we should fight to remember that policy matters.

The Perfect political storm comes because bad policy has bad results. Blow wind, blow.

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