Princeton economists Alan Blinder and Mark Watson recently published a fascinating study that is, alas, ripe for misuse by partisan political hacks. Their study compared the postwar U.S. economy’s performance under Democratic presidents with its performance under Republican presidents. Their conclusion: between the late 1940s and 2013, the average annual growth rate of real GDP during Democratic administrations was 4.35 percent, versus only 2.54 percent during Republican administrations. (One caveat: Because of “the presumed lag between a presidential election and any possible effects of the newly-elected president on the economy . . . the first quarter of each president’s term is attributed to the previous president.”) Thus, the “D-R gap” was 1.81 percentage points, a figure that, in the words of Blinder and Watson, “is astoundingly large relative to the sample mean.”
Cause for rejoicing among liberal economists? Not so fast. The Princeton analysts—one of whom (Blinder) is a prominent Democrat who served as vice chair of the Federal Reserve under President Clinton—caution against such a simplistic interpretation of their results.
“Democrats would no doubt like to attribute the large D-R growth gap to macroeconomic policy choices,” they write, “but the data do not support such a claim. If anything, and we would not make too much of small differences, both fiscal and monetary policy actions seem to be a bit more stabilizing when a Republican is president—even though Federal Reserve chairmen appointed by Democrats preside over faster growth than Federal Reserve chairmen appointed by Republicans by a wide margin.”
But if policy choices don’t explain the partisan gap, then what does? The authors point to “several variables that are mostly ‘good luck,’ with perhaps a touch of ‘good policy.’ Specifically, Democratic presidents have experienced, on average, better oil shocks than Republicans (some of which may have been induced by foreign policy), a better legacy of productivity shocks, more favorable international conditions, and perhaps more optimistic consumer expectations (as measured by the Michigan ICE).”
Taken together, the “good luck” factors listed above account for “slightly more than half” the gap, according to Blinder and Watson. “The rest remains, for now, a mystery.”
Washington Post columnist Robert Samuelson tries to solve the mystery by reviewing America’s postwar business cycles and showing how they reflected, at least in part, the “philosophical differences” between Republicans and Democrats on questions related to jobs and inflation. He highlights the critical role played by the Federal Reserve: “The Fed may be ‘independent,’ but it doesn’t ignore the prevailing political and intellectual climate. Its policies have been more permissive under Democratic presidents than Republican ones.”
Samuelson also reminds us that certain economic policies have delivered short-term benefits while imposing longer-term costs, and vice versa. “Economic policies pleasurable in the present can be disastrous for the future — for example, the inflationary policies of the 1960s,” he notes. “The reverse also applies: Policies painful in the present can reap long-term dividends. The hurtful suppression of double-digit inflation in the 1980s is an obvious case.”