by Mitch Kokai
Senior Political Analyst, John Locke Foundation
It’s a Democratic campaign consultant’s dream: a study from two respected academic economists concluding that, since the late 1940s, the economy has consistently performed better under Democratic presidents than under Republican ones. The gap is huge. From 1949 to 2013 — a period when the White House was roughly split between parties — the economy grew at an average annual rate of 3.33 percent, but growth under Democratic presidents averaged 4.35 percent and under Republicans, 2.54 percent. Jobs, stocks and living standards all advanced faster under Democrats.
Not surprisingly, one of the report’s authors is a well-known Democratic economist, Alan Blinder, a former vice chairman of the Federal Reserve now at Princeton University; the other author, Mark Watson, also at Princeton, is a highly regarded scholar of economic statistics who describes himself as nonpartisan. More interesting, Blinder and Watson don’t credit the Democratic advantage to superior policies. …
… Blinder and Watson march through economic studies. Their conclusion: About half of the Democrats’ advantage reflected “good luck” — favorable outside events or trends. …
… The parties have philosophical differences that affect the economy. To simplify slightly: Democrats focus more on jobs; Republicans more on inflation. What resulted was a cycle in which Democratic presidents tended to preside over expansions (usually worsening inflation) and Republicans suffered recessions (usually dampening inflation). …
… The implication is clear: If Republican presidents were saddled with most recessions, their growth and job creation records would naturally be worse. And that’s what the Blinder-Watson study shows. Since the late 1940s, the economy has spent about 12 years in recession. But 10 of those 12 years occurred under Republican presidents; only two occurred under Democrats. On average, the economy spent slightly more than a year in recession for each Republican term and only three months for each Democratic term.
The Federal Reserve — influencing interest rates and credit conditions — was the main agent driving this cycle. The Fed may be “independent,” but it doesn’t ignore the prevailing political and intellectual climate. Its policies have been more permissive under Democratic presidents than Republican ones.
There’s a larger lesson here. The Blinder-Watson study implies that the economy’s performance during a president’s term is a good test of the soundness of policies. Not so. There’s often a long lag between the adoption of policies and their true effects.
Economic policies pleasurable in the present can be disastrous for the future — for example, the inflationary policies of the 1960s. Similarly, the policies that fed the economic booms of the 1990s and the early 2000s spawned overconfidence that fostered the financial crisis. The reverse also applies: Policies painful in the present can reap long-term dividends. The hurtful suppression of double-digit inflation in the 1980s is an obvious case.