Partisans are likely to focus on these stats in Paul Krugman’s latest column: Since 1947, “the economy grew, on average, 4.35 percent per year [under Democrats]; under Republicans, only 2.54 percent.”
Democratic presidential candidate Hillary Clinton pauses during a speech in Charleston, South Carolina, October 31, 2015. REUTERS/Randall Hill.
To his credit, Krugman does not make strong claims about the superiority of Democratic economic management (though he does mock current GOP policy proposals). Neither does the 2014 study, from where those numbers come, “Presidents and the U.S. Economy: An Econometric Exploration.” Authors Alan Blinder and Mark Watson sort of give it the old ¯\_(ツ)_/¯:
Democrats would no doubt like to attribute the large D-R growth gap to macroeconomic policy choices, but the data do not support such a claim. If anything, and we would not make too much of small differences, both fiscal and monetary policy actions seem to be a bit more stabilizing when a Republican is president — even though Federal Reserve chairmen appointed by Democrats preside over faster growth than Federal Reserve chairmen appointed by Republicans by a wide margin.
It seems we must look instead to several variables that are mostly “good luck,” with perhaps a touch of “good policy.” Specifically, Democratic presidents have experienced, on average, better oil shocks than Republicans (some of which may have been induced by foreign policy), a better legacy of productivity shocks, more favorable international conditions, and perhaps more optimistic consumer expectations (as measured by the Michigan ICE). These factors 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.
Thoughts:
1) Policy matters. But sometimes it takes a while to matter. And the world is a complicated place. So teasing out cause and effect is difficult.
What was the impact of the Obama stimulus? Maybe good, maybe not so good. But it was happening at the same time as we had changing monetary and regulatory policy. Or take the 1981 Reagan tax cuts. Was their biggest impact on the 1980s or on the 1990s? And were those impacts different? Maybe they boosted demand in the 1980s with the supply-side effects taking longer to develop.
2) There have been a dozen presidents since World War II. Is that a huge sample size, especially given changing demographics and macroeconomic conditions?
3) Luck matters. Here is the FT’s Gideon Rachman on the Clinton Boom:
The Soviet Union had collapsed in 1991, just a year before Mr. Clinton was first elected. Throughout his eight years as president, there was no serious competitor to the US for the role of global superpower. … The name Osama bin Laden had yet to impinge on the public consciousness. …Mr Clinton’s economic inheritance was similarly golden. The frightening deficits of the Reagan years disappeared in the 1990s, partly because of sensible fiscal decisions taken by President George HW Bush. By the time Mr Clinton took office, the US economy was already recovering strongly. He was the lucky beneficiary of a surge in American productivity, following the transformation of the workplace by computers. With unemployment at just 4 per cent and inflation under control, there was exuberant talk of a “New Economy”. Given this fortunate combination of circumstances, is it any wonder that the president had time for dalliances in the Oval Office?
4) Does partisan labeling really reveal policy, especially as parties evolve over the decades? Many conservatives have attached themselves to the policies of Democrats JFK (big tax cuts) and Clinton (free trade, balanced budgets, investment tax cuts) and rejected those of Republicans Richard Nixon and George H. W. Bush. As I have written:
In a 2008 WSJ piece, investment strategist Donald Luskin noted that since 1948, the total return of the S&P 500 had averaged 16% with a Democrat in the White House and 11% with a Republican. But swap Clinton and JFK for Nixon and Bush I, and you find that the market is up an average of 15% under the GOP and 11% under the Dems.
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