Presidents and GDP
“Follow the money.”
I have several times promoted the idea that the president’s political party has no influence on the US GDP or any other major economic indicator. I used as evidence some charts and discussion I’ve found online and eyeballing of Federal Reserve charts. I think I was wrong! I came across an article today that says my eyeballing skills are not as good as I believed! The research and newspaper article says, among other things:
Since 1933, the economy has grown at an annual average rate of 4.6 percent under Democratic presidents and 2.4 percent under Republicans, according to a Times analysis. In more concrete terms: The average income of Americans would be more than double its current level if the economy had somehow grown at the Democratic rate for all of the past nine decades.
I’m blown away at this analysis! I always hand-wavingly-guessed that Republicans had an edge when it came to sound fiscal policy. Republicans wear suits better (remember Alex Keaton on Family Ties?)… “greed is good”… all that! But this research turns the idea on its head!
The research paper uses some economics theory and math to say (warning, economics geekery. read the paper for more info):
…it appears that the Democratic edge stems mainly from more benign oil shocks, superior total factor productivity (TFP) performance, a more favorable international environment, and perhaps more optimistic consumer expectations about the near-term future.
The research was published in the peer reviewed American Economic Review in 2016.
– The research article, Presidents and the US Economy: An Econometric Exploration (local copy)
– The New York Times article: Opinion: Why Are Republican Presidents So Bad for the Economy?
I’d like to see these numbers adjusted so that when the executive branch changes parties, the first 2 years of GDP of the incoming administration is credited to the outgoing administration. The economy isn’t a racecar that turns on a dime (pun intended), it’s an oil tanker that only sluggishly responds to whomever is at the helm.
The research above tries to account for this factor! They didn’t shift the GDP numbers by 2 years but they tried shifts of 6 months and 1 year.
The NY Times has a pretty chart where you can click on “Starting president’s economic clock” either a after a 6 months or a year in office.
In the research paper, it says:
I didn’t include that info in my original post, partially to make the argument easy to digest and partially, admittedly, to skew my readers impression. Oh, how to lie with statistics! :-) Thank you for being my foil, Zim!
Going by their footnote, the authors believed a 2 year lag was too long. I haven’t looked closely at their reasoning but it says something that they considered it!