Economics

Economists Agree: Democratic Presidents are Better at Making Us Rich. Eight Reasons Why.

Democratic administrations over the last century have delivered far faster economic growth. What explains that? 

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By Steve Roth

In 2013, economists Alan Blinder and Mark Watson — no wild-eyed liberals, they — asked a very important question: Why has the U.S. economy performed better under Democratic than Republican presidents, “almost regardless of how one measures performance”?

Start with their “performed better” assertion: it’s uncontestable. While you can easily cherry-pick brief periods and economic measures that show superior economic performance under Republicans, over any lengthy comparison period (say, 25 years more), by pretty much any economic measure, Democrats have outperformed Republicans for a century. Even Tyler Cowen, director of the Koch-brothers-funded libertarian/conservative Mercatus Center, stipulates to that fact without demur.

Here’s just one bald picture of that relative performance, showing a very basic measure, GDP growth:

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The difference is big. At those rates, over thirty years your $50,000 income compounds up to $105,000 under Republicans, $182,000 under Democrats — 73% higher. (And this is all before considering distribution — whether the growing prosperity is widely enjoyed, or narrowly concentrated.)

Hundreds of similar pictures are easily assembled — different time periods, different measures, aggregate and per-capita, inflation-adjusted or not — all telling the same general story. No amount of hand-waving, smoke-blowing, and definition-quibbling will alter that reality. (If you feel you must try to debunk Blinder, Watson, and Cowen: be aware that you almost certainly don’t have an original argument. Read the paper, and follow the footnotes. You’ll also find more hereherehereherehere, and here.)

So what explains that superior performance? Blinder and Watson’s regression model basically says, “we dunno.” Their model rules out a whole slew of possibilities — only finding a significant correlation with oil price shocks (uh…okay…) and Total Factor Productivity (the black-box residual economic measure that’s left when the other growth factors economists can think of are accounted for in their models).

Standing empty-handed after all their work, Blinder and Watson punt. They attribute Democrats’ consistently superior performance to…luck. Yes, really.

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On its face, the bare fact of Democrats’ consistent outperformance suggests a straightforward explanation: Democrat policies and priorities, in their myriad interacting forms, expressions, and implementations, directly cause faster growth, more progress, greater and more widespread prosperity. (Blinder and Watson pooh-pooh this idea, simply because they don’t find short-term correlation with the rather bare measure of fiscal balances.)

So the question remains: what could it be about the Democratic economic policy mix that delivers superior performance? Here are eight possibilities:

1. Wisdom of the Crowds. Democrats’ dispersed government spending — education, health care, infrastructure, social support — puts money (hence power) in the hands of individuals, instead of delivering concentrated streams to big entities like defense, finance, and business. Those individuals’ free choices on where to spend the money allocate resources where they’re most valuable — to truly productive industries that deliver goods that humans actually want.

2. Preventing Government “Capture.” Money that goes to millions of individuals is much harder for powerful players to “capture,” so it is much less likely to be used to then “capture” government via political donations, sweetheart deals, and crony capitalism.

3. Labor Market Flexibility. When people feel confident that they and their families won’t end up on the streets — they know that their children will have health care, a good education, and a decent safety net if the worst happens — they feel free to move to a different job that better fits their talents — better allocating labor resources. “Labor market flexibility” often suggests the employers’ freedom to hire and (especially) fire, but the freedom of hundreds of millions of employees is far more profound, economically.

4. Freedom to Innovate. Individuals who are standing on that social springboard that Democratic policies provide — who have that stable platform of economic security beneath them — can do more than just shift jobs. They have the freedom to strike out on their own and develop the kind of innovative, entrepreneurial ventures that drive long-term growth and prosperity (and personal freedom and satisfaction) — without worrying that their children will suffer if the risk goes wrong. Give ten, twenty, or thirty million more Americans a place to stand, and they’ll move the world.

5. Profitable Investments in Long-Term Growth. From education to infrastructure to scientific research, Democratic priorities deliver money to projects that free market don’t support on their own, and that have been thoroughly demonstrated to pay off many times over in widespread public prosperity.

6. Power to the Producers. The dispersal of income and wealth under Democratic policies provides the widespread demand (read: sales) that producers need to succeed, to expand, and to take risks on innovative new ventures. Rather than assuming that government knows best and giving money directly to businesses (or cutting their taxes), Democratic policies trust the markets to direct that money to the most productive producers.

7. Fiscal Prudence. True conservatives pay their bills. From the 35 years of declining debt after World War II (until 1982), to the years of budget surpluses and declining debt under Bill Clinton, to the radical shrinking of the budget deficit under Obama, Democratic policies demonstrate which party merits the name “fiscal conservatives.”

8. Labor and Trade Efficiencies. The social support programs that Democrats champion — if they truly provide an adequate level of support and income — give policy makers much more freedom to put in place what are otherwise draconian, but arguably efficient, trade and labor policies. If everyone can confidently rely on a decent income, we have less need for the sometimes economically constricting effects of unions and trade protectionism.

To go back to Blinder and Watson’s “luck” explanation: A non-economist might suggest that “to a great extent, you make your own luck.” And: “hire the lucky.”

Cross-posted at Asymptosis.


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  • Bob Smith

    #9 – Maybe there is a multi-year lag between policies and their economic effects, putting the growth years from (R) policies into (D) administration years.

    • Not original . That’s been looked at. Follow the links.

      • Bob Smith

        They appear to account for a lag of 1 – 4 quarters. I imagine policy changes can take 2 – 5 years to flow through.

        • Agree, certainly. One reason B&W have such trouble explaining the phenomenon. Heck, New Deal (plus wartime def spending) arguably explains much of The Great Prosperity 40s into 70s. But some effects will be felt within presidents’ terms.

        • Duncan Cairncross

          The problem with that idea is most presidents get two terms, and it can be seen that in the second term Dems have better measures and GOPs have worse measures

          IMHO the main difference is that Dems tend to move money “down” and the GOP tends to move money “up”

          Moving the money down has the effect of increasing its velocity (and vice versa)
          Faster money is more productive money

          • Bob Smith

            Good points Duncan

          • raythemixer

            Tell that to the “Slow Money Movement”

          • Duncan Cairncross

            I had a look at the “Slow Money Movement” – very interesting a good idea
            But we are talking at cross purposes
            The main effect of the changes they want in economics terms will be to INCREASE the velocity of money
            They want to regionalise and localize food production – putting the production and transport into smaller organizations – which will be “less rich” and will spend the money faster

            Dunno how they came by their title –
            I suspect that they think it sounds good

          • Candice H. Brown Elliott

            Its from the “slow food movement” as opposed to “fast food”.

  • For those who wonder about the impact of house and senate control relative to presidential influence, I tried very hard to sort it out here: “Presidents and Congress, Republicans and Democrats: Spending, Taxation, Debt, and GDP” http://www.asymptosis.com/congress-presidents-spending… Have your way with it!

    But in any case, I think it’s silly for anyone to suggest that FDR, or Reagan, had no effect on the economy.

    • Rick

      FDR certainly did. Reagan had less of an effect than Paul Volcker, who killed the inflation of the late 1970s by raising interest rates to historically high levels.

  • A couple of thoughts:

    — Those are all interesting hypotheses. It would be interesting to see them tested.

    — It is not clear why the noted possibilities should be inherently associated with R’s or D’s, in fact I don’t think they are.

  • Dan Stracco

    Really interesting explanations

    # 5 Profitable Investments in Long-Term Growth — wouldn’t long-term returns be just as likely to be felt under R as D administrations?

    There’s no reason to think that Obama’s funding of neuroscience research through the BRAIN initiative will be attributed to Democratic policies. If the return is 10-20 years from now, who knows?

  • raythemixer

    What an absolute horse crap article. A first year econ student can rip holes a mile wide is this drivel. I was going to take the time to refute this line by line, but there are so many holes I suspect I would not finish with a couple of days. I have made a note to read anything from this author with a salt pail and a bottle of bourbon handy.

    • Matty von Studly

      Ray….So, don’t even try to refute the article? (“I could, but I won’t…” ) That’s a pretty weak tea response.
      The article raises many good points and reasons why fiscal conservatives should be going blue. Shifting the money up as reagan did, takes money out of circulation. Shifting the money down, as Roosevelt did, allows “The Wisdom of the Crowds” to happen. Science funding under Dems is better. Apollo has paid huge dividends, I guess having the Dems control congress in the 60’s really paid off. The republicans pushing voodoo economics hasn’t really worked out so well.

    • Rick

      First year econ students know very little about economics other than facile theories from the 19th century or earlier.

  • Lexi Mize

    I’d rather believe that equitable income and wealth distribution was the primary mover here. But I doubt that’s the case. And here’s an unintuitive thought, what if the business cycles were roughly 8 years — and that the positive Dems economy was a result of the Repups eight years of setup? The Dems take the credit, eat up all the free lunch, and then the Repubs get stiffed with the bill and have to rebuild it all — which take about 8 years again… Just a thought. I doubt, very much that is the case either.

    And does it matter anyway? Anyone going to the poll is surely not going to consider 100 years of RvsD economic stability and growth. Not in this race at least.

    • Rick

      “what if the business cycles were roughly 8 years — and that the positive Dems economy was a result of the Repups eight years of setup?”

      They’re not. And it’s not. And this line of argument is absurdly desperate.

      • Lexi Mize

        What’s absurdly desperate is anyone coming on 8 months after any of this thinking they can comment — and actually making a difference with their comments.

        My comment was simply a thought experiment. And your rebuttals are simply your opinions — not evidence to the contrary. I say the Earth is probably round; you say it’s flat and give no evidence and call my comment absurd. And note that, if anyone had read the entire comment (not just the part they disagreed with) they would have noticed my caveats.

  • pbreit

    Surely would need to look at makeup of congress (which tends to oppose presidency)?