Here’s a shocker: the U.S. economy fares better under Democratic administrations
By Gordon Silver
In the lead-up to every election, Republicans are usually credited with being the party more likely to be good stewards of the economy. However, the data does not support this assumption.
Historically, the economy has fared far better under Democratic administrations.
This flies in the face of what the sensible answer might seem to be: It’s probably been similar. Presidents, after all, have only limited control over the economy. They don’t have much influence over the millions of decisions every day, made by consumers and business executives, that shape economic growth, jobs, incomes and stock prices. Over the course of a century, it seems logical that the economy would have performed similarly under Democrats and Republicans.
But it has not! And here is a ranking of presidents by average annual G.D.P. growth according to the US Bureau of Economic Analysis:
The gap exists not only for G.D.P. and jobs but also for incomes, productivity, and stock prices. The gap also exists if you assume that a president’s policies affect the economy with a lag and doesn’t start for several months after he takes office. Virtually any reasonable look at the data shows a big Democratic advantage.
What are the potential reasons for this? A few possibilities are easy to reject. It’s not about congressional control, nor is it about Democrats running up larger budget deficits. (Republican presidents have run up larger deficits in recent decades.)
Coincidence surely plays some role — but it’s highly unlikely to account for the entire gap, given its size, breadth and duration.
Keynesian and Hayekian economic theories were opposite and competing ideas from the 1920’s.
John Maynard Keynes proposed a macroeconomic economic theory of total spending in the economy and its effects on output, employment, and inflation. Based on his theory, Keynes advocated for increased government expenditures and lower taxes to stimulate demand and pull the global economy out of the depression.
Friedrich Hayek believed that the prosperity of society was driven by creativity, entrepreneurship, and innovation, which were possible only in a society with free markets.
The Republican Party is generally considered business-friendly and in favor of limited government regulation of the economy, follows the Hayekian theory. This means favoring policies that put business interests ahead of environmental concerns, labor union interests, healthcare benefits and retirement benefits. Given this more pro-business bias, Republicans tend to receive support from business owners and investment capitalists, as opposed to support from labor. The Republican approach to governing is often referred to as “trickle-down economics”.
The Democratic Party follows the Keynesian theories and is generally considered more willing to intervene in the economy, subscribing to the belief that government power is needed to regulate businesses that ignore social interests in the pursuit of earning a return for shareholders. This intervention can come in the form of regulation (such as limits on carbon emissions) or taxation to support social programs. Opponents often describe the Democratic approach to governing as "tax and spend."
Republican presidents have been slow to respond to recessions and other crises — Donald Trump and both George Bushes being examples. (Herbert Hoover was too, and the partisan gap would be even bigger if the data went back far enough to include him.)
Recent Democratic presidents have been more pragmatic, willing to listen to the evidence about when the economy would benefit from deficit reduction and when it needs government support for education, infrastructure, scientific research and more.
Republican presidents over the past 40 years have pursued one economic policy above all other — tax cuts, skewed heavily toward the affluent — and there is little evidence that they do much for economic growth. This philosophy is the extraordinary belief that the wealthiest people will somehow work for the benefit of us all.
Of course, individual politicians might disagree with their party on how to manage the economy. Still, knowing their party affiliation can suggest which approach they might take in influencing the economy. The market can stay irrational longer than you can stay solvent.