Why Are Dems So Much Better for the Economy?

By SAM URETSKY

It’s a well known but commonly ignored fact that the economy does better under a Democratic President than under a Republican. Starting with Harry Truman’s elected term and ending with President Obama’s first term, the average growth of the gross domestic product (GDP) has been 3.3%, but this breaks down to a growth rate of 4.35% when the president is a Democrat and only 2.54% under a Republican. Over a four year term, this means the economy grew 18.6% when a Democrat was in office, but only 10.6% when a Republican was elected.

The first question that comes to mind is: what does the President have to do with anything? Congress sets the budget, and the Federal Reserve sets interest rates, and yet the numbers line up squarely with the President. Two Princeton economists, Alan S. Blinder and Mark W. Watson, attempted to find the link, and produced a paper titled “Presidents and the US Economy: An Econometric Exploration”. It is a fascinating exploration which covers factors that may be relevant and those that may be simply fanciful. The combination of a Democratic President with a Democratic congress leads to the fastest rate of growth, but the pattern still holds when a Democrat in the White House is yoked with a Republican Congress.

They examined trends – were Democrats elected just at the time when the economy was poised for growth – but none of these traits can be linked. “We find that government spending associated with the Korean War (which began under a Democrat and ended under a Republican) explains part of the 1.8 percentage point partisan gap, but that the gap remains large (1.4 points) even after excluding the Korean War administrations.” They did find that the economy does better under tall Presidents than short, and better under young than old, but these considerations don’t seem to hold the answer either. The authors conclude “Rather, it appears that the Democratic edge stems mainly from more benign oil shocks , superior TFP” (total factor output, a variable that accounts for changes in output that can’t be explained by changes in input. It may represent changes in efficiency in the way resources are used) “performance, a more favorable international environment, and perhaps more optimistic consumer expectations about the near-term future.”

Optimism isn’t a bad thought overall. The last optimistic Republican was Ronald Reagan, who is (erroneously) credited with a great economic performance based on tax cuts for the rich. Reagan’s two terms did show better economic growth than any other recent Republican, his “Morning in America” did offer a promise of peace and prosperity, and he did try to apply supply side theory to tax policy. But – supply side failed and Reagan was at least pragmatist enough to raise taxes, and anyway, his overall performance was no better than Jimmy Carter’s.

One observation, probably erroneous, can be based on the fact that the gap between Democrats and Republicans has been in decline in recent years, along with the growing polarization between the parties. David Brock, in his book “Blinded by the Right” makes the point that Republicans were so resentful of Bill Clinton’s election that they resolved to refuse him a honeymoon. The “honeymoon” was defined as the short period after an election in which a new President is allowed to implement his policies (William Safire defined it as the period before a politician is set upon by the press, but Mr. Brock’s version is more relevant.) The same attempt to block a new President’s policies was seen in the response to President Obama’s economic stimulus program, which was held down in size and overly devoted to tax cuts, while key infrastructure programs were blocked, notably Chris Christie stopping construction of the trans-Hudson tunnel. Full implementation of President Obama’s proposals would almost certainly have resulted in a faster growth rate.

Could it be that Republican supply-side economics, instead of leading to the promised growth, have held the economy back, produced the inequality that is decimating the middle-class and, aided and abetted by Citizens United, threaten to sell our elections to the highest bidder? Probably not. Professors Blinder and Watson did a heck of a job looking at every reasonable possibility, and they concluded “These factors (those mentioned above) together explain slightly more than half of the 1.80 percentage point D-R growth gap. The rest remains, for now, a mystery of the still mostly-unexplored continent. The word “research,” taken literally, means search again. We invite other researchers to do so.” Hey, it was a thought.

Sam Uretsky is a writer and pharmacist living on Long Island, N.Y. Email sdu01@outlook.com.

From The Progressive Populist, December 15, 2015

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