Whatâs
Wrong Today:
Didnât
President Eisenhower have a better economic record than President Carter? Saint
Ronnie surely was better for the economy than President Johnson.
Wrong
on both counts.
An
interesting new research paper by Princeton Professors Alan
Blinder and Mark Watson examines differences in performance of the economy
under Democratic versus Republican presidents. The paper begins:
superiority of economic performance under Democrats rather than Republicans is
nearly ubiquitous; it holds almost regardless of how you define success. By
many measures, the performance gap is startlingly large–so large, in fact,
that it strains credulity, given how little influence over the economy most
economists (or the Constitution, for that matter) assign to the President of
the United States.
James
Hamilton of the Econobrowser
Blog took the data from the paper and helpfully provides this graph: (numbers
on the vertical axis are % annual GDP growth)
Leaving
aside the headline and taking away the political labels, the most scary thing
that the graph shows is a strong
downward trend in our GDP growth rate throughout the period, from greater than
4% to less than 2% since Clintonâs 2nd term.
The
data developed by Blinder and Watson show that Mr. Obama has the worst economic
performance by a Democratic President since Truman, and possibly, since Wilson,
but he has about the same results as Bush IIâs 2nd administration, Bush
Iâs 1st, and the Nixon-Ford administration.
Mr. Carter
is unfairly maligned. His economic performance was better than his reputation.
He took on the 2nd oil shock and the Iranian hostage episode. Carter
may have been unloved by business, but his performance was not as bad as portrayed
by Mr. Reagan or his other critics. In fact, GDP growth even under Carter is better than the average growth under
Republican presidents.
Mr. Reagan’s
performance, by contrast, was not as good as our Republican friends would like
us to believe.
Mr. Clinton
may have been the best Republican since Eisenhower, except for that impeachment
thingy by Republicans. His polices (reducing the size of government and
achieving a balanced budget) were far more conservative than any Republican’s in
our collective memory. He is the only President in recent memory that we can consider
as having a clear success with economic policy. And he is the only one who left
the country in a better position than he found it.
Messrs. Bush
I and II did not perform well on the economic growth yardstick, while LBJ had
great GDP growth, but it wasnât enough to allow him to run for a second term. Mr.
Nixon’s economic policies were really from the left, rather than right. He
implemented both wage and price controls and took us off the Gold Standard in 1971. The Recession of
1973-1975 occurred under Nixon. He also had the task of running the US
during the Vietnam war and struggled with the first oil shock.
Mr.
Eisenhowerâs lackluster economic performance may surprise most of us. His
relatively weak performance seems out of context from what we remember about
the 1950âs.
Since
Clinton, we have had a series of bubbles in real estate, securitized real estate,
student loans, corporate high yield debt, trophy art, and a bubble in the
number of economists and politicians who said that we have no bubbles.
So,
what explains the difference in economic performance between Republican and
Democratic Presidents?
Blinder
and Watson are not sure. They find little statistical explanation of the differences in monetary or fiscal policy under
Democrats compared with Republicans. One of the variables that they think did
play a role is oil price shocks.
The Suez
Crisis of 1956-57, OPEC oil embargo of 1973-74, Iran-Iraq War beginning in
November 1980, and Iraq’s invasion of Kuwait in 1990 all occurred during
Republican terms, and all seemed to contribute to weak performance of the US
economy. Jimmy Carter was the one Democratic president who also experienced an
oil shock, during the Iranian revolution in 1978-79, and he had a fairly weak
economic record, if only by comparison to other Democratic presidents.
Another factor
that the researchers identify as potentially important is consumer confidence.
For whatever reason, consumers on average have had a more positive outlook on the
economy when a Democrat was in the White House. In Blinder and Watson’s
statistical analysis, this seems to account for about 25% of the difference
between the performance of Democrats vs. Republicans. They conclude:
doubt like to attribute the large D-R growth gap to better macroeconomic
policies, but the data do not support such a claim…It seems we must look
instead to several variables that are mostly “good luck.”
Specifically, Democratic presidents have experienced, on average, better oil
shocks than Republicans, a better legacy of (utilization-adjusted) productivity
shocks, and more optimistic consumer expectations
So
the economists canât figure out why one party is better than the other when it
comes to the economy. We all know that âcorrelation
is not causalityâ, even if we think it just might be in this case.
Since
economists havenât found the answer, perhaps we should simply take it on faith
that GDP growth is something that the Democrats just do better.
Republicans
take things on faith all the time.
Maybe
itâs time for the rest of us to subscribe to a faith-based view of which party
will do a better job on the economy.
