Why Does Economy Grow More Under Democratic Presidents?
The U.S. economy has performed better since World War II when the president is a Democrat rather than a Republican, two prominent Princeton University economists conclude. The reasons, they say, involve more luck than successful policies.
Over the past 64 years and 16 presidential terms, the U.S. grew at an average rate of 4.35% when a Democrat was in the White House and at a 2.54% when a Republican was, a gap the economists call “astoundingly large.”
“Democrats would no doubt like to attribute the large Democrat-Republican growth gap to better macroeconomic policies, but the data do not support such a claim,” the professors conclude in a new 55-page working paper, “Presidents and the Economy: A Forensic Investigation.”
“Democratic presidents have experienced, on average, better oil shocks than Republicans, a better legacy of productivity shocks and more optimistic consumer expectations,” they conclude.
Professors Blinder and Watson identify three factors that stand out statistically in their attempt to explain why the economy does better with a Democratic presidents. Together they account for somewhere between one-half and two-thirds of the growth gap:
– Oil price shocks explain between one-eighth and one-fourth of the Democrat-Republican difference in growth rates, and tend to occur when Republicans are in the White House. They don’t blame President Richard Nixon for the first OPEC oil shock or President Jimmy Carter for the second, but suggest that George H.W. Bush’s Gulf War and George W. Bush’s Iraq war were policy decisions that affected oil prices.
– Surges in productivity, or output per hour, account for about one-quarter of the gap. “As with oil shocks, we consider them as mainly reflecting luck,” they say.
– Swings in consumer confidence explain about a quarter of the Democrat-Republican gap between 1962 (when the University of Michigan’s survey data begins) and 2013. This, they say, “comes tantalizingly close to a self-fulfilling prophecy in which consumers correctly expect the economy to do better, and make that happen by purchasing more consumer durables. But direct measures showing increasing optimism after Democrats are elected are hard to find.”
Professors Blinder and Watson consider and reject a long list of other explanations for the growth gap between Democratic and Republican presidents – including whether the president has previously been a member of Congress or a governor, is younger or is taller. (“Growth is higher under younger and taller presidents, but…the differences are not statistically significant,” they say.) The difference between growth rates when Democrats control Congress and Republicans do is trivial, they find. It’s the president’s party that matters. They reject the assertion that Democrats inherit stronger economies from Republican predecessors than vice versa.
Nor does it matter much which party was in the White House when a new Federal Reserve chairman is chosen. They do see a slight tendency for Fed-influenced interest rates to rise during Democratic presidencies and fall during Republican presidencies. They doesn’t suggest the Fed playing politics, they insist. Rather, it’s what one would expect if the economy grows faster with rising inflation, which is what tends to happen when Democrats hold the White House.
A similar partisan growth gap is seen in Canada, but they found no statistically significant difference between economic growth records of left and right governments in the U.K., France or Germany.
For critical perspectives on politics and the economy from Jerry Seib & David Wessel, visit Seib & Wessel and follow them on Twitter @GeraldFSeib and @davidmwessel.