Political Polarization and Income Inequality

Two topics that will likely get a lot of attention in President Obama’s State of the Union address are gridlock and income inequality. In this post, we detail how trends in income inequality and political polarization are strongly intertwined with each other and describe how each reinforces the other.

Below we plot time series for indices of both trends. The polarization index is the distance between the party means on the liberal-conservative dimension, as measured by DW-NOMINATE scores. Greater values indicate greater ideological distance (i.e., polarization) between the two parties in the House.

We compare the polarization time series against two measures of income inequality. The first is the Gini coefficient, which measures the concentration of income among members of a given population (in this case, the United States). The Gini coefficient ranges between 0 (maximum equality: all incomes are equal) and 1 (maximum inequality: one person controls all of the income), so that higher values indicate greater income inequality.

The second measure of income inequality that we use is the income share of the top one percent, from an innovative dataset compiled by Thomas Piketty and Emmanuel Saez. Of course, higher values of this series correspond to greater income inequality. One attractive feature of this measure is that it dates back further (1913) than the Gini coefficient.

Clearly, political polarization and both indices of income inequality follow similar trajectories and are highly correlated. The polarization and Gini coefficient series are both roughly flat between 1947 and the mid-1970s, when both begin to trend upward and rise nearly unabated to the present. The polarization and top one percent share series both decline throughout the early twentieth century, reach a post-war dip, and begin to rebound in the 1970s-1980s. The two indices are especially highly correlated since 1945 (r = 0.92).

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Of course, correlation does not imply causation, but McCarty, Poole, and Rosenthal in Polarized America explain how political polarization and income inequality are mutually reinforcing trends. On the one hand, polarization can exacerbate income inequality by hampering support for redistributive policies, especially as congressional Republicans have moved to the right.

Income inequality, in turn, obstructs electoral incentives for parties to move back toward the center. For one, those at the bottom of the income scale are disproportionately less likely to vote or otherwise participate in the political arena. Noncitizen immigrants comprise a large segment of this group, which of course deflated political participation rates. At the other end, the wealthiest group gains an over-sized influence through their generous contribution patterns, which favor ideologically extreme over moderate politicians. Hence, there are good theoretical reasons to believe that the trends of political polarization and income inequality are not coincidentally intertwined.

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