If we want more income equality, should we return to the economy of George W. Bush?

Other things being equal, income equality is better than inequality. But other things are NOT equal. The easiest way to make incomes more equal in the short run is to have a recession.

Much has been made of growing income inequality since 1979, but very little attention has been paid to which of the four presidental administrations preceding Barack Obama increased income equality and which ones reduced it. In short, the two presidents whose terms involved improving income equality were the two George Bushes and the two whose terms were associated with worsening after-tax income equality were Ronald Reagan and Bill Clinton. It is probably not an accident that the two presidents in whose administrations the GDP grew the most were the two presidents whose time in office coincided with worsening income equality.

The president under whom the poorest quintile enjoyed the largest increase in after-tax household income was George W. Bush. And the two administrations under whom the richest quintile and richest 1 percent fared the worst were the two Presidents Bush. Among Barack Obama’s four immediate predecessors, the two biggest income equalizers were George H.W. Bush and George W. Bush.

Just to be clear, I am not pining for the good old days of the economy of George W. Bush.

But George W. Bush was the most successful of our recent past presidents in achieving very substantial increases in incomes for the poorest quintile (+18.4%), while keeping gains for the richest quintile and richest 1 percent at modest levels. For example, under Bush the Younger, the incomes of the richest 1 percent rose only 6.5 percent in eight years, compared to a staggering 84 percent under Clinton and 91 percent under Reagan.

If you would rather have Bill Clinton’s economy than George W. Bush’s economy – and I definitely would – then as a practical matter you probably don’t care overmuch about income equality.

Background Data

The best data on income inequality are put out by the Congressional Budget Office. (You can download the supplemental data on right side of this CBO page; the files unfortunately include only one year of Obama data, not enough to analyze here).

Which presidents did better or worse and in which respects? Figure 1 shows differences in the percentage of after-tax household income each segment of the population represents.

As you can see from Figure 1, the first George Bush’s presidency had no meaningful effect on the after-tax share of income for any segment of the population. The Reagan and Clinton presidencies closely tracked one another: in both presidencies the share of the poorest quintile showed a trivial drop, while the top 1% had a substantial boost of a half percent in their share of national household income.

The only presidency that had a big improvement in equality of income shares was George W. Bush’s. Each of the four quintiles in the bottom 80 percent enjoyed a substantial .4 to .6 increase in share, while the top 1 percent suffered a large 1.4 percent drop in their share of household income.

In some respects, Figure 2’s story is even more dramatic.

Between the end of 2000 and the end of 2008, the after-tax household income of the poorest quintile increased a hefty 18.4 percent in inflation-adjusted 2009 dollars. The income of the top quintile rose 9.3 percent while the income of the richest 1 percent increased only a modest 6.5 percent. Under George W. Bush, accordingly, a rising tide lifted all boats, but the boats of the poor caught a wave that (in percentage terms) raised them almost three times more than the richest 1 percent.

The Reagan and Clinton administrations oversaw large increases in income inequality, with the richest 1 percent under Clinton gaining 84 percent while the top 1 percent did even better under Reagan, obtaining a 91 percent increase. At the low end, the poorest quintile did well under Clinton (up 13.3 percent), but very poorly under Reagan (+0.6 percent). Those who care more about equality than about wealth creation might prefer George H.W. Bush’s performance to even his son’s. Under the Bush the Elder, the poorest quintile earned 10.2 percent more income in just four years, while the richest 1 percent suffered a 10.5 percent loss in household income.

If one looks instead at the Congressional Budget Office’s computation of Gini coefficients (which appear to be less driven by what is happening to the top 1 percent), after-tax household incomes grew more equal under the two Bushes and deteriorated under the Reagan and Clinton administrations.

    Gini coefficients of inequality in after-tax household income during presidential terms (CBO, Table 9):

1. George H.W. Bush – reduced Gini coefficient by .016 (from .424 at the end of 1988 to .408 at the end of 1992)
2. George W. Bush – reduced Gini by .008
3. Bill Clinton – increased Gini by .044
4. Ronald Reagan — increased Gini by .062

Another way to look at patterns in inequality is to consider annual increases in after-tax household income for the lowest and the middle quintile:

    Annual increases in average after-tax household income for lowest quintile (CBO, Table 3):

1. George H.W. Bush – 2.5% (total 10.2%)
2. George W. Bush – 2.1% (total 18.4%)
3. Bill Clinton – 1.6% (total 13.3%)
4. Ronald Reagan – 0.1% (total 0.6%)

    Annual increases in average after-tax household income for middle quintile (CBO, Table 3):

1. Bill Clinton – 1.8% (total 15.8%)
2. George W. Bush – 1.5% (total 12.6%)
3. Ronald Reagan – 0.7% (total 5.8%)
4. George H.W. Bush – 0.2% (total 0.7%)

The two Bushes did better for the poorest quintile of households, while Bill Clinton and Bush the Younger did better for the middle class.

At the high end (where smaller increases promote greater equality), again the two Bushes did the best, both as regards the top quintile and the top 1 percent.

     Annual increases in average after-tax household income for highest quintile (CBO, Table 3, reverse ranked):

1. George H.W. Bush – minus 0.6% (total minus 2.5%)
2. George W. Bush – + 1.1% (total + 9.3%)
3. Ronald Reagan – + 3.5% (total + 31.9%)
4. Bill Clinton – + 4.2% (total + 38.7%)

    Annual increases in average after-tax household income for highest 1% (CBO, Table 3, reverse ranked):

1. George H.W. Bush – minus 2.7% (total minus 10.5%)
2. George W. Bush – + 0.8% (total + 6.5%)
3. Bill Clinton – + 7.9% (total + 84.1%)
4. Ronald Reagan – + 8.4% (total + 90.9%)

Leaving aside inequality for the moment, which administration enjoyed the biggest increases in GDPs and incomes overall. In GDP increases, Clinton and Reagan did similarly great, but Clinton did better than Reagan in average household income increases. And Bush the Elder’s administration did very poorly in average incomes, increasing a total of less than 1% over four years.

    Annual increases in GDP:

1. Bill Clinton – 3.9% (total 35.7%)
2. Ronald Reagan – 3.5% (total 31.4%)
3. George H.W. Bush – 2.3% (total 9.3%)
4. George W. Bush – 1.6% (total 13.3%)

    Annual increases in average after-tax household income (CBO, Table 3):

1. Bill Clinton – 3.0% (total 26.9%)
2. Ronald Reagan – 2.0% (total 17.3%)
3. George W. Bush – 1.1% (total 9.1%)
4. George H.W. Bush – 0.2% (total 0.7%)

If one looks at median household income, rather than averages, then George W. Bush moves ahead of Reagan in performance.

    Annual increases in median after-tax household income (CBO, Table 5):

1. Bill Clinton – 2.1% (total 17.7%)
2. George W. Bush – 1.6% (total 13.3%)
3. Ronald Reagan – 0.6% (total 5.2%)
4. George H.W. Bush – 0.4% (total 1.7%)

The surprise for the median incomes table is the relatively poor performance under the Reagan administration. If one adjusts for changes in household size (as the CBO does in some tables), then Reagan’s increase in median household income almost doubles.

According to my analysis of the CBO data, the administration in which the economy was the best (both in GDP increases and in overall income increases) was the Clinton administration. Yet the best administration for increasing income equality was either the George W. Bush administration or that of his father, depending on the measure used.

UPDATE (Tuesday, 8:45pm ET):

I wanted to address two issues that are raised in the comments. The first comes from a failure of some commenters to read my post with any care. I don’t know how I could have made it clearer that my post is not a general defense of George W. Bush’s economic stewardship. I wrote:

Just to be clear, I am not pining for the good old days of the economy of George W. Bush. . . .

If you would rather have Bill Clinton’s economy than George W. Bush’s economy – and I definitely would – then as a practical matter you probably don’t care overmuch about income equality.

Trashing Bush and the economy he left (as some commenters do) only makes my case stronger.  The presidents who were best on income equality (the Bushes) were not the best on the economy overall (Clinton and Reagan). Almost any decent person not driven by envy would favor the Bill Clinton economy to the George W. Bush economy because income inequality should be a relatively minor concern, given the appalling lack of jobs today, particularly for the younger generation. The post is designed to imply that there are many things more important than income equality, such as economic growth, jobs, and increasing opportunities, but I thought most of you would appreciate the information in the post without a detailed policy prescription from me.

The second theme of some comments is perhaps is more understandable, but even here there are hints that the argument might point in the opposite direction from the one a commenter wants to advance. Some commenters insist on crediting or blaming Bush for the results at the end of 2009, not just those at the end of 2008. Yet in the first paragraph of my post I wrote:

The easiest way to make incomes more equal in the short run is to have a recession.

If you want to attribute 2009 to George W. Bush, then Bush becomes an exemplar of redistribution. The bottom quintile still does great under a hypothetical 9-year Bush administration: increasing after-tax household income by 18.9% (compared to 18.4% for the 8-year Bush administration). The second quintile (12.2%), middle quintile (11.1%), and fourth quintile (10.2%) still do fine, as does the 81-90% group (10.7%) and the 91-95% group (9.3%). The increase for the 96-99% group drops substantially (to only 3.7%), but is still positive for the 2001-2009 period. The top 1% of households, however, whose incomes increased +6.5% in the 2001-2008 period, actually drops to a decrease of -17.7% for the 2001-2009 period.

Thus if 2009 is attributed to Bush, as some of you urge, again my argument would be strengthened. Bush would have been successful in reducing high after-tax incomes for the wealthiest 1%, while still increasing the after-tax household incomes of the lower four quintiles, particularly of the poorest quintile.

In other words, don’t confuse a good economy with a more equal income redistribution.  These tend to move in opposite directions.

Jim Lindgren is a law professor at Northwestern University, with a BA from Yale and a JD and a PhD in (quantitative) sociology from the University of Chicago. He is a cofounder of the Section on Scholarship of the Association of American Law Schools and a former chair of its Section on Social Science and the Law.



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