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It’s Official: Democratic Presidents Produce Better Growth

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So says Washington Monthly in “Red and Blue Economies,” citing some work by Cactus at Angry Bear. In his five part series on ” God Punishes Us When We (Collectively) Vote Republican” (here is part five) Cactus uses as his measure real GDP growth (growth less the increase in national debt) and determines that this performance occurred despite the fact that monetary policy was more favorable to growth (meaning more expansive) under Republican administrations. If you care to dig deeper, Cactus also analyzed how GDP growth for Republican and Democratic presidents varied with the composition of Congress (same party, opposing party, mixed). Growth is best with a Democratic president and a Democratic Congress. For Republican Presidents, growth is best with a mixed Congress.

An interesting explanation comes from one “spencer” who posted a comment on Angry Bear. Essentially, Republican presidents rely on tax policies that favor the rich, with the assumption that their higher savings will lead to more capital investment, which will promote growth (that’s the essence of supply side economics). Democrats are Keynesians: they run fiscal deficits, assuming the growth they stimulate will eventually cut down the debt, and/or their tax policies favor the middle and lower classes, which have a greater propensity to spend. Spencer posits that the results prove out that Democratic policies are more effective.

First from Washington Monthly:

As longtime readers know, Democratic administrations routinely deliver better economic performance than Republican administrations. Among other things, they deliver lower inflation, lower unemployment, higher economic growth, better stock market growth, and higher median wage growth. This performance is remarkably robust and consistent, and holds up even if you lag the analysis by a few years to allow time for economic policies to have an effect.

It’s also a bit odd, since as I’ll readily concede, presidents have only a modest effect on the economy. But it’s not a statistical fluke. There have now been enough years, enough administrations, and enough separate measurements since WWII to make these results something that can’t just be shrugged off…

Maybe so. In any case, Cactus decided to see if he could give Republicans a break by comparing economic growth to monetary policy. After all, maybe Democrats were just the lucky recipients of expansionary Fed policy. Long story short, it turns out to be just the opposite: Democrats do well even in the face of generally unfavorable Fed policies. Conversely, Republicans generally get a lot of help on the monetary side but their performance sucks anyway.

And of all Republicans, which one sucks the most? Do you have to ask? It’s the one “who has a penchant for under performing at everything.”….

In comments, Frank di Libero produces even more fun:

This discussion has historical as well as statistical roots. FDR used the campaign slogan “Vote Democrat and live like a Republican.”

….In trying to make better sense of the media’s use of BLS’ payroll survey results, I compared the data from 1921 on with working-age population data. (These data are highly correlated.) Taking the ratio of four-year growth estimates for each of these two series over the 21 administra- tions beginning with Harding, results in 9 out of the 10 Democratic admin- istrations having a favorable growth ratio (i.e., greater than 1), compared with only 2 of the 11 Republican administrations.

And this commentary from “spencer” (the logic is decent, even if the writing is sometimes wanting):

Under democrats the economy does significantly better than under republicans. That is pretty solid. So why? I do not buy the argument that it is long and variable lags. Rather, I think the difference is in the impact of Keynesian policies as compared to supply side policies. Generally, democrats implement Keynesian type policies. This is based on the premise that you use deficits to give consumers extra income and they will go out and spend it. This generates strong corporate profits and strong markets that in turn lead to strong capital spending. Supply side policy, in contrast is based on the premise that you use deficits to give tax cuts to the wealthy, or the investor class, and they will investment their extra income and this will generate capital spending that pulls the economy up.

So both are based on the premise that using deficits to give different groups extra income will lead to greater capital spending and a stronger economy. If you look at the record of what happens to capital spending you see that democratic or Keynesian stimulus is followed by very strong capital spending so this thesis seems to work. In contrast, supply side tax cuts are followed by weak capital spending so at best the supply side argument is unproven.

So why the difference? Look at the source of nonresidential capital spending. Some 82% stems from the corporate side of the economy while only 11% is accounted for by S corporations, partnerships, households, etc.. that are subject to the individual income tax code. The remaining 7% is from nonprofit organizations.

Second look at why people or corporations invest. It is because they think they can make a profit by selling the output of the new capacity when it comes on stream not because they have money burning a hole in their pocket. this is clearly what Keynesian type policies assume about human nature why supply side policies assume they invest because they have investable fund. So which one seems more realistic?

Third, look at what has happened to savings. For a quarter of a century we have implemented supply side type policies on the premise that it would lead to greater savings and investments — in a closed economy they are suppose to be equal. But again, look at the record. The major tax incentives we have implemented to encourage savings has been accompanied by a collapse in personal savings. It has to be the one of the greatest examples of a policy that completely failed that anyone can ever find.

So it seems pretty clear to me that the reason the economy does better under Democrats than under Republicans is that Keynesian policies clearly work while their is little or no evidence that supply side type policies have worked.

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