If you look at economic data even as casually as I do, you cannot have missed noticing that the United States’ economy does better under Democratic presidents than it does under Republican presidents — a lot better. Looking at all the presidents after World War II, the economy grows at about twice the rate under Democrats as it does Republicans. I’ve never thought that much about it. I’ve always figured that it was due to a lot of luck.
Well, I was just over at Mark Thoma’s blog (absolutely essential daily reading if you are at all interested in economics) and he posted a paper by Alan Blinder and Mark Watson, The US Economy Performs Better Under Democratic Presidents. Why? These two Princeton economists look seriously at this question and conclude… Well, they are academics and so it is all very nuanced and complicated. But let me see if I can lay it out for you.
First they looked at both fiscal and monetary policy to see if that explained anything. There was no correlation with fiscal policy (stimulus), and the monetary policy actually favored the Republicans. So the two colossal economic drivers have nothing to do with the fact that Democratic presidents are far better for the economy than Republicans. That’s important to remember.
They next looked at five kinds of economic shocks that might indicate that it is just a matter of luck. The shocks are: oil price; productivity; foreign growth; consumer expectations; and defense spending. When they included all of these, half of the effect was explained. But that doesn’t mean that these things are all random. Oil and military shocks are both affected by government policy. What’s interesting is that consumer confidence goes up during Democratic presidencies. This is a big part of the correlation. The authors ask, “Did [the public] know something economists didn’t?” All I can say is that it wouldn’t be surprising; the economic profession is known for its cluelessness.
But that leaves half the effect of better economic performance under Democratic presidents unexplained. I have an idea: it’s the policies, stupid. Especially over the last four decades, Republicans seem far more interested in enriching their already rich friends than doing what is best for the economy. For example, I’m sure that the Iraq War was terrible for our economy. The economy did grow through the early years of it, but that was what it was already doing. I’m talking opportunity cost here. We could have built roads and bridges and factories; we could have educated more people and done more research; in other words: we could have built our nation’s infrastructure with the money we spent blowing up things in Iraq. I have been very hard on both Presidents Clinton and Obama for their foreign policies. But there is no doubt that as lethal as their policies are, they are not huge economic drags.
Similarly, when Republicans want to stimulate the economy, they generally do it in the most inefficient way possible: they give lots of money to people who already have more money than they can spend. Democrats are much more efficient with programs like the payroll tax holiday and extended unemployment benefits. While Blinder and Watson looked at total fiscal policy, they didn’t look at it’s effectiveness. I suspect if they did, they would find a big effect there as well.
So the bottom line is that Democratic presidents produce better economic growth because they offer better economic policy. The Republican prescription of convincing people to vote for them to “get the darkies” so they can give tax cuts to the rich and start bloody good wars does not lead to a good economy.