By Ron Knecht and Geoffrey Lawrence
We frequently hear claims from the Left that Republican economic policies increase income inequality by benefiting the wealthy and leaving the poor and middle class in the dust.
Last year, President Obama dissed Republican leaders' empathy for income inequality, saying, "They're just trying to bamboozle folks. We've got an agenda and we know it works."
As economists, we know that history and experience around the world show that economic freedom and strong property rights, plus the rule of law, limited government with separation of powers, and personal liberty and individual rights produce the best results for the public interest in human wellbeing and fairness. As public officials, we take these matters seriously. So, the first question we ask on issues is whether a particular policy, law, regulation, decision, etc. promotes economic growth and thus gives people greater opportunities and aggregate wellbeing.
Growth that benefits only the privileged few and doesn’t provide opportunity and prosperity for most folks doesn't pass our test. Sound economic policies are those that allow people to use their talents and ambition, put forth effort, take risks, and rise out of lower income brackets.
As sons of working-class people in the Midwest and South, we understand this quite well.
Government intervention stifles income mobility and thus increases inequality. Protectionist licensing regimes and restrictions on trade shield incumbent producers from competition, giving them market power while entrepreneurs are squeezed out and consumers must pay higher prices. The minimum wage doesn't create high-paying jobs; it just outlaws low-paying jobs and prevents people from getting the entry-level experience they need to advance.
Likewise, government interventions in financial markets and credit-allocation policies have inflated asset prices and caused financial bubbles. This puts homeownership and other goals further beyond the reach of low-income families, and it benefits mainly small groups of Wall Street crony capitalists.
Lawrence Lindsey's latest book, Conspiracies of the Ruling Class, examines among other things the real record of income inequality under presidential administrations the last half-century. Lindsey was a Harvard economics professor; advisor to Presidents Reagan, Bush41 and Bush43; Federal Reserve System Governor; and successful businessman. By his own admission, he knows the Ruling Class’s mischief as one who was part of the problem.
We've replicated and significantly extended his work to show which presidents really had the best records for promoting wide prosperity since the War on Poverty began and income redistribution became the obsession of the Democrats and other leftists. We compared the average annual economic growth rate of each administration in real, per-person terms with the average of three standard measures of income inequality produced by the U.S. Census Bureau.
The data show that income inequality increased by all three measures similarly throughout the last half century, but the rates of growth in inequality were much slower under some presidents. And all administrations presided over positive but also greatly varying net economic growth.
We combined these two measures to create a new metric showing how successful each president was in both fostering growth and the wide sharing of its benefits. We did this by subtracting the average annual rate of increase in the inequality measure from the average annual per-person real economic growth rate.
The table nearby summarizes the results. Reagan and Clinton had by far the best economic growth records, while the Bushes had by far the worst. Obama has the worst income inequality results, followed by Reagan, Clinton and Carter. The Bushes and Nixon/Ford had by far the best records on income equality.
|Administration||Annual Growth, Real GDP Per Person||Annual Increase in Income Inequality||GDP Growth Less Income Inequality Increase|
Reagan, Clinton and Nixon/Ford had by far much better records on the two measures combined than Carter, while Obama (especially) and the Bushes have by far the worst records.
In our analysis, we assumed that both the income growth and inequality effects of an administration take effect in its second year and that its first year is more affected by the policies of the administration leaving in that year. This assumption hugely benefits Obama and Clinton, whose records are much worse without a one-year lag, but it diminishes Carter’s performance.
Most striking to us is that President Obama, who's been a caustic critic of Republican and free-market ideas, has overseen the fastest growth in income inequality. So, the data show that the “agenda” of the President, Democrats, progressives, statist liberals, and the politically correct actually damages the society as a whole, especially the poor and middle class. But it makes great political rhetoric.
Ron Knecht is Nevada State Controller. Geoffrey Lawrence is Assistant Controller.