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May 06, 2005

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» Republican vs. Democrats on the Economy from Political Animal
REPUBLICANS vs. DEMOCRATS ON THE ECONOMY....Did you know that Democratic presidents are better for the economy than Republicans? Sure you did. I pointed this out two years ago, back when my readership numbered in the dozens, and more recently Michael... [Read More]

» Republican vs. Democrats on the Economy from Political Animal
REPUBLICANS vs. DEMOCRATS ON THE ECONOMY....Did you know that Democratic presidents are better for the economy than Republicans? Sure you did. I pointed this out two years ago, back when my readership numbered in the dozens, and more recently Michael... [Read More]

» Republican vs. Democrats on the Economy from Political Animal
REPUBLICANS vs. DEMOCRATS ON THE ECONOMY....Did you know that Democratic presidents are better for the economy than Republicans? Sure you did. I pointed this out two years ago, back when my readership numbered in the dozens, and more recently Michael... [Read More]

» Political Business Cycles--Don't Forget Those Recessions from Outside The Beltway
What are political business cycles? They are business cycles that are due to politics. Or more precisely the political parties try to manipulate the economy to their benefit electorally. The work on this kind of economic-political model was first do... [Read More]

Comments

These are depressing but important findings that deserve serious attention from every student of democracy.

What does a student of democracy care if Republicans or Democrats get elected more? That's a plain Democrat issue, I think. The other one is mostly a Democrat issue too -- how do "we" sell people our policies, the way Republicans do, when selling our ideas wasn't enough?

I suddenly felt immense guilt for posting a criticism of you when in fact I've been thinking about your blog at work all week long, because of

- the strange perspective you had on DeLay's and Robertson's rhetoric -- should I be condemning their form, and not just their content?
- your link to "Politicians Don't Pander" -- a really big idea for me
- your flagging Slate's reflexive counterintuitivism (what a contradiction in terms) -- I don't think it's killing Slate, but awareness should be raised.
- CBPP analysis of Bush's press conference. "All the President's Spin" indeed.

Your blog is great, interesting perspective and well balanced. I just subjected this post to extra scrutiny because that one guy recently alleged you were a partisan, but you more than most people would not want that to make you tone down your posts.

Okay, I'm curious. Bartels writes that the tax burden for the rich has gone down by 25% and the tax burden for the bottom 95% of the income distribution has gone down by 10%. He then concludes this is a wealth transfer from the bottom 95% to the top 5%. Exactly how does that work?

So a democratic presidential candidate coming in on the tails of a GOP administration needs to promise something that will provide an immediate financial "stimulus" in the pockets of voters? Sounds like the days of the Bush tax cuts could be numbered for yet another reason: money for the middle class.

The defecit, shoring up Social Security, homeland security, Medicare "reform," and many other pressing needs are being held hostage to tax cuts that haven't delivered even half of what was advertised.

Had the rich and corporations led us even halfway out of the recession, I'd feel differenly. But it is becoming crystal-clear that the best test of supply-side economics hasn't resulted in much.

I wrote:

Okay, I'm curious. Bartels writes that the tax burden for the rich has gone down by 25% and the tax burden for the bottom 95% of the income distribution has gone down by 10%. He then concludes this is a wealth transfer from the bottom 95% to the top 5%. Exactly how does that work?

Hello, Brendan...hellooooo? Anybody home. It is okay to say, "Beats me what he is talking about?"

Here is a nifty thing. I took Bartel's data (from the Census Bureau) and put in variables for when the economy was in recession and shockingly enough, Republicans are typically in office when there is a recession.

Democrats have been in office during recessions in:

1980
1961
1949
1948

Further, the recession in 1961 was not really "Kennedy's recession" considering it started in April of 1960.

In contrast Republicans have been in office the following years,

2001
1991
1990
1982
1981
1975
1974
1973
1970
1969
1960
1958
1957

I suppose one could argue that Republican policies are geared towards causing recessions, but that doesn't strike me as a particularly wise electoral strategy. "Elect us, our policies will cause a recession"!

Further, there is also the issue of what causes recessions. What caused the 2001 recession? What caused the 1990/1991 recession? We can be pretty sure that 1973 to 1975 was most likely a result of the oil shock.

You know statistics is really neat. But statistical analysis divorced from historical analysis is well...crap. Bartels research seems to suffer from this to some degree. It is looking alot like crap.

Okay, I'm curious. Bartels writes that the tax burden for the rich has gone down by 25% and the tax burden for the bottom 95% of the income distribution has gone down by 10%. He then concludes this is a wealth transfer from the bottom 95% to the top 5%. Exactly how does that work?

There are two separate things going on here. One is that the total tax burden is going down, and the other is that the rich are paying a smaller share of the total tax burden. If the total tax burden weren't going down, it would be clear that this was a wealth transfer, with the poor paying taxes the rich used to pay.

In fact, it's still clear. Imagine that your insurance company gets your doctor to cut his price by 10%, but it increases your co-pay from 20% to 50%. Clearly the cost is being shifted from the insurance company to you, even though the total cost is going down.

Here's a brief example with some numbers.

Rich income: $100.
Poor income: $50.

Tax rate on rich: 40%.
Post-tax rich income: $60.

Tax rate on poor: 20%.
Post-tax poor income: $40.
Share of total post-tax income going to poor: 40%.

Rich tax rate falls 25%, poor tax rate falls 10%.

Tax rate on rich: 30%
Post-tax rich income: $70

Tax rate on poor: 18%.
Post-tax poor income: $41
Share of total post-tax income going to poor: 37%.

There has been a wealth transfer from rich to poor. The poor look better off anyway, because they have more money, but that only obscures the fact that $11 of new money was pumped into the economy and they got only $1 of it.

As for Noumenon's comment, it's not about Democrats and Republicans per se, it's about democratic accountability. The function of elections is, in large part, to remove poorly performing officeholders from office. It's obviously an imperfect mechanism, but if voters can't even judge politicians on their overall economic record, which is well-known and reasonably objectively defined, then we have a much more serious problem.

Steve, I've been out of town, so sorry for the delay. Since I didn't write the paper, I'm not sure what you're referring to in the first comment -- you'll have to be more specific (or ask Bartels). On the second, you're right that recessions play a role, but I think Bartels would argue that they appear to be at least partially systematic -- perhaps that Republican efforts to fight inflation are more likely to cause a recession. I'm not sure. Clearly there's a lot going on in these data that we don't understand.

The data is highly suspicious precisely because it tracks Republicans and Democrats so exactly, when looked at in one particular way.

The idea of a one year lag is based on macroeconomic studies recently done, but considering that a President doesn't put in their budget until October of their first year, we are supposed to believe that fiscal policy is schange the economy inside of 3 months. If you apply the data using different lag times - say, 100%, 75%, 50%, 25% for the four years after the presidency switches office, the results flip and you can make the argument that Republicans fix the problems that Democrats leave while in office.

This of course only works if you buy the idea that little things like, War, Terrorism, Oil Shocks, and, say, the control of the House switching sides for the first time in 40 years don't matter a whit.

If the data is true, and Republicans do have a worse time of it while they are in office, then there should be one variable that has remained constant that exerts tremendous influence on the economy with very little time lag.

The only variable that makes sense is the reporting of economic news. If economic news were reported negatively under Republican Presidents and positively under Democratic presidents, then consumer confidence, the main indicator for consumer spending (and the 70% of GDP), would have a time lag tagged to the reporting of the results.

5.2% unemployment under Bush is considered weak. 5.4% unemployment under Clinton was the most exciting of economic times.

If the data is true that the economy performs better under Democratic presidents, the conclusion is not automatically that Democrats are better stewards of the economy. I assert that the conclusion is that the elite media, willing partners with the Democratic opposition to Republican presidents, talks down the economy to the detriment of vast swaths of the country.

On the second, you're right that recessions play a role, but I think Bartels would argue that they appear to be at least partially systematic -- perhaps that Republican efforts to fight inflation are more likely to cause a recession. I'm not sure.

Considering that the main force for fighting inflation is the Federal Reserve Board which is to a large degree independent of whatever party is in power, this claims strikes me as a bit of a reach. For example, there is some research from the S.F. Feder Reserve Bank indicating that the 1990/91 recession was caused by monetary policy. If this is true, and Presidents have the degree of control these articles seem to be implying why didn't President Bush reign in Greenspan? Or even better fire him. Maybe because the repercussions throughout the financial community would be rather bad?

Also, inflation wasn't a big bugaboo until much latter (i.e. after 1973--the first oil shock and when stagflation first cropped up) and look what happens when we look at the numbers prior to 1973: The numbers are much, much closer. So could the oil shocks in the latter part of the century have also been a factor as well.

These papers are striking me as thinly veiled partisan talking points, not research especially not research from somebody from Princeton. I have little doubt it will be published in a top journal...God help the Poli Sci field.

By the way, remove the recession years and the numbers differentiating Republicans from Democrats practically disappear. I'm calling this stuff rubbish.

As for Bartels claims about wealth transfers it is in third paper (the Homer Tax Cut paper) and in the first couple of pages.

Noumenon,

That's great. Both the after tax income for the rich and the poor go up, but for some reason there has been a wealth transfer from the poor to the rich. I don't think so. Changes in the share of the tax burden does not mean there has been wealth transfers.

By the way, your "wealth transfer results" hold even when both the rich and poor get exactly the same % decrease in their taxes.

Changes in the share of the tax burden does not mean there has been wealth transfers.

In that case you shouldn't mind paying 100% of my tax this year.

I shouldn't be snarky because you're obviously in this for a legitimate discussion, since you bothered to analyze my example with different numbers and discovered that very strange result. I guess it comes from the fact that the progressive system is unfair to rich people, so an equal increase in tax rates compounds the unfairness and makes the burden fall even more heavily on the rich. A cut works the opposite way.

Perhaps that's where you should make your attack, Steve. It still seems obvious that a shift in the tax burden is a transfer of wealth, but you should point out that the existing tax burden is already a massive transfer of wealth from group to group and that transfer is no more instrinsically just than this one.

p.s. I never saw anything of value in the study, never even clicked on the link. It looks like exactly the same kind of reasoning people use to prove that Ronald Reagan/Bill Clinton singlehandedly created the best economy ever.

I wrote:

Changes in the share of the tax burden does not mean there has been wealth transfers.

After shorting out his (her?) logic circuit Noumenon wrote:

In that case you shouldn't mind paying 100% of my tax this year.

Gee, it didn't occur to you that my statement is different than yours? My basically demonstrates that simply noting a shift in the burden as measured by share of total after tax income doesn't necessarily mean there is a wealth transfer. Since the wealth of both parties goes up in your example, this should be obvious.

Your example on the other hand not only increases my burden, but also lowers my wealth. Clearly they are not the same. Do try to engage your brain next time. Sheesh.

Since the wealth of both parties goes up in your example, this should be obvious.

This could happen if your pre-tax income went up by more than the amount of my tax. Then both of our post-tax incomes would increase, so there would be no wealth transfer from your paying 100% of my tax. Would you agree with that?

My brain is engaged. This is a polite, productive conversation, as Internet argument goes. No one has even been compared to Hitler yet!

This could happen if your pre-tax income went up by more than the amount of my tax.

What can I say, it was your hypothetical. If you don't like the result, it isn't my problem. Think of it this way.

1. For both parties the after tax income goes up.
2. For both parties the tax rates declined.
3. The reason the rich got a bigger improvement is due to two things.
3.a. The rich pay a higher percentage.
3.b. The rich have a higher income.

It is hard to argue a wealth transfer with 1-3. Further, I'll note that at not time is income going from the poor to the rich. Instead you are arguing for some sort of implicit wealth transfer based on a worsening of relative positions after tax even though in absolute terms both groups have an improvement in their income. Also, note that in your example both groups are keeping money they have earned, not money earned by the other group. There is no way for there to be a transfer here. None.

Steve -- Every time you come back with a new argument, I feel that there's something new in it to think about and I can't address it just by retyping something I typed before. I hope you feel the same way about me and I am not frustrating you by being obtuse. I will understand if you decide to stop going back and forth over this issue, but you are giving me a lot to think about and I think I've made some progress.

I think the problem is viewing government as a taker rather than a redistributor. Governments don't really consume anything, right? They just force us all to consume a little bit of defense or farm subsidies or whatever. If the government just took our money and chewed it up, any tax cut would create new money and we could all be better off. If the government, instead, redistributes all the money it takes in (so that colonels and judges get it instead of brokers and shopkeepers), then any tax cut only undoes the redistributive effects and does not make anybody better off. (Ignoring the real-world bad effects of redistribution.)

So the scenario changes from:

You get X income
I get Y income
$12 tax cut: you now get X + $10, I get Y + $2, I futilely argue that you took my money even though I still have Y and more besides.

to this scenario:

You get X income
I get Y income
Government takes $8 from you and $4 from me and gives us each $6
You now have X - $2
I now have Y + $2
$12 Tax cut: With the government taking nothing, you keep X and I have Y -- but that's $2 less than before and I can see where the $2 went. Before, I couldn't see the wealth transfer because government was acting like a third actor in the economy from whom we were both getting a wealth transfer. But the government isn't a consumer and shouldn't have been keeping any money in the final accounting.

a true representation would be a graph of degree of recession vs time superimposed with who was in the oval and who controlled the house and senate. this would show trends.
also not mentioned is that bottom percentage which receives negative tax (demspeak for "earned income")

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