The Mother of All Negative Feedback Loops: Economic Inequality, Political Polarization, and the 2018 Congress

By Karen Shaw Petrou

Does economic inequality lead to political polarization that then creates gridlock that increases economic inequality and turns negative feedback into M.C. Escher’s tessellated stairway to a political doom loop?

After the first full year of Donald Trump and a GOP-controlled Congress, it’s easy to conclude that we’re in the part of the cycle where inequality leads to polarization and then to gridlock broken only by anti-distributive policies and more acute polarization before gridlock sets in again.  Getting a really bad feeling, I turned to a review of academic literature on economic inequality and political polarization.  It generally confuses causality and correlation, but nonetheless shows that conventional wisdom is right:  all of these forces make this a particularly parlous political session with potentially dangerous consequences for long-term comity and even stability.  Put another way, 2018 will be way ugly.

How do I know?  Although an array of methodological challenges bedevil efforts to assess causality and correlation between economic inequality and polarization, research combined with recent experience show clearly that something’s up.  One might assume that it’s the flow of campaign contributions into federal elections, but a new paper from researchers at the Federal Reserve Bank of Dallas demonstrates that campaign spending does not correlate well with political polarization.  Indeed, as this paper rightly says, one could well anticipate that campaign spending and other moneyed ways to affect political outcomes – there are so many – would correlate with the sharp increase in the growth of the American top 1%.  Interestingly, it doesn’t, at least not well.

Instead, political polarization is most directly associated not only with media fragmentation, but also with a measure of household-income distribution (the “Gini coefficient”), not with the very sharp rise in the top 1% share of U.S. income and wealth recently revalidated in the World Inequality Database.  The Gini coefficient shows sharp increases in economic inequality.  Taken together with other data, it also shows a “hollowed out” U.S. middle class in which once secure households are falling farther and farther behind.  Disenchantment with America’s long-cherished belief in upward mobility caused not by theory, but by hard experience, likely then leads to the embitterment that history proves is all too often associated with political extremism.  Thank goodness for three branches of government and an institutional bias towards the middle ground, at least so far.

Proving the inequality/polarization nexus is also complex because “polarization” is measured according to academic construct.  Ideology and partisanship are usually measured by where the middle ground seems to be based on who voted for what when.  Doing this over decades is particularly challenging and picking where one looks (the House? the Senate? both? state legislatures?) adds more complexity.   Academic bias is also evident – one study I reviewed presumes that conservative Republicans are for the rich and liberal Democrats are happily redistributional.  Maybe, but conservative Republicans believe that the very free markets they espouse advance opportunity, which many equate with mobility, if not also economic equality.

Still, for all my quibbles, these polarization measures are standard and at least instructive, if not dispositive.  What I think they clearly show is what one paper calls a bidirectional correlation that, at least since the Second World War, is a clear signal that, when there is economic inequality that leads those who once had faith in the dream to despair as they fall farther behind, there will also be political polarization.  Economic inequality and political polarization then reverberate and then also intersect with other polarization and inequality forces to make matters worse and gridlock increasingly intractable.

Perhaps inequality can grow still worse and not make a difference in this distressing scenario – some or even all of these polarizing actions may be linked more with media fragmentation than economic inequality according to some research.  Then again, data also show sharp polarization spikes in 2011 and 2013 not accounted for by the media-fragmentation argument.  Congresses after 2013 – on which no academic data are yet in hand – are still more radically polarized than those in the new studies.  History  since then and up to and including December’s tax law and Congress’ inability thereafter to deal with the federal budget shows that, whatever academic models postulate, we’re in a seriously bad place that might well get worse.

I’d rather solve for inequality than study this further.  Even if something else causes political polarization and political dysfunction is just correlated with inequality, the cure will surely go a long way towards ameliorating this particularly pernicious American disease.