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

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.

Comments

[Steven Hansen:]

entertaining and well thought out. Yah, I liked the story.

2008 Sep 16 04:40 AM

[pochovilla:]

These are POLITICAL statements. If you try to associate them with logical or factual arguments you will go insane. If you like to argue this is a great theme that has no resolution except to convince yourself that you are right. Otherwise go talk to a rock or a brick.

2008 Sep 16 06:03 AM

[Tim Miles:]

I agree basically with your analysis except to say that this Administration has been very sincere about its dedication to free trade. Witness all of the FTAs that have been negotiated and signed with a wide range of countries.

2008 Sep 16 08:28 AM

[akapital:]

Excellent article. Some new data that I have not read before. Great analogy, comparing Republican rhetoric with Soviet ideologues. I think you can find this use of tautology rampant within their thinking and I do not believe that they use it intentionally. What it demonstrates is a lack of critical thinking and simple bravado. It is simply, we are good because we are good. And unfortunately I believe it appeals to most people because it is accessible to them and any inductive or deductive type of thinking confuses them...and this is truly our demise.

2008 Sep 16 08:51 AM

[tonny adamms:]

If politics was an arithmetic progression you would expect what was delivered under Clinton,Kennedy,.....,... most likely also be delivered by the Democrats under Barack Obama in the very same vigour and spirit!The above brief may have been a deliberate intellectual swap which requires unfolding,if not may mislead the truth about bringing CHANGE to America for the good of our planet earth.

2008 Sep 16 09:39 AM

[Crookedwood:]

Most interesting. In a society where double speak is seen as the truth this is a great article. Of course, flip flopping party labels denies the reality of leadership which seeks to address and solve problems and leadership which is driven by ideology.

2008 Sep 16 11:37 AM

[Tim Miles:]

I think that the McCain campaign embraces "trickle down" economics which means that he favors limited government, tax breaks for the wealthy and business in general, and reductions in civilian Federal employment to achieve some control over the massive Federal deficit. Unfortunately, his foreign policy is likely to have the United States involved in Iraq and other wars for years to come. That translates not only into continued loss of life and related human costs, but also substantial funding of the military (which will make deficit reduction difficult) at a time when the United States faces major economic problems at home.

2008 Sep 16 01:22 PM

[eyeswideopen:]

Good article! I find it amusing how republicans are "always" right, and democrats are "always" wrong. So far, in my lifetime, the economy has not done well with a Republican in office. They do tend to say one thing and do another, as is the case with the current administration.

2008 Sep 16 01:43 PM

[Brian27:]

The key Economic Policies during the Clinton Administration

1) Nafta ... Obama the opposite
2) Abandoned Socialized Health Care ... Obama the opposite
3) Capital gains tax cuts .... Obama the opposite
4) Welfare cuts (redisitribution policies) .... Obama the opposite
5) Government Spending cuts .... Obama the opposite
6) Less Regulation .... Obama the opposite

Does anyone disagree with the premise if the opposite policies are followed that the opposite result will occur?

2008 Sep 16 04:36 PM

[Brian27:]

Luskin is correct, what matters are the policies followed congress and the President. The 1990’s growth spurt fueled by tech firms after a capital gains tax cut falls short of the booms of the early 1960’s and 1980’s that were fuelled by marginal income tax cuts. The GDP growth of the 70’s again falls short of the 60’ and 90’s booms caused by cuts in marginal rates.

The simple fact is Americans respond to incentives. Lower marginal income tax rates stimulate labour supply and investment which results in higher GDP growth. Of course there is an extreme theoretical view that Americans don’t respond to changes in incentives. This view has been contradicted by the evidence.

One other myth, that marginal tax cuts reduce revenues, is discredited by the evidence. In actuality income tax receipts rose 28% after the tax cuts in 2003. From 2003 to 2006 tax revenues increased at a compound rate of 6.5%. From 1993 until 2003 tax receipts increased by 58% a compound increase of 4.7% after the Clinton Tax increase.

Table 1
www.irs.gov/taxstats/i...

2008 Sep 16 05:59 PM