McCarty Reveals Political Effects of Income Inequality

By Phyllis Jeffrey - Does widening income inequality cause greater political polarization? Does it affect the Democratic and Republican parties in the same ways? On May 6, 2016 Nolan McCarty, Susan Dod Brown Professor of Politics and Public Affairs and chair of the Department of Politics at Princeton University, explored these issues in a talk entitled "Unequal Incomes, Ideology and Gridlock: How Rising Inequality Increases Political Polarization."

French economist Thomas Piketty has demonstrated that the share of income held by the top 10% of Americans has been rising since 1970, with the 2007 level exceeding the figure for 1928—the year preceding the infamous crash of 1929. 

Similarly, Emmanuel Saez (UC Berkeley) has demonstrated a broad resurgence of the trend since the 2008 crisis, with the top decile’s share reaching as high as 50.6% in 2012—a level not seen since 1917. As the economic divide between Americans widens, what is the effect on our representative institutions?

Ideological preferences

In the paper on which the talk was based, McCarty and his co-authors—John Voorheis (Economics, University of Oregon) and Boris Shor (Government, Georgetown)—employ state-level data on income distributions and ideological make-ups of state legislatures to test what happens to law-makers’ preferences when inequality goes up.

The authors look at incomes and ideological preferences of state legislators across the 50 states between 1993 and 2013. In order to achieve meaningful comparison across legislative chambers in different states, McCarty and his co-authors use the survey-based National Political Awareness Test (NPAT), which yields an “ideal point” or most desired policy outcome for every legislator. 

Movement right

Analysis of ideological shifts within Democratic and Republican parties revealed that an increase in income inequality causes Democrats to move left, and Republicans to move right—with the effect relatively stronger on the Democratic side. However, studying change in the median ideological points of legislatures suggested something different: increasing income inequality moves legislatures to the right. How is this to be explained? 

While there is some evidence that income inequality pushes Republicans towards more conservative positions, the main causal effect is the replacement of moderate Democrats with Republicans in elections. The avowedly leftwing Democrats that remain render their party’s median more radical, but the legislature as a whole is shifted right as Republican seat-share grows. The effect, McCarty noted, only seems to have increased in recent years. 

In fact, this trend looks set to cause further income inequality, with Republican-heavy legislatures less inclined to pass redistributive measures. Meanwhile, legislatures polarized between Republicans and leftwing Democrats are more likely to become mired in gridlock.

Landscape of inequality

McCarty concluded his talk by speculating that changes in campaign finance may be partly responsible for this situation. The Supreme Court’s ruling in the 2010 Citizens United case overturned state-level limits on campaign finance. Comparing polarization in states which once had campaign finance limit laws to those that did not, McCarty revealed that the trend toward increased Republican seat-share is more dramatic in states which—before the floodgates were opened in 2010—once set limits on campaign contributions.

With the majority of campaign donations coming from the top 1% of Americans, unrestricted campaign financing, McCarty suggested, may be one channel through which income inequality is shaping the political landscape.

This event was hosted by the Department of Political Science. Learn more about Nolan McCarty at his Princeton University faculty webpage.