A Non-Partisan Analysis of Income Inequality as an Explanation for the Rise in U.S. Populism
Former JPMorgan Chase Global Chief Economist (Ph.D. in Economics) & Current BrightQuery Chief Economist
A widely used non-partisan income inequality metric is the U.S. Gini Coefficient (GC), which measures income distribution across U.S. households computed annually by the World Bank. A reading of zero signals perfect equality, while a reading of 100 implies perfect inequality, as all the income in the country goes to one person!
Not surprisingly, the GC has been a subject of intense scrutiny and debate in the United States, particularly in recent years. With its latest annual data point for 2021, the World Bank estimated the U.S. Gini coefficient at 39.8, prompting renewed discussions about the state of inequality in the nation.
At first glance, this figure seems to signal a concerning trend of growing inequality, prompting many political pundits to attribute the rise of populism to this phenomenon. However, a deeper dive into the data reveals a different picture.
Source: The World Bank and Federal Reserve of St. Louis
Contrary to conventional wisdom, the Gini coefficient in the United States has remained mostly unchanged over the past three decades. While there has been a sizeable increase from 1978 to the present day, the level of inequality has remained relatively stable since the 1990s.
Analyzing the data for each U.S. President over the World Bank’s entire sample period provides further insights. From 1977 to 1980, Jimmy Carter achieved the lowest average Gini coefficient of 35.0, signaling a relatively equitable income distribution. In contrast, the highest level of inequality was recorded under Donald Trump, with an average reading of 41.0 from 2017 to 2020. But this reading was relatively unchanged from 40.9 under President Obama and 40.8 under President George W. Bush!
Source: The World Bank and the U.S. Library of Congress
The latest available data for President Joe Biden's first year in office, 2021, shows a slight increase in the Gini coefficient to 39.8 from 39.7 in 2020. Despite this uptick, the reading does not represent a significant departure from the average readings observed over the last three decades.
Political observers also attempt to attribute changes in the Gini coefficient to specific political parties. However, a closer examination reveals a more complex reality. When analyzing the average Gini coefficients by the political party occupying the White House, Republicans averaged 38.2 versus 39.5 for Democrats during the World Bank's sample period from 1963 to 2021. This suggests that both political parties have contributed to the overall trend of income inequality, albeit Republicans fare a bit better than Democrats on average.
Source: The World Bank and the U.S. Library of Congress
Summary and Concluding Thoughts
The stability of the Gini coefficient over the past three decades challenges the notion being espoused by political pundits explaining the rise of populism due to a surge in income inequality. Income inequality has risen from its lowest readings observed during the 1980s. Still, nothing dramatic has occurred over the past few decades to justify the political rhetoric we hear on the presidential campaign trails. Instead, the degree of polarization must be due to other socioeconomic factors that suddenly have been reawakened.
While income inequality has increased over the last six decades, it has remained relatively stable during the previous 30 years. Blaming a particular political party or administration for this trend oversimplifies a complex issue influenced by many economic, social, and policy factors.
Some political pundits have pointed to inflation as the culprit because (from Dec. 2020 to Jan. 2024), the Consumer Price Index rose by 18.2% when President Biden took office, while average hourly earnings rose by 18.3%. But is it credible to believe that populism would not be popular today if wages had increased by an extra +1.0% or more over the past 3 years?
Our nonpartisan analysis concludes that understanding the dynamics of political populism requires a broader and open-minded discussion of many additional variables beyond income inequality and inflation.
The list of suspects as catalysts for the rise in U.S. populism is long and may be a good subject for discussion by our readers from both sides of the political aisle.
Thanks for this interesting article. It would be interesting to have some more detail about the potential weaknesses in the Gini Coefficient. It seems to me that the Lorenz curve is getting increasingly abnormal in today's society. We seem to write about some similar issues - albeit from a different vantage point sometimes (I am occasionally distinctly partisan - but not always on the same side of the fence. And I am not an economist by educational background). If you're interested, check out my substack on https://robertlast.substack.com. I've added your site to my recommendations list. Thanks again for the good read!