The US economy and politics

[achilleus]

I've had this discussion with several die hard republicans, and the only response they have is, 'the numbers are wrong', and 'you can't trust those democratic economists.'

So, hopefully, someone here will give a response that actually makes sense.

From the LA Times op-ed section:

Michael Kinsley:
Democrats vs. the GOP: Do the Math

You know how sometimes, when it's really, really hot, you get this urge to crank up the old spreadsheet, download a bunch of numbers from the Web and start crunching away like there's no next fiscal year?

Me neither. But I did spend a bit of the past week watching the Democratic convention on TV, and I needed something to exercise my mind while that was going on. Convention season is the one time every four years when we pretend that political parties matter. In general, we have accepted the reality that campaigns for national office have become entrepreneurial, united more by shared political consultants than by old-fashioned parties.

So I thought I'd see if there was a difference between the parties that transcended the differences between the candidates. Is one of them, for example, a better steward of the economy? One year won't tell you much, or even one administration. But surely differences will emerge over half a century or so, if they exist.

With that thought, I headed for the Web. Specifically, I went to the charts attached to the President's Economic Report, released in February. There, I downloaded like a madman and then distilled the mess into a few key stats.

The figures I'm using are from 43 years, 1960 through 2002. I didn't choose the years in order to skew the results; these are the years that were available for the categories I wanted to include.

The results are pretty interesting. Maybe presidents have little power over the economy. And we know that they must fight with Congress over the budget. Still, elections are based on the premise that who you vote for does matter. So let's at least entertain that assumption for a few minutes.

It turns out that Democratic presidents have a much better record than Republicans. They win in a head-to-head comparison in almost every category. Real growth averaged 4.09% in Democratic years, 2.75% in Republican years. Unemployment was 6.44%, on average, under Republican presidents, and 5.33% under Democrats. The federal government spent more under Republicans than Democrats (20.87% of GDP, compared with 19.58%), and that remains true even if you exclude defense (13.76% for the Democrats, 14.97% for the Republicans).

What else? Inflation was lower under Democratic presidents (3.81% on average, compared with 4.85%). And annual deficits took more than twice as much of GDP under Republicans than Democrats (2.74% of GDP versus 1.21%). Republicans won by a nose on government revenue (i.e., taxes), taking 18.12% of GDP, compared with 18.39%. That, of course, is why they lost on the size of the deficit.

Personal income per capita was also a bit higher in Republican years ($16,061 in year- 2000 dollars) than in Democratic ones ($15,565). But that is because more of the Republican years came later, when the country was more prosperous already.

There will be many objections to all this, some of them valid. For example, a president can't fairly be held responsible for the economy from the day he takes office. So let's give them all a year. That is, let's allocate each year to the party that controlled the White House the year before. Guess what? The numbers change, but the bottom-line tally is exactly the same: higher growth, lower unemployment, lower government spending, lower inflation and so on under the Democrats. Lower taxes under the Republicans.

But maybe we are taking too long a view. The Republican Party considers itself born again in 1981, when Ronald Reagan became president. That's when Republicans got serious about cutting taxes, reducing the size of government and making the country prosperous. Allegedly. But doing all the same calculations for the years 1982 through 2002, and giving each president's policies a year to take effect, changes only one result: The Democrats pull ahead of the Republicans on per capita personal income.

As they say in the brokerage ads, past results are no guarantee of future performance.

[Strytllr]

Actually, my only question to his analysis of the numbers (and this is in no way supportive of either side) is whether the figures and differences are significant?

By significant, to those of you who do not typically deal with numbers on a regular basis, I mean that sometimes you can find two values that are not significantly different. There are various tests to determine significance and simply stating numbers does not always determine the relavance of some figures.

I'd be very keen in knowing if there is any significant difference there.

[S. Hunter]

Its most likely just how the numbers come down - The president, even through the budget and all of his power, even considering a congressional majority,cannot influence the economy all that much. The numbers just fall in certain places - And I for one don't believe that there is any special correlation between presidents and the economy. The economy is influenced by many things, but its too hard to claim that the president has anything directly to do with it. (I'd say a lot more, but I have an italian epee strapped to my wrist and it takes forever to get on, so I'm gonna practice now)

[achilleus]

Originally Posted by S. Hunter

Its most likely just how the numbers come down - The president, even through the budget and all of his power, even considering a congressional majority,cannot influence the economy all that much. The numbers just fall in certain places - And I for one don't believe that there is any special correlation between presidents and the economy. The economy is influenced by many things, but its too hard to claim that the president has anything directly to do with it. (I'd say a lot more, but I have an italian epee strapped to my wrist and it takes forever to get on, so I'm gonna practice now)

So you're saying that it's coincidence or just luck of circumstances that the economy happens to be better under a democractic president vs. a republican one since the 50's??

So, does this mean that when Bush, or any candidate talks about the economy and tax cuts that you ignore them?

[Repechage]

Originally Posted by achilleus

So you're saying that it's coincidence or just luck of circumstances that the economy happens to be better under a democractic president vs. a republican one since the 50's??

So, does this mean that when Bush, or any candidate talks about the economy and tax cuts that you ignore them?

Only if they turn their backs on him when returning to the on guard line.

[S. Hunter]

Only if they turn their backs on him when returning to the on guard line.

That is really getting old. There is something I find disrespectful that you may not, if you are going to post in a thread, please make in atleast somewhat relevant.

So you're saying that it's coincidence or just luck of circumstances that the economy happens to be better under a democractic president vs. a republican one since the 50's??

So, does this mean that when Bush, or any candidate talks about the economy and tax cuts that you ignore them?

I really don't support tax cuts because of the economic theory behind it, I support then because I believe that governement is too big and giving them less money is a means to shrink them. And yes, I am saying it is coincidence, as the policy differences between even democratic presidents are such that they had not enough in common to have had a consistant reason for the economy for being better under them.

[Rogue]

Originally Posted by achilleus

I've had this discussion with several die hard republicans, and the only response they have is, 'the numbers are wrong', and 'you can't trust those democratic economists.'...



As they say in the brokerage ads, past results are no guarantee of future performance.

I know you won't believe me and I don't have time to cite anything but,
Presidential policies make little if any mark on the economy that they preside over. Independent economist will also claim there is a lag.
One could argue Republican presidents fix democrat mistakes. And, democrats enjoy the prosperity put in place by the repubs.
Yes, That means, to be honest, the Bushs tax cuts arn't the sole reason for the economic prosperity we are experiencing now. Tax cuts although have been proven to work, Kennedy and Reagan. After Reagan's cuts were implmented we experienced a small recesion but when we came out of that, the economy grew until the small recesion in 2001.

[achilleus]

Originally Posted by Rogue

I know you won't believe me and I don't have time to cite anything but,
Presidential policies make little if any mark on the economy that they preside over. Independent economist will also claim there is a lag.
One could argue Republican presidents fix democrat mistakes. And, democrats enjoy the prosperity put in place by the repubs.
Yes, That means, to be honest, the Bushs tax cuts arn't the sole reason for the economic prosperity we are experiencing now. Tax cuts although have been proven to work, Kennedy and Reagan. After Reagan's cuts were implmented we experienced a small recesion but when we came out of that, the economy grew until the small recesion in 2001.

Actually, that is one argument I have heard, but I have yet to see any proof to back it up.

As a side note, I've read previous articles that I can't find that stated the same facts as above but gave a reason for it. That the democrats look to stimulate the economy by helping out the middle class, and the republicans stimulate the elite. The middle class strengthens the economy as whole, whereas the elite merely reinvest in large corporations that are currently cutting costs to drive up their profit margin (and are now outsourcing everything). Thus not contributing to the US economy. The couple of economics teachers I've spoken with use that theory to debuke the republicans fixing the dems mistakes. They go on to say that the tax cuts worked earlier, but due to the changing economy were no longer having the desired effect by the late 70's.

Still, I'd love to see some proof to either theory. All I really see so far is the economy is better under the dems, which totally contradicts what republicans value.

[jBirch]

I wonder what the results would look like when you correlate the years when dems/reps have controlled both the white house and congress. I'm a Canadian, but I remember hearing that, traditionally, if the Democrats are in the White House, Congress is usually Republican. And vice-versa for Republican.

I would further the question I heard above about whether or not the differences are statistically significant. Averages are usually a bum stat anyways as they are tugged by significant differences at high and low values. Ie// you could have more effect on individual prosperity by raising Bill Gates' salary by 20% then you could have by raising a bunch of the rest of us by 50%. So a concentration of income at higher levels could account for the individual prosperity indicator during Republican reign, which would further support the theory that Dems make better nation builders then Republicans.

BTW, here's a link to the data:

http://www.gpoaccess.gov/eop/tables04.html

[Inquartata]

You'd need to examine his specific numbers and methodology to know for sure. What adjustments has he done? Has he done any averaging? And there are extraneous factors to consider, which I do not think he has done: outside shocks such as the oil embargo, Vietnam and the WOT, and the various business cycles long and short, the actions of autonomous organizations like the Federal Reserve and the Congress, demographic trends, technological and social revolutions, and so forth.

In other words, his analysis seems to be OK as far as it goes, but it's a superficial sort of analysis of some raw numbers and little more. It's difficult to draw any real conclusions from it. What was productivity doing during the relevant years? What was the labor force participation rate? What were skewing factors, like minimum wage, doing? Were all influences EXCEPT political party controlled for, or are they running around loose in there?

Too, statistically speaking the sample size---call it ten Administrations---is not large enough to provide significance. As a rule of thumb, one needs a sample size of around 30.

The article just doesn't provide enough information to enable anyone to answer your question, I'm afraid. Which is why serious studies of such things get published for peer review: so flaws, if any, can be identified.

I'm willing to bet, though, that someone has done a serious study of this matter at some point. The author may not have been able to find it, or he may not have tried. But I'd bet it's out there somewhere...

[MHS Fencer]

Another perspective, albeit completely superficial: http://www.nytimes.com/2004/08/04/opinion/04shultz.html

My view on the subject is that the president matters only if his fed chairman wants him to matter. Basically, any real change to the economy cannot come from the president and congress alone - they have to have an ally in the fed chairman (whether active or passive). Any change can be tempered or even reversed by monetary policy, so fiscal policy alone doesn't really make a difference in terms of economic performance of the economy as a whole. What monetary policy doesn't effect (well, what it effects less directly - interest rate changes can change the supplies available to the debtor class) is the distribution of wealth. You could argue that if an administration works at distrubuting wealth more equally without causing a recession (or having its fed cause one) that it is economically successful. Of course, this completely discounts the idea that there's a point in which inequality makes everybody better off (although I beleive us to be far beyond that point).

Ahem, so what i said in that rather jumbled paragraph is that the administration can't really do anything about the economy without a complicit fed, and we lack any significant and reliable sampling to look at this issue and compare democrats to republicans, especially as the two parties policies haven't been constant (Reagan-Bush was different Economically, intra Reagan changed somewhat even, and Bush II is more of a return to voo-doo economics, to quote his father.)

Ahem, shortened again: cross your fingers and hope greenspan stays sane/alive and we get a good economy, because he has more power than the president, and his very presence seems to be somewhat of a stabilizing factor in terms of confidence.

As a side question, I wonder what the cause and effect between economy and president is. Does a decreased faith in the president hurt the economy because of the potential uncertainty of a new election and new policies (whether effects are real or not)? Does a bad economy in turn cause more tumultuos presidencies - one term ones? Doesn't this just beg for the situation to be constant overcompensations until we slam into a cliff? Although, to partially answer my own question, I suppose the fed chairman plays the role of preventing overcompensation.

[Army Fencer]

About the study.

Trying to control all but one independent variable is very difficult, but I think that the author of this study has produced at least a freshman college level study. Certainly, an authority in economics could probably give better insight than google and a spreadsheet.

I'm curious if he adjusted for inflation. Judging by the article (particularly where he mentions that we are more prosperous now than we were), I have a feeling that he didn't.

Also, Inq, I'm no statsitician, but I'm pretty sure that the sample size would not be 10 administrations, but 43 years--enough data to fit your assessment of significant. The author would need to present p values and confidence intervals to truly establish a significant difference.

If he did do a statiscal analysis to that degree, I would guess that the confidence intervals would intersect (meaning that the difference is not statiscally significant).

I think that S. Hunter is on to something, though, that Presidents don't have as much control over the economy as they or their campaign promises say they do. I'm far more willing to trust the ecomonic theories behind the promises than the promises or the politicians themselves.

I think this is something better left to an economic academician than to an editorial writer.

[Inquartata]

Originally Posted by Army Fencer

Also, Inq, I'm no statsitician, but I'm pretty sure that the sample size would not be 10 administrations, but 43 years--enough data to fit your assessment of significant.

Me, neither. But he couched it in terms of Democrat-Republican control, and unless each year were attributable to a different President the broad policies of each are going to be fairly consistent over their terms. Otherwise you're considering year 1 under Kennedy, year 2 under Kennedy, year 3 under Kennedy, etc, as distinct things, when they are all members of the class of Kennedy-controlled years...

I think that S. Hunter is on to something, though, that Presidents don't have as much control over the economy as they or their campaign promises say they do.

This is a given--if it weren't politicians of both Parties wouldn't spend so much time trying to convince people that it isn't so...

An economy the size of ours is so enormous and so complex that we can't even measure it adequately---we're always revising and adjusting figures, and we don't even know for sure where we are in the business cycle until months later. It's like trying to move a bowling ball using a toothpick as a lever and a BB as the fulcrum. You expend a lot of effort, you get very little movement, it can just as well roll right back to where it started when you're done as not, and every now and then you're going to break the toothpick...

I think this is something better left to an economic academician than to an editorial writer.

Alas, economists can't write in a lively fashion, and writers can't...er...well, you get the idea.

[Army Fencer]

Originally Posted by Inquartata

Me, neither. But he couched it in terms of Democrat-Republican control, and unless each year were attributable to a different President the broad policies of each are going to be fairly consistent over their terms. Otherwise you're considering year 1 under Kennedy, year 2 under Kennedy, year 3 under Kennedy, etc, as distinct things, when they are all members of the class of Kennedy-controlled years...

The author wanted to compare Republican Presidents to Democrat Presidents over 43 years, not four year blocks of administration to administration. A year of a party's Presidence is a discrete data point, at least if the author did the research correctly. As we've noted, though, his skills as a statistician or an economist are high suspect.

[Inquartata]

He was trying to learn whether Democratic or Republican policies were "better" economically.

If my express purpose is to find out whether I can propel a boat faster by paddling on the left side or the right, counting how many total strokes I make does not answer my question.

Still, focusing on this, perhaps the most inconsequential problem with his analysis, is probably to miss the forest for the seedling...

[esskreemr]

Anybody read the latest labor report? 32,000 new jobs and a revision of June's down from 112,000 to 78,000.

I think the problem is, we didn't make the tax cuts permanent quick enough. Obviously, we need more of the same tax cuts. That way, we can return to the earlier negative growth of the post-Clinton years.

Of course, I realize that Clinton was a philanderer so please don't draw the Clinton card again.

[Maeve_Mari]

Here's the rest of the details on the latest Economic Message:

Friday’s report that the economy added only 32,000 jobs in July was the latest evidence of a summer slowdown in growth, shocking forecasters who thought employers added 200,000 to 300,000 jobs. It was the second straight month of weak job growth, and it added credibility to Kerry’s refrain that Bush has failed in his handling of the economy, analysts said.

and the post for the full article:
http://www.msnbc.msn.com/id/5624615/

[Rogue]

Originally Posted by Maeve_Mari

Here's the rest of the details on the latest Economic Message:

Friday’s report that the economy added only 32,000 jobs in July was the latest evidence of a summer slowdown in growth, shocking forecasters who thought employers added 200,000 to 300,000 jobs. It was the second straight month of weak job growth, and it added credibility to Kerry’s refrain that Bush has failed in his handling of the economy, analysts said.

and the post for the full article:
http://www.msnbc.msn.com/id/5624615/

Only democrats would say growth, albeit slower than projected, is a failure.

[Inquartata]

If the "analysts" are truly shocked, then their credentials are suspect. The Fed just raised interest rates, oil prices are near all-time highs, and lots of factories have just finished conducting seasonal maintenance and refurbishment shutdowns. The interest rate hike alone was guaranteed to cool growth.