Democrats Win by a Nose, on the Economy
Donald Trump’s success in the Republican primaries, punctuated by his victory Tuesday in Nevada, has been spurred in part by his deviation from traditional Republican policies (on free trade and immigration) and in part by his argument that some of those policies (including lower income taxes and less regulation) would make America great again. But the latter argument runs into an immediate objection: The economy has consistently grown less under Republican presidents than Democratic ones. It’s just not clear why that is -- or how much a president’s policy choices have to do with it.
At least since 1947, the historical record seems to support a simple conclusion: If you want the American economy to grow, you ought to put a Democrat in the Oval Office. A careful examination of the evidence suggests that the correlation is unmistakably real. But it’s probably just a correlation, which means that Democrats can’t claim credit for it. Though the economy has done worse under Republicans, we haven’t had randomized controlled trials, so it isn’t clear that Democratic leaders have had superior fiscal policies.
Over the 16 full presidential terms since 1947, average annualized rates of growth in gross domestic product were 4.35 percent under Democratic presidents and 2.54 percent under Republicans. Measured by GDP growth, six of the top eight terms were Democratic, and seven of the bottom eight were Republican; the U.S. economy was in recession for an average of 4.6 quarters during Republican presidencies, and just 1.1 quarter under Democratic ones.
As economists Alan Blinder and Mark Watson demonstrate, if you look at measures other than GDP growth -- for example, employment and unemployment, GDP growth per capita, corporate profit shares, or stock market growth -- you get the same basic picture.
What explains all this? It’s tempting to point to macroeconomic policy, and economic growth has indeed been higher when the chairman of the Federal Reserve Board was someone initially appointed by a Democrat. But Blinder and Watson show that you can’t explain the superior performance of Democratic presidents in terms of Fed actions. On the contrary, the Fed is more likely to tighten interest rates under Democrats and to ease them under Republicans -- just what you’d expect given that GDP grows more under the former.
Maybe Democratic presidents are making better fiscal choices to promote growth? There’s no clear evidence of that either. Blinder and Watson find that the fiscal choices of Democratic leaders do not explain their superior record.
Big increases in military spending can produce spurts in growth, and real military spending grew, on average, by 5.9 percent under Democrats and just 0.8 percent under Republicans. But that’s not because Democrats are more enthusiastic about funding the military; it’s because Democrats have spent more time in office during wars (most important, the Korean War under Truman and the Vietnam War under Johnson).
Lefty Gomez, the great New York Yankees pitcher, once said, “I’d rather be lucky than good.” You could make a strong argument that with respect to economic growth, Democratic presidents have been lucky. They have been in office during more favorable international conditions, including high levels of growth in Europe, which spurs the U.S. economy. They have also been less subject to severe disruptions in the oil market and associated increases in prices. (Maybe Democratic presidents have been more adept at preventing such disruptions, but that seems like a stretch.)
There’s a lot that we don’t know, but Democrats should take a deep breath before crowing: The evidence does not demonstrate that the economic policies of Democratic presidents are responsible for the economy’s better performance on their watch. What might most distinguish Democratic leaders is that they have favored more progressive income taxes and programs that benefit the poor. Fairer distribution may well be the principal impact of the policy choices of Democratic presidents.
At the same time, the news is not good for Republicans. Pointing to the importance of cutting taxes and regulations, they claim that theirs is the party of economic growth. Maybe so. But over a period of nearly 70 years, the evidence isn’t on their side.
Which brings us back to Trump. His appeal comes, in large part, from the harmful effects of slow economic growth, which has hurt a lot of people -- and the hope that his policies would immediately get the economy moving again. But insofar as he would follow traditional Republican prescriptions, history doesn’t provide a lot of evidence that he would succeed.
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