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Easy Money

Most analysts of the phenomenon agree that the president has little to do with the country’s economic fortunes


I recently had a conversation with someone who’s a prominent academic in the field of economics, and although we were talking about a different subject altogether, before we parted I asked for his considered opinion about a study I saw from a decade ago: Is it true, I asked him, that the American economy fares significantly better under Democratic presidents than under Republican ones?

While he told me he only dealt with abstract economic theory and couldn’t really offer an opinion, the 2013 study by Princeton economics professors Alan Blinder and Mark Watson piqued my curiosity — and I wanted to get to the bottom of their conclusion: that for nearly a century now, the American economy has performed much better under Democratic administrations than under those of Republicans. They wrote that the gap is “startlingly large” and exists whether measured by gross domestic product (GDP), employment, real wages, productivity, or even stock market returns.

Measured by inflation-adjusted GDP gains, for nearly a century, the economy has grown at an annual average rate of 4.3 percent under Democratic presidents and 2.5 percent under Republican ones. From 1948 until today, about 70 million jobs have been created during the terms of Democratic presidents and 29 million during Republican presidential administrations. Between 1961 and 2020, the unemployment rate has been lower at the end of every Democrat’s tenure other than Carter’s; Reagan is the only GOP president for which that is true.

As for stock market returns, since 1945, the S&P 500 has averaged an annual gain of 11.2 percent with a Democrat in the White House, and a 6.9 percent gain under Republicans. On the list of highest S&P 500 returns during a president’s first year, Joe Biden surprisingly ranked first, with the next five highest figures also held by Democrats.

While these facts are seemingly not in dispute, the explanation for them certainly is. Writing last year in the New York Times, award-winning economics reporter David Leonhardt surveyed the data and asked:

The big question, of course, is why. And there are not easy answers. I have shown the data to multiple economists in recent weeks, and most say they are not sure how to explain it, at least not fully….

 Part of the answer surely involves coincidence. Some presidents, like Barack Obama and George W. Bush, take office when the economy is in a downturn, while others, like Harry Truman and Donald Trump, inherit a boom. Some, like Lyndon Johnson and Ronald Reagan, preside over military buildups; others, like Dwight Eisenhower and Bill Clinton, drawdowns. More broadly, the economy’s performance stems from millions of decisions made every day by businesses and consumers, many of which have little relation to government policy.

Still, the pattern is so strong and long-lasting that coincidence alone is unlikely to be the only explanation…. 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.

Most analysts of the phenomenon agree that in the end, the president has little to do with the country’s economic fortunes. Professors Blinder and Watson, found, for example, that 62 percent of the Democratic presidents’ better economic performance was due to three factors: big drops in oil prices, positive boosts in productivity, and optimistic consumer outlooks. None of these, they write, is tied directly to the actions of the president, but “might be considered blends of good policy and good luck.”

Sam Stovall, chief investment strategist for the independent investment research firm CFRA, was quoted in USA Today as having found “that every Republican president since Chester A. Arthur (1881–85) had a recession during his administration.” Yet, Stovall said, “the economy follows a natural progression of expansion, peaking and contraction, which is more powerful than the president. I think the business cycle trumps the presidential cycle, and Fed policy is most important of all.”

And Timothy Kane, of Stanford University’s Hoover Institution think tank, thinks the entire assertion of a distinct Democratic advantage is a mirage, with “no statistically significant advantage for either party in the White House.” This, he says, is because “it’s nearly impossible to measure presidential economic performance [due to] the long lag between policy and effect.” In other words, presidents have to deal with economic problems created by policy decisions made by presidents that preceded them in office. Presidents Reagan, Bush, and Obama, for example, all inherited existing recessions in 1981, 2001, and 2009, respectively; Reagan’s began during a Democrat’s term, while Bush and Obama’s began under Republicans.

For his part, David Leonhardt suggests that there is indeed a partial explanation that favors Democrats, one that he says has “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.”

He argues that Democratic economic policy since the mid-1900s, shaped by the ideas of John Maynard Keynes, is that in an economic downturn, when companies and households are caught in a vicious cycle of spending reductions, the government needs to step in — a policy that has made Democratic presidents much more aggressive in responding to crises than Republicans.

But Leonhardt cites an opposing view from Michael Strain, an economist at the conservative American Enterprise Institute, who believes the Democratic economic advantage shown by the data is “mostly coincidence,” although he agreed that it’s “certainly a defensible posture that in periods of economic distress Democrats are more concerned about jobs than Republicans.”

Marianne Wanamaker, who served on the White House Council of Economic Advisers during the Trump administration, has a more pragmatic answer, suggesting that perhaps “the two parties are both responding to the interest groups that support and finance them… Democratic-leaning groups (like labor unions and civil-rights organizations) may favor policies that lift broad-based economic growth, while Republican-leaning groups (like the wealthy) favor policies that mostly shift income toward themselves.”


THE ONLY CERTAIN THING THAT EMERGES from all this is that, as David Leonhardt writes, “much of the partisan gap remains mysterious.” And in fact, says Hoover’s Timothy Kane, “The question of presidential economic performance gets increasingly complicated the more we study it.” There is such a multiplicity of variables, from demographic and technological factors to the makeup of Congress, from the business cycle to the strength of foreign economies, that it’s simply impossible to draw conclusions.

I find this topic of how the economy fares under the respective political parties to be a good way of illustrating the superficiality with which many people approach current events, sufficing with soundbites over substantive reading and analysis. Consider the layers of assumptions that need to be peeled back in order to attempt to uncover the truth. First of all, pat assumptions may often be wrong. Many people assume, after all, that the economy thrives more under Republican administrations, but the historical record shows that in quantifiable numbers the opposite is true.

(Public perceptions of the current US economy are actually a striking illustration of how complex things really are. GDP growth is at 5.7%, the highest rate in nearly 40 years. Wage growth is up and unemployment is down, and stimulus money, rising home values and booming stocks have actually made most families better off financially than before the pandemic. Yet consumer confidence is overwhelmingly negative due to a mix of fact and perception. The fact is that inflation is at its highest since 1980, evaporating the wage gains and leaving families with a drop in income. But the inflation spike itself is a complex issue, resulting from a mix of Covid’s effects and bad policy choices. The perception emerges from a full-time media narrative of doom that emphasizes the economy’s weaknesses and ignores its strengths.)

But simply taking a historical reality at face value won’t do, either. The Democratic economic advantage is, after all, one such reality, but a closer look reveals there might not be any practical relevance to it, given that it has no conclusive explanation, and some would say it might not even really exist.

And finally, there’s the deepest layer of truth of all: That all of this is illusion. The Borei Olam alone is morish u’ma’ashir, impoverishes and enriches. It is He Who decrees each Rosh Hashanah regarding the world’s economies, eizo la’ra’av v’eizo lasova — which of them will starve and which will thrive.

And what we call the dismal science of economics provides more than enough variable factors and contributing forces to hide His Hand, giving us the free will to acknowledge or deny His sovereignty over all.


(Originally featured in Mishpacha, Issue 898. Eytan Kobre may be contacted directly at kobre@mishpacha.com)

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