Is economic performance really better under the Democrats?

“CLEARLY, there are major differences between the economic policies of Senators Barack Obama and John McCain. Mr. McCain wants more tax cuts for the rich; Mr. Obama wants tax cuts for the poor and middle class. The two men also disagree on health care, energy and many other topics.
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Many Americans know that there are characteristic policy differences between the two parties. But few are aware of two important facts about the post-World War II era, both of which are brilliantly delineated in a new book, “Unequal Democracy,” by Larry M. Bartels, a professor of political science at Princeton. …

I call the first fact the Great Partisan Growth Divide. Simply put, the United States economy has grown faster, on average, under Democratic presidents than under Republicans.



The stark contrast between the whiz-bang Clinton years and the dreary Bush years is familiar because it is so recent. But while it is extreme, it is not atypical. Data for the whole period from 1948 to 2007, during which Republicans occupied the White House for 34 years and Democrats for 26, show average annual growth of real gross national product of 1.64 percent per capita under Republican presidents versus 2.78 percent under Democrats.

That 1.14-point difference, if maintained for eight years, would yield 9.33 percent more income per person, which is a lot more than almost anyone can expect from a tax cut.

Such a large historical gap in economic performance between the two parties is rather surprising, because presidents have limited leverage over the nation’s economy. Most economists will tell you that Federal Reserve policy and oil prices, to name just two influences, are far more powerful than fiscal policy. Furthermore, as those mutual fund prospectuses constantly warn us, past results are no guarantee of future performance. But statistical regularities, like facts, are stubborn things. You bet against them at your peril.

The second big historical fact, which might be called the Great Partisan Inequality Divide, is the focus of Professor Bartels’s work.

It is well known that income inequality in the United States has been on the rise for about 30 years now — an unsettling development that has finally touched the public consciousness. But Professor Bartels unearths a stunning statistical regularity: Over the entire 60-year period, income inequality trended substantially upward under Republican presidents but slightly downward under Democrats, thus accounting for the widening income gaps over all.”

Alan S. Blinder, “Is History Siding With Obama’s Economic Plan?”, The New York Times (31 August 2008).

http://www.nytimes.com/2008/08/31/business/31view.html?ex=1377835200&en=b823687d148df72c&ei=5124&partner=permalink&exprod=permalink


Alan S. Blinder is a professor of economics and public affairs at Princeton and former vice chairman of the Federal Reserve. He has advised many Democratic politicians.

Professor Blinder is correct to point out that measured in terms of rates of economic growth, economic performance has been better under the Democrats, in fact, much better (see Table below). I have no doubt that the changes in income inequality indicated above reflect the differences they are intended to measure but that is not saying much.



Before concluding that Republicans are economic illiterates (a conclusion I have no intention of disputing) and Democrats are economic geniuses (a conclusion I would dispute) may I point out that many factors beyond the political party in power actually shape the record of economic accomplishment of a country.

In the case of the Great Partisan Growth Divide, every country’s record of growth, for example, is affected by the general environment for world economic growth and the particular problems that arise from time to time and markedly affect its economic possibilities over the short- and the long-term, such as oil price rises and financial turmoil. The exceptional U.S. growth in the early 1950s under President Truman is a case in point as it reflects the strong recovery of the country from the devastation of the Second World War. The strong growth in the 1960s under Presidents Kennedy and Johnson benefited greatly from the enormous expansion of world trade in those years as the removal of tariffs spurred world growth and with it, U.S. growth. Similarly, when oil prices rise or foreign financial markets become unsettled, world and U.S. growth slows and may even become negative. One reason U.S. growth under other Presidents, Republican and Democrat, was much slower is because world growth in the 1950s and after the mid-1970s was slower, and hence an important source of U.S. growth was weaker. This has little to do with the domestic economic policies of either Democrats or Republicans.

It is nonetheless remains true that periods of rapid economic growth recorded under the Democrats were associated with years of rapid world growth and those recorded under the Republicans were associated with years of more modest world economic growth. While the pace of world growth must be an important factor, it cannot explain all the difference. It will be interesting to see how Republican economists explain their poor showing in comparison with the Democrats.

In the case of the Great Inequality Divide, much depends on how inequality is measured and the periods over which changes in inequality are measured. The income measure used in the analysis could be pre- or post-tax, it could include social welfare transfers or not, encompass in-kind consumption or not, and consider the effects of income mobility or not. Without knowing about the underlying data, little can be said about the particular results obtained by Bartels.

More generally, one could comment that if the comparison is made over decades it would be affected by the changing age-structure of the population and impact of immigration. My suspicion is the trend toward greater inequality is rooted in differential productivity gains across the economy, the aging of the U.S. population, and immigration. I doubt the policy orientations of the two political parties would explain much of this difference.

I would say even if it is true that the policies of the Republicans lead to slower economic growth than the policies of the Democrats, which I doubt, I would still be a (weak and questioning and at times absent) marcher with the Elephants. I would argue there is much more to politics that mere economic growth and a further rise in incomes, whether it be of the rich or the poor, while welcome, adds little to the true quality of our society. For this reason, these results settle nothing in the political realm.