Presidential economics: Do parties matter?

With the presidential election a mere 127 days from the release of this
report, and the candidates apparently not waiting for the
once-traditional Labor Day kickoff, this is a good time to look at the
partisan patterns in some major economic and financial indicators. The
differences are significant, and worth thinking about for anyone with
dollars at stake after January 20, 2009.

Not to spoil the suspense too much, but here are the basic
conclusions. Since Franklin Roosevelt’s third term (1941–44),
Democrats have generally presided over faster growth and stronger stock
markets than Republicans; Republican administrations have been
friendlier for disinflation and the bond market. Also, Republicans tend
to preside over recessions early in their terms, with growth
accelerating as time passes; Democrats tend to preside over earlier
accelerations followed by slowdowns as the term matures.

Here’s a closer look at some major indicators. In the graphs,
the parties are color-coded by the traditional Republican red and
Democratic blue. Individual terms are in a lighter shade, and the party
average is the darker shade.

Technical note Unless otherwise noted, the figure shown is average
annual growth rate for a president’s term, from the year,
quarter, or month of inauguration to the quarter or month of the next
inauguration. For two-term presidents, results are the averages of both

Editors’ note: Our intent here is to present the historical record to balance the tiresome, and generally incorrect, generalizations one hears at this point in the election cycle.  We are not venturing into politics. Philippa’s grandfather is Finley Peter Dunne, creator of the Chicago barkeep Mr. Dooley, and we’ll refer anyone with a horse in the race who is unhappy with how specific graphs may look to him: "Politics ain’t beanbag."



Democrats have a clear edge on GDP growth: 4.4% vs. 2.6%. Even if you
start the clock with Truman in 1949 (eliminating the war boom and
immediate postwar bust), the Dem advantage survives, with average
growth of 4.5%. The partisan difference is widespread, too, not
dependent on a few strong or weak readings: the blue bars stack towards
the top of the graph, and the red bars towards the bottom. It might
surprise some readers to learn that the Carter years weren’t
quite as bad as some remember—though the inflation
performance was miserable.


In his new book, Unequal Democracy, Princeton political scientist Larry
Bartels points out an interesting partisan contrast in the timing of
GDP growth. Republican administrations tend to have recessions early in
their terms, with growth strongest in the fourth year. Democrats tend
to stimulate the economy on taking office, which leads to a prompt
acceleration in growth, followed by a slowdown. (The graph to the right
supports this point. There’s volatility around the averages, of course,
but there’s still a pattern there.) Bartels theorizes that this rhythm
makes it easier for Republicans to get re-elected, since voters
generally remember only recent history, and are probably more impressed
by improvements than averages.



The comparative partisan performance on employment is similar to GDP
growth. Under Democratic administration, employment has grown an
average of 3.0% a year (2.9% if you start in 1949); under Republicans,
1.3%. And here the blue bars are all at the top of the graph, and the
red at the bottom. And it seems that the Bush family, whatever their
other accomplishments, won’t go down in history as great job

Reagan’s average was dragged down by the recession during his
first term; his second term saw strong employment growth, an annual
average of 2.7%, stronger than Bill Clinton’s average, and
comfortably the strongest of any Republican four-year term. The only
sub-1% terms were Eisenhower’s second (0.4%) and George W.
Bush’s first (0.0%). The weakest Democratic terms on job
creation were Roosevelt–Truman (1.6%) and Clinton’s
second (2.2%).



With only few exceptions, Republican administrations have presided over
increases in unemployment, and Democrats over declines. On average, the
jobless rate has risen by 1.0 points under the GOP, and fallen by 1.9
points under Dems (–1.3 points if you start in 1949). The
only exceptions to the partisan pattern were Reagan (–2.1),
the Roosevelt–Truman joint term (+3.2), and Carter (no

We figured it was best to feature changes in the unemployment rate, but
the averages show a similar pattern. Under Republicans, unemployment
has averaged 6.0%, and 4.8% under Democrats (or 5.2% if you start with
Truman’s first full term).



The inflation pattern is more mixed than the growth-related numbers. On
average, Democrats preside over a small increase in inflation, and
Republicans over a small decrease. The top and bottom positions are
amplified versions of this distinction. Under Reagan, inflation
(measured by the headline CPI) came down by 7.3 points; under Carter,
it rose by 6.6 points. Still, there’s a mix of red and blue
on both sides of the zero divide.

Fiscal Shift


Though the picture so far is of the Republicans as the party of
austerity and the Democrats as the party of stimulus, there’s
a surprise when it comes to changes in the federal deficit: Republicans
are more liberal with the red ink than Dems. On average, a Republican
in the White House has meant a shift of –1.9% of GDP in the
government’s budget balance (i.e., towards smaller surpluses
or bigger deficits), while a Dem has meant a 1.5% improvement in the
budget position (or 1.8%, if you start in 1949, thereby omitting the
huge World War II deficit). And in this case, the average is a faithful
representation of the distribution, with only one Democrat in the minus
column and only one Republican in the plus.

Some of this reflects different tax policies, with Reagan and Bush 43
cutting, and Clinton raising income taxes. But it also reflects the
partisan difference in GDP growth.

Stock Market


The blue years have an edge on stock returns, with the S&P 500
rising an average of 4.7% a year in real terms (price only, excluding
dividends, deflated by the CPI) under Democratic administrations,
compared with 2.9% under Republicans. (Starting the clock in 1949
raises the Dem average to 6.9%.) Still, there are some red bars towards
the top of the heap and blue bars toward the bottom.

Strangely, there’s not all that tight a link between stock
market performance and profit growth. In fact, the rankings of the two
measures show a correlation coefficient of 0.43. Sometimes stocks march
to their own drummer.

Bond Market


Unlike the stock market, there’s a clear partisan pattern to
bond returns: Republicans are a lot more bond-friendly. Real total
returns—price plus coupon, deflated by the
CPI—averaged +4.2% a year under Republicans, vs.
–2.1% under Democrats. And, as the graph shows, the average
is a pretty faithful representation of the relative performance of
individual administrations.

Recall that Clinton came into office with plans for a stimulus program,
that were shelved under pressure from what he called “a bunch
of ******* bond traders.” This should be kept in mind when
evaluating the bond market’s prospects should Obama win in
November. It may be that the world has changed to the point where the
old Democratic pattern won’t hold this time.



Over the long sweep of history, the distribution of income in the U.S.
became more equal from the early 1930s through the late 1960s, and has
been growing more unequal ever since. But there are some partisan
patterns to this story. On average, inequality has risen in Republican
administrations, and fallen in Democratic ones. Bucking the long-term
trend, inequality rose slightly during the Eisenhower years. And while
not quite bucking the trend, it rose more slowly in the Carter and
Clinton years than it did under Nixon, Reagan, or George H.W. Bush.

(Technical note: inequality here is measured by the Gini index, a
number between 0 and 1 that represents the relative equality or
inequality of a distribution. A perfectly equal society, in which all
members have the same income, would have a Gini index of 0; a perfectly
unequal one, in which one person had all the income, would have a Gini
of 1. The level of the Gini makes little sense on its own;
it’s best used to compare distributions across time, or to
compare countries. The measure shown here is the percentage change in
the Gini index over the presidential term; for two-term presidents, the
change is divided by 2 for consistency with one-term presidents.)

In the book mentioned above, political scientist Larry Bartels looks at
personal income growth at various points in the distribution, and finds
that under Republican administrations, growth is strongest at the 80th
percentile and above; under Democrats, it’s pretty equal
across the distribution. Bartels, by the way, says he undertook his
research as a totally nonpartisan, objective political scientist of a
quantitative bent, and had absolutely no preconception about where his
research would take him.

When John Liscio first commissioned us to look into Presidential
economic records, we tried putting together a grading system. But we
gave up—it’s impossible to figure out how to weight
all the different variables. Tastes and interests vary.

Still, it looks like George Wallace was wrong. There is at least a
dime’s worth of difference between the two parties. Past
performance is, of course, never a guarantee of future results, but the
trajectory of the U.S. economy and markets from 2009 forward may well
depend in a large degree on who wins on November 4.

—Philippa Dunne & Doug Henwood