I woke up around the crack of noon today. Apparently the Evil Dex has completed its transformation from a drug that keeps me up all night into a damn sleeping pill. I was asleep for nearly ten solid hours last night.
In any case, since this is officially an old-school blog, I was pleased to be greeted by one of the oldest-school blog debates around: why do Democratic presidents outperform Republican presidents on the economy? David Leonhardt provides us with the following ranking:
For starters, I'll say that it's a little unfair to begin with FDR, since growth rates were fundamentally higher in the era of 1945-1970, which featured almost exclusively Democratic presidents. On the other hand, the one Republican president during that time, Eisenhower, presided over a series of recessions and ranks pretty low even though he was smack in the middle of the high-growth era. And it's not just GDP and jobs:
It’s true about almost any major indicator: gross domestic product, employment, incomes, productivity, even stock prices. It’s true if you examine only the precise period when a president is in office, or instead assume that a president’s policies affect the economy only after a lag and don’t start his economic clock until months after he takes office. The gap “holds almost regardless of how you define success,” two economics professors at Princeton, Alan Blinder and Mark Watson, write. They describe it as “startlingly large.”
....The big question, of course, is why. And there are not easy answers. First, it’s worth rejecting a few unlikely possibilities. Congressional control is not the answer. The pattern holds regardless of which party is running Congress. Deficit spending also doesn’t explain the gap: It is not the case that Democrats juice the economy by spending money and then leave Republicans to clean up the mess. Over the last four decades, in fact, Republican presidents have run up larger deficits than Democrats.
That leaves one broad possibility with a good amount of supporting evidence: Democrats have been more willing to heed economic and historical lessons about what policies actually strengthen the economy, while Republicans have often clung to theories that they want to believe — like the supposedly magical power of tax cuts and deregulation. Democrats, in short, have been more pragmatic.
For what it's worth, my explanation has always been a bit different. Republicans spent years wedded to austerity economics while Democrats, largely thanks to broad support from unions, were explicitly dedicated to job growth for the middle class and high taxes on the rich. After 1980 Republicans finally gave up on austerity, but instead of focusing on the middle class they adopted policies aimed at making life easier for corporations and the wealthy. Democrats, by contrast, continued to focus on the poor and the working class even as their union support dwindled.
Neither party was consistently successful in meeting its goals, but both were successful enough that over time their policies had a broad effect that was obvious in historical retrospect. This isn't because Democrats are especially more virtuous about "heeding economic and historical lessons," but simply because their goals were more genuinely aimed at building a strong economy, while Republican goals were aimed primarily at helping the rich.
One more thing: if you're wondering how Ds and Rs do on average over the entire period, I have the answer for you. For the sake of fairness I started in 1961, thus cutting off all the high-growth New Deal Democrats, but it hardly matters. On GDP growth over the past 60 years, Democratic presidents averaged 3.5 percent growth vs. 2.5 percent for Republican presidents. On jobs growth, Democratic presidents averaged 2.2 growth vs. 1.2 percent for Republicans.
Back in the day I would have also calculated these numbers using a lag, on the assumption that a president's policies didn't have any effect in the first year or two of office. But that never made any difference, so I'm not going to bother.
Anyway, the message is clear: if you want real economic growth for the middle class, vote for Democratic presidents. If you want low taxes for the rich, vote for Republican presidents. It's pretty easy.
I would say that Democrats tend to want to improve the business ecosystem and Republicans tend to favor existing businesses. Business friendly for Republicans means cutting regulations and taxes for existing businesses. This is actually not business friendly in the larger sense, it merely protects the existing winners leading to slower growth. Good regulations protect the country and fair taxes allow for old industries to die and new ones to flourish. This is good for the country but unpleasant for the old guard.
"...if you want real economic growth for the middle class, vote for Democratic presidents. If you want low taxes for the rich, vote for Republican presidents."
Now here's the part that baffles me. When we have real economic growth for the middle class, how do the rich make out? Pretty damn well, would be my first guess. So why does anyone prefer low taxes over robust growth? That's a harder question. Loss aversion? The inertia of political resistance to raising taxes later? Or maybe it's just being unwilling to do anything that might help "those" undeserving people?
It allows the wealthy to imagine they have a greater distinction from the common herd and less accountability.
Essentially harming others while enjoying the vicarious schadenfreude of their misery.
Protecting status. As I think I saw it said somewhere after Jan. 6, they'd rather burn the US to ashes as long as they can own the ashes.
Is there a Ralphs nearby?
I wonder how many of the wealthy believe, as Trump clearly does, that economic success is zero-sum? They might deny it if you put it that way, but they behave exactly as if they believe that they can only prosper if others are immiserated.
*****So why does anyone prefer low taxes over robust growth?*****
The reality is many/most rich people don't need robust growth. They've already got theirs. I'm not saying they always do the self-interest calculus correctly, but for a lot of the wealthy, preferring low taxes (especially on investment income and inheritances) is probably pretty rational, at least over the short/medium term.
Also, to the extent robust rates of economic growth help them financially, the wealthy can chase higher return overseas. Moreover, growth in select sectors of the economy can be explosive even against a backdrop of tepid marcro performance. The founders of Google, Amazon, Facebook and Tesla have all become fabulously wealthy despite the fact that their firms were founded in an era of historically weak US economic growth.
Yeah, the return on tax cuts is much greater for them than boosting growth from 3% to 4%.
I think your explanation isn't all that different from Leonhardt's point that Ds outperform Rs because Ds stick to economic orthodoxy while Rs mold their economic theories to support their (currently accepted) political dogma.
"...growth rates were fundamentally higher in the era of 1945-1970, which featured almost exclusively Democratic presidents."
C'mon Kevin, you're better at math than that. In the period from 1945-1970 there were five Presidents. Since there could not have been 2.5 from each party, it hardly seems accurate to characterize a 3-2 split as "almost exclusively" anything.
I wondered if you have read Bret Stephen's screed in today's NYT regarding the hell-hole that is California. If so, I'd be interested in your comments.
Read it. And he didn't mention housing prices once. It was all about taxes. And not a "Republican" solution in sight.
My impression would be there are two points, the accountability of serious regulatory enforcement spreads popular confidence in the business environment, wingnuttism notwithstanding; and, the more equitable distribution of money and resources helps everyone, so everywhere will see a greater flow of activity, not just activity in a few cloistered 1% environments.
Whether or not anyone ever said “What’s good for General Motors is good for the country”, no one ever said “What’s good for Tiffany’s is good for the country”.
"After 1980 Republicans finally gave up on austerity, but instead of focusing on the middle class they adopted policies aimed at making life easier for corporations and the wealthy. "
I'd clarify that as follows: After 1980 Republicans began waffling on austerity. When they were in charge, instead of focusing on the middle class they adopted policies aimed at making life easier for corporations and the wealthy. On the other hand, when the Dems were in charge and tried to spend, the Republicans doubled down on austerity, screaming FIRE in the crowd even when there were no visible signs of any embers. "
Attributing the greater growth during Democratic administrations to different intentions or attitudes is not very useful if you can't identify the specific policies which caused the difference. But we can say some things about Republican policies in general. Replacing the New Deal/Great Society approach with the Republican approach of tax cuts and deregulation has certainly not produced better growth or lower deficits - these things have been worse. And obviously inequality has increased. Nixon was still somewhat Keynesian or New-Dealish, but Democrats have tended to go along with Republican economics starting with the Carter administration. The Clinton administration actually contributed to deregulation and reversed the Reagan tax cuts only slightly. Growth and smaller deficits during the 90's were largely due to a stock-market bubble.
However you break things down according to Presidents, the Republican economic ideology which has been in control since around 1970 has just not delivered, except for the richest. And the whole debate as in the Leonhardt piece overlooks the way that the laissez-faire economics of the 20's and earlier led to increasing boom-and-bust swings culminating in the Great Depression. The New Deal devised regulations that kept the swings under control until regulations were eroded mostly by Republicans.
[This isn't because Democrats are especially more virtuous about "heeding economic and historical lessons," but simply because their goals were more genuinely aimed at building a strong economy]
Huh? So democrats goals and policies were genuinely aimed at building a stronger economy instead of making the wealthy even wealthier, but also somehow democrats were NOT more virtuous in heading economic lessons?
Also, the idea that we should exclude high growth new deal democrats seems actively unfair, as those high growth new deal policies were democratic ones. why would including them be anything but fair?
When I was very young, a long time ago, I asked my mother what were Democrats and Republicans. She said, "Democrats are for people like us, and Republicans are for rich people". Nothing has changed.
Developing countries are poorer, but the wealthy live very, very well.
Republicans are ok with that model. It’s what prevailed in the South.
Also: in the past 32 years we’ve had 16 years of Democratic presidents and 16 of Republicans. We’ve had three recessions: one under each of the three Republican presidents, nine under Democrats.
And what happens in a recession? The middle class winds up selling its assets in fire sales, to be scooped up by the rich.
OK, but what's cause and what's effect here. Economic conditions are a strong predictor of presidential election outcomes.
If a Republican is president and there is a recession, the next election is likely to go to a Democrat. But recessions eventually reverse, often just in time for the next president to get the credit (appropriately or not) for that.
'Republicans have often clung to theories that they want to believe'
What an insult to the term "theories"....
And let's not forget that with the modern GOP at least, Democratic Presidents have been fighting an uphill battle just to save the economy from Recession and Depression!
"Democrats, by contrast, continued to focus on the poor and the working class even as their union support dwindled."
Tell that to all the people that got thrown out of their homes in the Great Recession while Obama was president.
The truth is that the Democrats, while continuing to pay lip-service to the poor and working class, have done little for them since 1992. The whole Third Way that Clinton ushered in was about aligning with the plutocrats. The main difference in economic policy between the Republicans and Democrats today is _which_ plutocrats they are closer with. The Republicans are tighter with Energy and Agriculture. The Democrats with Finance and Entertainment. And both seem to have love-hate relationships with Big Tech.
Thanks for this comment. That Biden received twice as much in donations from billionaires underscores your point...and also seemed to go largely unnoticed.
I don't remember the Big Tech numbers, but they were also hugely in favor of Biden.
https://www.google.com/amp/s/www.forbes.com/sites/michelatindera/2020/10/24/biden-receives-more-than-twice-as-much-money-from-billionaires-as-trump-in-final-push/amp/
There is no great mystery here, the multiplier is higher for government spending than it is for tax cuts, and it is quite likely higher for tax cuts at the bottom, since it will be spent, than it is for tax cuts at the top which may be invested in some other country if that offers greater returns. A large part of the story of globalization is capital from wealthy countries looking for greater returns by investing in production capacity in not wealthy countries.
***I'll say that it's a little unfair starting with FDR, since growth rates were fundamentally higher in the era of 1945-1970, which featured almost exclusively Democratic presidents.***
Gee, do you suppose there might be a connection between the long, post-war boom and the dominance of the Democratic Party and the New Deal consensus during the same?
One reason: Democrats care about people they don't know and republicans don't.