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Monday January 23, 2017
Posted: Jun 24, 2014

Is political partisanship linked to income inequality?

Commercial Confidential — Business and economics news for greater Portland

We've heard a lot about America's widening income gap in the past few years, and we've also heard a lot about partisan gridlock in Congress. If you look at the data, these problems are real, and getting worse — but a surprising investigation from the New York Federal Reserve Bank suggests that the problems also appear to be correlated.

In a new post on the New York Federal Reserve Bank's Liberty Street Economics blog, Rajashri Chakrabarti and Matt Mazewski used an algorithm called DW-NOMINATE to estimate the ideological difference between Republicans and Democrats based on their roll-call votes in Washington over the past century (this data is similar to the partisanship scores that Press Herald reporter Steve Mistler wrote about last week in a blog post about rising partisanship in Maine's legislature).

The chart below shows, in red, the DW-NOMINATE difference between Republicans and Democrats in the House of Representatives (higher scores indicate greater partisanship). The blue line is the share of GDP that went to the top 1% of earners in any given year.

Chart by Chakrabarti and Mazewski, Liberty Street Economics

Interestingly, changes in income inequality seem to lag behind changes in political partisanship by about 10 years.

As they say, correlation does not indicate causation — but these results do leave open the possibility that polarization is related to income inequality. Chakrabarti and Mazewski suggest several possibilities as to why this might be the case. Noting that Republicans have become more strongly polarized, they suggest that "a shift of the political center of gravity to the right can lead to lighter regulation of finance, which in turn may lead to rising incomes for individuals in the upper tail of the income distribution."

The authors also link to a London School of Economics investigation making the case that Congressional gridlock creates a "status quo bias" that leaves public policy — particularly social welfare programs and tax policies — unable to adapt to changing conditions in the economy.

Whatever the relationship might be, these data suggest that ideologues in Washington aren't merely generating noise pollution on cable news networks — they might be causing real harm to our economy.

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