Rising Tides Versus Sinking the Other Guy’s Boat

I’ve been trying to understand why the economy tends to do better when a Democrat is in the White House, and why its also true of personal income.

I’ve come up with a few reasons on earlier posts, but here’s another. Let’s do the economics thang (yes, I do mean thang) build a model!

Consider a world with the following characteristics:

1. The economy has an underlying growth rate of X.
2. To grow at a rate faster than X is difficult.
3. There are 3 economic classes: poor, middle, and rich.
4. The poor all have the same goals/needs.
5. The middle class all have the same goals/needs.
6. The rich all have the same goals/needs.
7. Each of the three economic classes has different goals/needs.
8. Redistributing income/wealth is easier than producing growth.
9. Redistributing income/wealth to a group is easier when that group currently receives a small share of income, and harder when that group currently receives a big share. (i.e., there are marginal effort issues to take into account)
10. One party is primarily the party of the poor and the middle class.
11. One party is primarily the party of the rich.

With the exception of Assumptions 4 – 6, I imagine none of these assumptions is outlandish. And Assumptions 4 – 6 are certainly not outlandish compared to those in most standard economic models. The models that “prove” the efficiency of the free market and those that “prove” the efficiency of a socialist command economy are certainly far less realistic.

So what does a model like this result in?

Well, I imagine that the party of the poor/middle class, when its in power, can only focus so much on redistribution. The reason is that to redistribute in a way that benefits one of its constituencies potentially harms the other, and vice versa. Except when one group is really, really hurting, it pays more to focus on producing growth.

The other party, which has only one constituency, needs to focus only on benefiting that constituency. Hence, redistribution.

And then there’s a 12th assumption… I imagine its not a stretch to assume the wealthy have some political power even when the other party is not in office, but the poor or middle class may not have political power when their party is not in the White House, which would only tend toward making the outcomes described above more likely.

Throw in the fact that some Presidents are more competent than others, the vagaries of chance, and so forth, and I would imagine this model could explain what we’ve observed over the past fifty some odd years, perhaps longer.