Partisan Politics and the Inequality Gap

Republicans and Democrats pursue economic policies that satisfy their base votersand leave their opponents out in the cold.

Carlo Allegri/Reuters

When Democrats hold the presidency, unemployment declines more than when the GOP occupies the Oval Office. And when Republican presidents are at the helm, a recent study concludes, stock-markets make larger gains. Both parties, it seems, tailor their economic policies to reward their core supporters. Partisan politics, the study suggests, help fuel America's increasing economic inequality.

The evidence of a growing partisan divide in the U.S. has been hard to ignore during recent elections. So has the reality of the economic disparity between the nation’s richest and poorest citizens. The increasing polarization has even led to calls for greater equality of income and wealth from the highest political offices. But the fact remains that politicians seek to appease their political bases first and foremost, and that can lead to a cycle of macroeconomic policies that disproportionally help, or hurt, only one portion of the population during a party's presidential tenure.

The economic concerns of voters in each party, at least in recent years, have been fairly different. A 2009 Gallup poll shows that during the recession, Republicans were most focused on the growing deficit and the possibility of increasing taxes while Democrats listed unemployment and the lack of health insurance as their primary economic concerns. This differentiation was echoed in a 2014 Pew survey, which showed that Republican voters were, again, most concerned with the budget deficit while Democrats said their primary concern was economic inequality.

A recent study by researchers at the University of Buffalo and Penn State took a look at how politicians used economic gains to reward their voters, and how these policies impact inequality. It found that in general, Democratic presidents presided over greater reductions in unemployment, and Republican presidents were leading during periods of more significant stock-market gains. Falling unemployment can raise the wages of workers, while the gains of booming markets tend to accrue to those with investable wealth.

The research also notes a 2008 paper, which found that high-income earners tend see to more-significant income growth during Republican administrations than their poorer counterparts, while earners of all levels see some level of income appreciation under Democratic presidents—supporting the notion that economic gains are distributed differently by the two parties.

Economic Concerns by Party I.D.

Researchers looked at economic growth—as measured by the change in real gross domestic product (GDP)—and theorized that during Republican presidential administrations, positive growth would be funneled into pro-business policies that would produce significant stock-market returns. For Democratic presidents, economic growth would manifest as a reduction in unemployment.

Accounting for lag-time in policy implementation that can occur when there's a switch in presidential parties, they then looked at the monthly unemployment rate for Americans ages 16 and older, and the annual percentage change in the closing price of the S&P 500 at the end of each month, between 1951 and 2010.

The study found that the average level of unemployment was higher when a Republican president was at the helm and GDP growth was more than 1 percent (which it normally is). Democratic presidencies, by contrast, showed lower average levels of unemployment and a negative correlation between unemployment and economic growth.

Market returns also verified their hypotheses—particularly when adjusted as a leading indicator—with returns to the S&P showing significantly more growth under Republican leadership than Democratic leadership. According to the authors, this may be due to the fact that Republican administrations implement policies that encourage firms to utilize financial gains in ways that create fewer jobs, but increase investor returns or make firms operate more efficiently—like distributing dividends or investing in technology.

Though the results of the study weren't shocking, their implication is still particularly problematic given the current political climate. The mounting polarization in America may mean that, more than ever, attempts by political leaders to pacify their core supporters wind up leaving others out in the cold, as presidential administrations create and implement policies that build on existing divisions in an already-fractured country.