It’s luck, stupid.
That’s why the U.S. economy has performed better when the American president is a Democrat rather than a Republican, according to a working paper released this week by Princeton University economists Alan Blinder and Mark Watson.
Since World War II the economy has performed an average of 1.8 percentage points better when a Democrat was in the White House than when a Republican was, they estimated. The average growth rate under Democrats was 4.35 percent compared to 2.54 percent for Republicans, meaning the economy grew 18.6 percent over a typical four-year term for the Democrats and 10.6 percent for Republicans.
Meantime, the economy was in recession for 1.1 quarters on average during each Democratic term and 4.6 quarters during each Republican term, according to the paper published by the National Bureau of Economic Research.
Unemployment also fell 0.8 percentage points on average under the Democrats, while it rose 1.1 points on the watch of Republicans. Annualized stock market returns for companies in the Standard & Poor’s 500 Index were 5.4 points higher with a Democrat in charge.
Of all the presidents, Harry Truman, Lyndon Johnson and John F. Kennedy’s joint term and Johnson’s solo term followed by Bill Clinton’s second term showed the strongest gains in gross domestic product.
So what explains this partisan gap? Unfortunately for the Democrats the answer is not likely something they can harness in future election campaigns. Blinder and Watson reckon about half of the difference in performance is down to “luck” in that positive shocks in oil, productivity and international economic growth have tended to occur with Democrats in charge. Changes to fiscal and monetary policy do not provide an explanation, they said.
For example, oil prices increased three-fold in Republican George W. Bush’s second term, while Truman and Kennedy enjoyed jumps in productivity. War spending also assisted the economies of Truman and Johnson and stronger growth in Europe aided Democratic presidents.
“These factors together explain slightly more than half” of the growth gap, according to Blinder, who was appointed Federal Reserve Vice Chairman by Clinton, and Watson. “The rest remains, for now, a mystery of the still mostly-unexplored continent.”
When they looked at actual policies, the authors found fiscal and monetary policies tend to be slightly more stabilizing under Republicans, although Fed chairmen appointed by Democrats preside over faster growth than Republican choices.
As for other economies, Blinder and Watson found Canada closely resembles the U.S., while the U.K., France and Germany don’t exhibit partisan differences in performance.