Which Party Occupying the Oval Office Does a Better Job with the Economy?

The Evidence:

Some people would cite many reasons why presidential terms are an imperfect paradigm for tracking economic trends. Conventional wisdom suggests that the business cycle doesn’t follow the electoral cycle. A president’s economic record is heavily influenced by factors out of his control. Timing matters and so does good fortune.

At least that was the conventional wisdom before Princeton professor Larry M. Bartels, one of the country’s leading political scientists, studied the relationship between economic outcomes and which party occupied the President’s office.  His most significant finding is that there is a partisan pattern to the size of the gap between the rich and the poor. Over the past half-century, he concludes, Republican presidents have allowed income inequality to expand, while Democratic presidents generally have not.

Lest anyone think this book, Unequal Democracy: The Political Economy of the New Gilded Age, is a partisan hit job by a left-wing academic, Bartels goes to great pains in his introduction to preempt the counterattack he expects from critics on the right. “I began the project as an unusually apolitical political scientist,” he writes, noting that the last time he voted was in 1984, “and that was for Ronald Reagan.” He adds that in doing this work, “I was quite surprised to discover how often and how profoundly partisan differences in ideologies and values have shaped key policy decisions and economic outcomes. I have done my best to follow my evidence where it led me.”

Bartels acknowledges that there can be many explanations for growing income inequality, from globalization and structural changes in the U.S. economy to technological and demographic shifts. But he argues that it is wrong to assume there is no cause-and-effect relationship between government policies and income distribution. In fact, he asserts, “economic inequality is, in substantial part, a political phenomenon.”

Bartels comes to this conclusion by examining what happened to income inequality from President Truman to President George W. Bush. “Under Democratic presidents poor families did slightly better than richer families (at least in proportional terms), producing a modest net decrease in income inequality; under Republican presidents, rich families did vastly better than poorer families, producing a considerable net increase in income inequality.”

He concludes that the income gap increased under Presidents Eisenhower, Nixon, Ford, Reagan and both Bushes, while it declined under four of the five Democratic presidents who have served during this period — all except Jimmy Carter. That pattern, he asserts, “seems hard to attribute to a mere coincidence in the timing of Democratic and Republican administrations.” Rather, Democratic and Republican presidents have pursued different economic policies, with Democrats generally focused more on raising employment and output growth, which disproportionately benefit poor and middle-class families. Republicans have worried more about containing inflation, which has “negligible” effects on real income growth near the bottom of the income distribution but “substantial effects at the top,” Bartels says. On tax policy, Republican presidents, especially since Reagan, have pushed tax cuts that have disproportionately helped the wealthiest Americans.

The following represent some informative graphs depicting Bartels’ analysis and conclusions:

Figure 1

Macro-economic Performance under Democratic and Republican Presidents1948-2005

Figure 1 demonstrates that on all three issues — unemployment, inflation and GNP growth — Democrat Presidents outperformed Republican Presidents, even after allowing for differences in specific economic circumstances and general historical trends.

Figure 2

Post-income growth under Democratic and Republican Presidents 1980-2003Figure 2 depicts greater post-tax income growth associated with Democratic Presidents than that which accrued to Republican Presidents when they held the Oval Office.

Figure 3

Income inequality increases under Republican leadership, per Figure 3. The dotted line in Figure 3 represents the actual course of inequality over the past half-century, as measured by the ratio of family incomes at the 80th and 20th percentiles of the income distribution. The solid line represents Bartels’ projected course of the 80/20 income ratio given the pattern of income growth that prevailed under Republican Presidents while the lower line represents the projected course of the 80/20 income ratio under Democratic Presidents. (Given the evidence of widening inequality it appears, if anything, Bartels’ projections under estimated the impact of continuing Republican leadership in the White House.)

Figure 4

Income Growth by Income Level under Democratic and Republican PresidentsFigure 4 demonstrates that poor families did slightly better under Democratic Presidents than richer families (at least proportionately), producing a modest net decrease in income inequality. Richer families, under Republican Presidents, did vastly better than poorer families, yielding a considerable net increase in income inequality.

 Bartels refutes the notion that the causes of economic inequality in contemporary America have little tie to government.

“Indeed, I suggest that the narrowly economic focus of most previous studies of inequality has caused them to miss what may be the most important single influence on the changing U.S. income distribution over the past half-century – the contrasting policy choices of Democratic and Republican presidents. Under Republican administrations, real income growth for the lower and middle income classes has consistently lagged well behind the income growth rate for the rich – and well behind the income growth rate for the lower and middle classes themselves under Democratic administrations.”

One might wonder if the party holding power in Congress effects the results?  Bartels lives up to his reputation as an excellent researcher by including this variable in the analysis. He tested the impact of proportion of Democrats (and therefore Republicans) in the House and Senate.  Here’s his finding:

“Adding a measure of the average proportion of Democrats in the House and Senate to the regression equations reported in Table 2.3 below suggests that Democrats in Congress probably had positive effects on income growth, at least for low-income families; but the relevant parameter estimates are small (implying that even the largest observed shift in the partisan composition of Congress had much less effect on income growth than a shift in partisan control of the White House) and very imprecise (with an average t-statistic of .35).” Emphasis mine.

Related to Bartels’ study and moving to a comparison of Bush/Clinton economic outcomes is another analysis by Piketty and Saez ( recipient of MacArthur “Genius Award”), regarded as among the top analysts in the field. Here’s an interesting table from their work:

Table 1

Real Annual Income Growth -  Bush Clinton and 1993-2007From the above table it’s observed that President Clinton outperformed President Bush and the entire aggregate time period from 1993 to 2007 on three measures: 1) Average income real annual growth; 2) Top 1% incomes real annual growth; and  3) Bottom 99% incomes real annual growth. President Bush holds a commanding lead for the fraction of total growth captured by the top 1%!

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One Response to Which Party Occupying the Oval Office Does a Better Job with the Economy?

  1. Pingback: Sean McElwee: Republicans Don’t Understand Entrepreneurship | Political Ration

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