Who Had Superior Economic Performance - the Democrats or the Republicans?

by: Jeffrey Frankel

A panel on Supply Side Economics in Washington on September 12, included statistics on the superior performance of the American economy under President Clinton compared to his Republican successor. (The graph to the right, from Ettlinger & Irons, shows the first term of each administration. The growth gap widened subsequently.) Former Treasury Secretary Larry Summers gave some statistics that included Democratic versus Republican presidents throughout the postwar period. (The event was jointly sponsored by the Center for American Progress and the Economic Policy Institute.)

By coincidence, in a column in that day’s Wall Street Journal, Donald Luskins sought to “get something settled once and for all. Have the stock markets and the economy historically done better under Democrats or Republicans?”

Here is what he wanted to straighten us out on:    

Superficially at least, the Democratic claims are true: Since 1948, the Standard & Poor’s 500 total return (capital gains plus dividends) has averaged 15.6% when a Democrat was in the White House and only 11.1% when a Republican was in the White House. You get a similar result if you look at growth in real gross domestic product. Under Democratic presidents, the average since 1948 has been 4.2%. Under Republican presidents it has been only 2.8%.

But then he goes on to argue that Kennedy should really be classified as a Republican (he cut taxes), Nixon as a Democrat (wage-price controls), George H.W. Bush as a Democrat (he raised taxes), and Bill Clinton as a Republican (free trade; and he might have added eliminating the budget deficit, supporting the Fed, reforming welfare, other policies that would normally be thought of as conservative). He argues that if you make these switches in party assignments, then the US stock market and economy has performed better under “Republican” presidents (which, remember, now includes Kennedy and Clinton) than under “Democrats” (which now includes Nixon and the first Bush).

I am still not sure whether the column was meant as a joke. At the risk of finding out that I have been taken in by a prank, I will assume that the author is serious.  Brad de Long  picked this one up right away, and thinks the author is serious. (Luskins, it turns out, is the guy who has apparently devoted much of his adult life to attacking Paul Krugman.)  But Brad didn’t offer any sort of detailed rebuttal. I suppose one could argue “live by ad hominem, die by ad hominem.” But I think blogosphere courtesy, such as it is, calls for a substantive reply. 

My first response is to point out that the Nixon, Bush and Clinton policies he cites are not isolated cases, but appear on a longer list of examples I like to give showing how for the last 40 years, rhetoric notwithstanding, Republican presidents have pursued policies that are surprisingly farther removed from the ideal of good neoclassical economics than have Democratic presidents. This is especially true if one defines neoclassical economics as the textbook version, which allows government intervention for externalities, monopolies, etc. But I would argue that it applies even to the “conservative economics” version that puts priority simply on small government.

The criteria underlying this generalization about Republican presidents are:

  1. Growth in the size of the government, as measured by employment and spending.
  2. Lack of fiscal discipline, as measured by budget deficits.
  3. Lack of commitment to price stability, as measured by pressure on the Fed for easier monetary policy when politically advantageous.
  4. Departures from free trade.
  5. Use of government powers to protect and subsidize favored special interests (such as agriculture and the oil and gas sector, among others).   

I have documented in writings listed elsewhere that Republican presidents have since 1971 indulged in these five departures from “conservatism” to a greater extent than Democratic presidents. The name I would give to this set of departures, as well as to the parallel abuses of executive power in the areas of foreign policy (intervening in Iraq) and domestic policy (intervening in people’s bedrooms), is neither “liberal” nor “conservative” but, rather, “illiberal.”

My second response is to point out that the author is re-defining “Republican” and “Democrat” tautologically to be “good” or “bad.” A definition that departs so far from actual party affiliation does unacceptable linguistic violence. And of course it is circular logic to then find that the economy does better under “Republican” presidents than “Democratic.”

An analogy. Marx and Engels of course professed to have the welfare of the common man as their goal. The Soviet Constitution asserted that the USSR expressed “… the will and interests of the workers, peasants, and intelligentsia.” It claimed to embody democracy, the rights of freedom of speech, freedom of the press, freedom of assembly, freedom of religion, inviolability of the person and home, and the right to privacy.

Needless to say, this was all pure rhetoric, which was continuously and comprehensively violated by the actual operations of the Soviet state. But by Luskins’ logic, the Western democratic system, which did put these ideals into practice should be re-classified as communist, and the superior performance of the Western system should be chalked up as going to the credit of communism! It makes no more sense to credit the achievements of Bill Clinton to the Republicans than it would to credit the achievements of Western democracy to the Communists.

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