http://www.nytimes.com/2008/08/31/business/31view.html?em
Economic View
Is History Siding With Obama's Economic Plan?
By ALAN S. BLINDER
Published: August 30, 2008

Alan S. Blinder is a professor of economics and public affairs at
Princeton and former vice chairman of the Federal Reserve. He has
advised many Democratic politicians.

CLEARLY, there are major differences between the economic policies of
Senators Barack Obama and John McCain. Mr. McCain wants more tax cuts
for the rich; Mr. Obama wants tax cuts for the poor and middle class.
The two men also disagree on health care, energy and many other
topics.
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David G. Klein

Such differences are hardly surprising. Democrats and Republicans have
followed different approaches to the economy for as long as there have
been Democrats and Republicans. Longer, actually. Remember Hamilton
versus Jefferson?

Many Americans know that there are characteristic policy differences
between the two parties. But few are aware of two important facts
about the post-World War II era, both of which are brilliantly
delineated in a new book, "Unequal Democracy," by Larry M. Bartels, a
professor of political science at Princeton. Understanding them might
help voters see what could be at stake, economically speaking, in
November.

I call the first fact the Great Partisan Growth Divide. Simply put,
the United States economy has grown faster, on average, under
Democratic presidents than under Republicans.

The stark contrast between the whiz-bang Clinton years and the dreary
Bush years is familiar because it is so recent. But while it is
extreme, it is not atypical. Data for the whole period from 1948 to
2007, during which Republicans occupied the White House for 34 years
and Democrats for 26, show average annual growth of real gross
national product of 1.64 percent per capita under Republican
presidents versus 2.78 percent under Democrats.

That 1.14-point difference, if maintained for eight years, would yield
9.33 percent more income per person, which is a lot more than almost
anyone can expect from a tax cut.

Such a large historical gap in economic performance between the two
parties is rather surprising, because presidents have limited leverage
over the nation's economy. Most economists will tell you that Federal
Reserve policy and oil prices, to name just two influences, are far
more powerful than fiscal policy. Furthermore, as those mutual fund
prospectuses constantly warn us, past results are no guarantee of
future performance. But statistical regularities, like facts, are
stubborn things. You bet against them at your peril.

The second big historical fact, which might be called the Great
Partisan Inequality Divide, is the focus of Professor Bartels's work.

It is well known that income inequality in the United States has been
on the rise for about 30 years now — an unsettling development that
has finally touched the public consciousness. But Professor Bartels
unearths a stunning statistical regularity: Over the entire 60-year
period, income inequality trended substantially upward under
Republican presidents but slightly downward under Democrats, thus
accounting for the widening income gaps over all. And the bad news for
America's poor is that Republicans have won five of the seven
elections going back to 1980.

The Great Partisan Inequality Divide is not limited to the poor. To
get a more granular look, Professor Bartels studied the postwar
history of income gains at five different places in the income
distribution.

The 20th percentile is the income level at which 20 percent of all
families have less income and 80 percent have more. It is thus a
plausible dividing line between the poor and the nonpoor. Similarly,
the 40th percentile is the income level at which 40 percent of the
families are poorer and 60 percent are richer. And similarly for the
60th, 80th, and 95th percentiles. The 95th percentile is the best
dividing line between the rich and the nonrich that the data permitted
Professor Bartels to study. (That dividing line, by the way, is well
below the $5 million threshold John McCain has jokingly used for
defining the rich. It's closer to $180,000.)

The accompanying table, which is adapted from the book, tells a
remarkably consistent story. It shows that when Democrats were in the
White House, lower-income families experienced slightly faster income
growth than higher-income families — which means that incomes were
equalizing. In stark contrast, it also shows much faster income growth
for the better-off when Republicans were in the White House — thus
widening the gap in income.

The table also shows that families at the 95th percentile fared almost
as well under Republican presidents as under Democrats (1.90 percent
growth per year, versus 2.12 percent), giving them little stake,
economically, in election outcomes. But the stakes were enormous for
the less well-to-do. Families at the 20th percentile fared much worse
under Republicans than under Democrats (0.43 percent versus 2.64
percent). Eight years of growth at an annual rate of 0.43 percent
increases a family's income by just 3.5 percent, while eight years of
growth at 2.64 percent raises it by 23.2 percent.

The sources of such large differences make for a slightly complicated
story. In the early part of the period — say, the pre-Reagan years —
the Great Partisan Growth Divide accounted for most of the Great
Partisan Inequality divide, because the poor do relatively better in a
high-growth economy.

Beginning with the Reagan presidency, however, growth differences are
smaller and tax and transfer policies have played a larger role. We
know, for example, that Republicans have typically favored large tax
cuts for upper-income groups while Democrats have opposed them. In
addition, Democrats have been more willing to raise the minimum wage,
and Republicans have been more hostile toward unions.

The two Great Partisan Divides combine to suggest that, if history is
a guide, an Obama victory in November would lead to faster economic
growth with less inequality, while a McCain victory would lead to
slower economic growth with more inequality. Which part of the Obama
menu don't you like?