Stronger growth rates under Democratic administrations

Discussion in 'Economics' started by walter4, Sep 1, 2008.

  1. Data for the whole period from 1948 to 2007, during which Republicans occupied the White House for 34 years and Democrats for 26, show average annual growth of real gross national product of 1.64 percent per capita under Republican presidents versus 2.78 percent under Democrats.


    CLEARLY, there are major differences between the economic policies of Senators Barack Obama and John McCain. Mr. McCain wants more tax cuts for the rich; Mr. Obama wants tax cuts for the poor and middle class. The two men also disagree on health care, energy and many other topics.

    Such differences are hardly surprising. Democrats and Republicans have followed different approaches to the economy for as long as there have been Democrats and Republicans. Longer, actually. Remember Hamilton versus Jefferson?

    Many Americans know that there are characteristic policy differences between the two parties. But few are aware of two important facts about the post-World War II era, both of which are brilliantly delineated in a new book, “Unequal Democracy,” by Larry M. Bartels, a professor of political science at Princeton. Understanding them might help voters see what could be at stake, economically speaking, in November.

    I call the first fact the Great Partisan Growth Divide. Simply put, the United States economy has grown faster, on average, under Democratic presidents than under Republicans.

    The stark contrast between the whiz-bang Clinton years and the dreary Bush years is familiar because it is so recent. But while it is extreme, it is not atypical. Data for the whole period from 1948 to 2007, during which Republicans occupied the White House for 34 years and Democrats for 26, show average annual growth of real gross national product of 1.64 percent per capita under Republican presidents versus 2.78 percent under Democrats.

    That 1.14-point difference, if maintained for eight years, would yield 9.33 percent more income per person, which is a lot more than almost anyone can expect from a tax cut.

    Such a large historical gap in economic performance between the two parties is rather surprising, because presidents have limited leverage over the nation’s economy. Most economists will tell you that Federal Reserve policy and oil prices, to name just two influences, are far more powerful than fiscal policy. Furthermore, as those mutual fund prospectuses constantly warn us, past results are no guarantee of future performance. But statistical regularities, like facts, are stubborn things. You bet against them at your peril.

    The second big historical fact, which might be called the Great Partisan Inequality Divide, is the focus of Professor Bartels’s work.

    It is well known that income inequality in the United States has been on the rise for about 30 years now — an unsettling development that has finally touched the public consciousness. But Professor Bartels unearths a stunning statistical regularity: Over the entire 60-year period, income inequality trended substantially upward under Republican presidents but slightly downward under Democrats, thus accounting for the widening income gaps over all. And the bad news for America’s poor is that Republicans have won five of the seven elections going back to 1980.

    The Great Partisan Inequality Divide is not limited to the poor. To get a more granular look, Professor Bartels studied the postwar history of income gains at five different places in the income distribution.

    The 20th percentile is the income level at which 20 percent of all families have less income and 80 percent have more. It is thus a plausible dividing line between the poor and the nonpoor. Similarly, the 40th percentile is the income level at which 40 percent of the families are poorer and 60 percent are richer. And similarly for the 60th, 80th, and 95th percentiles. The 95th percentile is the best dividing line between the rich and the nonrich that the data permitted Professor Bartels to study. (That dividing line, by the way, is well below the $5 million threshold John McCain has jokingly used for defining the rich. It’s closer to $180,000.)

    The accompanying table, which is adapted from the book, tells a remarkably consistent story. It shows that when Democrats were in the White House, lower-income families experienced slightly faster income growth than higher-income families — which means that incomes were equalizing. In stark contrast, it also shows much faster income growth for the better-off when Republicans were in the White House — thus widening the gap in income.

    The table also shows that families at the 95th percentile fared almost as well under Republican presidents as under Democrats (1.90 percent growth per year, versus 2.12 percent), giving them little stake, economically, in election outcomes. But the stakes were enormous for the less well-to-do. Families at the 20th percentile fared much worse under Republicans than under Democrats (0.43 percent versus 2.64 percent). Eight years of growth at an annual rate of 0.43 percent increases a family’s income by just 3.5 percent, while eight years of growth at 2.64 percent raises it by 23.2 percent.

    The sources of such large differences make for a slightly complicated story. In the early part of the period — say, the pre-Reagan years — the Great Partisan Growth Divide accounted for most of the Great Partisan Inequality divide, because the poor do relatively better in a high-growth economy.

    Beginning with the Reagan presidency, however, growth differences are smaller and tax and transfer policies have played a larger role. We know, for example, that Republicans have typically favored large tax cuts for upper-income groups while Democrats have opposed them. In addition, Democrats have been more willing to raise the minimum wage, and Republicans have been more hostile toward unions.

    The two Great Partisan Divides combine to suggest that, if history is a guide, an Obama victory in November would lead to faster economic growth with less inequality, while a McCain victory would lead to slower economic growth with more inequality. Which part of the Obama menu don’t you like?
  2. Walter, what have you started here? Why do you let facts come in the way of a propoganda?

    Anyway, here are the returns during different presidents and the data shows that markets do well under a democratic president than a republican.

    Presidents And The Stock Market
    Dan Ackman, 07.21.04, 3:00 PM ET

    NEW YORK - Does the president affect your portfolio? Candidates would certainly like you to think that the answer is yes, and that the particular candidate doing the talking is better than the other guy.

    Over the years, several studies have shown that the stock market has fared markedly better under Democrats than Republicans. (see: "The Presidential Portfolio") The difference, according to Pedro Santa-Clara and Rossen Valkanov, both professors at the University of California Los Angeles Anderson School of Business, is much too large to be random and cannot be explained by fluctuations in the business cycle. Nor can it be explained by higher interest rates in Republican administrations.

    The UCLA professors looked at data going back to 1927. Our own study of the post-World War II presidencies confirms their results. We found that the S&P 500 has averaged a total return of 14.1% per year under Democratic presidents since April 1945, and 11.8% under Republicans. The best total returns--17.4% per year--were under Bill Clinton, whose presidency ranked first in economic results. (see: "Presidents And Prosperity") Gerald R. Ford ranks second, followed by Harry S. Truman.

    Presidents And The Stock Market
    President Term Economic Rank S&P 500 Start Of Term S&P 500 End Of Term S&P 500 Annualized Total Return (%) Stock Market Rank
    Bill Clinton 1993-2001 1 433.37 1,342.54 17.4% 1
    Gerald R. Ford August 1974-1977 5 86.02 102.97 17 2
    Harry S. Truman April 1945-1953 7 13.64 26.57 15.6 3
    Dwight D. Eisenhower 1953-1961 9 26.57 58.11 14.9 4
    Ronald Reagan 1981-1989 4 131.65 286.63 14.4 5
    George H. W. Bush 1989-1993 10 286.63 433.37 14.4 5
    John F. Kennedy 1961- November1963 3 58.11 74.01 12.4 7
    Jimmy Carter 1977-1981 6 102.97 131.65 11.2 8
    Lyndon B. Johnson November 1963-1969 2 74.01 103.86 10.2 9
    Richard M. Nixon 1969-August 1974 8 103.86 86.02 0.6 10
    Source: Forbes statistics
    However, no one, including Santa-Clara and Valkanov, seems to know why the market does better under Democrats. Another puzzle: There seems to be little correlation between economic performance and the market.

    Under Ford, for example, the economy was middling but the market enjoyed a 17% total annualized return (share price gains coupled with reinvested dividends). This result may be a fluke as the market fared very poorly just before him under Richard M. Nixon (0.6% return) and continued at sub-par levels under Jimmy Carter. The Truman and Dwight D. Eisenhower economies were underwhelming, but the market averaged a total annual return of better than 15% during their years in office.

    Clinton apart, the presidents who presided over strong economies did not enjoy particularly strong stock markets. Under Lyndon B Johnson, for instance, gross domestic product growth was at its height--but the S&P 500 results for LBJ were worse than for any postwar president except Nixon. John F. Kennedy was the third best president for the economy, but "his" stock market was below average. President George H.W. Bush presided over a sour economy but an average market.

    Why the disconnect? Market economists say that investors don't particularly care about GDP or employment or even average personal income. Investors focus on corporate earnings, particularly projected earnings, and on interest rates. "Stock investors don't care about the economy. They care about earnings," says Richard DeKaser, chief economist at National City, a Cleveland-based financial holding company. DeKaser cites the so-called Alan Greenspan model for share price returns which holds that stock prices are a function of projected earnings discounted by rates on ten-year Treasury bills.

    Other economists say there is a relationship between the economy and share prices, but it works in complicated ways. There may be a substantial lag time between economic gains and share price gains. On the other hand, share prices may rise in anticipation of better economic times rather than in reaction to actual prosperity. Share prices also may rise if investors' negative expectations in a given situation are not realized. Management consultant Peter Cohan says investors have poor expectations of Democrats, so once the Democrats are in power, stocks rise in relief "when it turns out they don't screw up the economy."

    For that reason, some advise that investors temper their expectations. Says David Kelly, an economic adviser to Putnam Investments: "Bottom line, I think people should not let how they feel about politics affect how they feel about investing."
  3. Yeah, these are growth rates for real GDP per capita. 1.64% under Republicans, 2.78% under Democrats.
  4. A spurious correlation. You cannot make the logical jump.
  5. Republicans use centripetal economics - they want to concentrate wealth into the hands of the few.

    Democrats use centrifugal economics - they want to spread wealth over the many.
  6. No matter how you slice it, historically Democratic administration has been better for the economy and the stock market.
  7. And there are 2 very good reasons... They are spendthrift and they promote inflation... Oh, they CALL it growth.. but it's just old fashioned money-pump inflation.
  8. You people crack me up! Bush has spent more than every single president before him--COMBINED and inflation has taken off under his watch. But of course he gets a pass, after all he's the MBA President with Business Experience! :D You republicans all know, if you want to admit it or not, if these numbers were opposite, you would hear about them every single day on CNBC and you would be trumpeting them at every chance.
  9. nkhoi

    nkhoi Moderator

    fact: 1948 to 2007 = 59y

    fact: Life expectancy: 77.8 years

    let's say you wait for another 30y (about 50% of about 59y) to get some logical conclusion. Since 59 + 30 = 89y then you will be expire long before you reach the 'logical' conclusion.
  10. A reasonable reason why the Dems are better for overall growth is that their targetting of tax cuts are to those who spend and not save. The spenders will allocate the money back into the free market whereby demand for goods and services in the domestic economy will equate with businesses expanding or created.
    #10     Sep 1, 2008