Do Republicans Do a Better Job with the Economy? What Does the Evidence Say

Is There an Association between the President’s Party and Party Control of Congress and Economic Growth?

Conventional wisdom suggests that Republicans do a better job with the economy than Democrats. We will examine existing evidence to see if the data conforms to conventional wisdom.

I. President’s Party Impact on the Economy

An Overall Assessment from Bulls Bears and the Ballot Box: How the Performance of Our Presidents Has Impacted Your Wallet

Bob Deitrick and Pete Williams examined in detail the impact of Presidents on three economic pillars of the economy – the U.S. Financial Health Pillar, the Personal Wealth Pillar, and the Business Prosperity Pillar. Here’s their major conclusion:

“Surprisingly, despite the conventional wisdom that the Republican Party is the fiscally responsible party, the PRES Rankings told a much different story, with Democratic Presidents JFK/LBJ, Clinton and FDR holding the top three spots and Republican Presidents Hoover, George W. Bush, and Nixon/Ford trailing the pack in the last three spots.”

Other findings from their study:

Since Truman’s administration “every Democratic presidential administration left office with a lower unemployment rate than when they took office.  But only one Republican Administration has managed this accomplishment.” The following graph depicts this outcome.

 Job Creation

Clinton said at the recent Democrat National Convention that since 1960 Republicans have controlled the White House 28 years and the Democrats 24. During those years he said Democratic administrations have created 42 million jobs while Republican administrations created 24 million jobs, depicted in the following graph.

Bloomberg analysis of BLS data and Politifact.com demonstrate this assertion accurate and true.

Stock Market Outcomes

What about the association of stock market outcomes with presidential administrations? It appears, somewhat surprisingly, that the Democrats have a strong advantage:

Quoting Bloomberg:

“The BGOV Barometer shows that, over the five decades since John F. Kennedy was inaugurated, $1,000 invested in a hypothetical fund that tracks the Standard & Poor’s 500 Index (SPX) only when Democrats are in the White House would have been worth $10,920 at the close of trading yesterday.

That’s more than nine times the dollar return an investor would have realized from following a similar strategy during Republican administrations. A $1,000 stake invested in a fund that followed the S&P 500 under Republican presidents, starting with Richard Nixon, would have grown to $2,087 on the day George W. Bush left office.”

Simarily, Bloomberg found Democratic administrations enjoyed far greater returns as measured by gain in the S&P fund:

“Since Kennedy took office, the Democratic S&P fund logged a 992 percent gain, versus 109 percent growth for the opposition party, even though Democrats occupied the White House for 23 years over the period, compared with 28 years of Republican presidential leadership.”

Here’s a similar S&P outcome, utilizing annualized gains as the metric:

Quoting Bloomberg at length:

“The annualized return for 23 years of Democratic administrations is 11 percent, or four times the 2.7 percent annualized return during 28 years of Republican presidencies.

Investing $1,000 in funds that mirror the Dow Jones Industrial Average under the same conditions, Democratic investors would have had $7,550, versus $2,716 under Republicans.

The Democratic edge is so large that the party comes out ahead even without counting Bill Clinton (the Democrat with the biggest S&P 500 gain) and George W. Bush (the Republican with the worst market record). A hypothetical $1,000 investment under Democrats excluding Clinton was worth $3,539 versus $3,296 invested under Republicans except Bush.

Adding Dwight Eisenhower to the Republican column doesn’t overcome the Democratic advantage, either: $1,000 invested in the S&P 500 in January 1953 would have been worth $4,796 after 36 years under Republican chief executives — still less than half the $10,920 nest egg accumulated in 23 years under Democrats.”

Barclays Capital and The Economist looked at the data, 1929 to 2011, and concluded Democratic administrations provide greater stock gains than Republican administrations.

Federal Deficit

How did our country get to $14.3 trillion in debt?

Here are two pie charts depicting federal debt accumulation by Presidential administration. The first graph depicts the dollar amount contributed by each Presidential administration. The second graph shows the percent contribution by each Presidential administration to the $14.3 trillion debt.

How did we get to 14.3 trillion in debt by President – dollar contribution

How did we get to 14.3 trillion in debt by President – percent contribution

Data source: New York Times, July 28, 2011.

It appears Republican administrations are associated with approximated tw0-thirds of the national debt ($9.5 trillion of the 14.3 trillion as of July 2011.)

Income Growth

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.”

Figure 2

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

From 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%!

 Inequality

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

Figure 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.”

Gross Domestic Product

One important measure of economic growth is annualized growth rate in real GDP per capita. Figure 1-5 from Presimetrics: What the Facts Tell Us About How the Presidents Measure Up on the Issues We Care About, by economist Mike Kimel and Michael Kanell, demonstrates that Presidents Kennedy and Johnson presided over a 3.48 percent annualized growth rate in real GDP per capita, leading all other presidents from Hoover to George W. Bush. Clinton and Reagan come in third and fourth place, respectively. Also notice an aggregate summation of the findings at the far right of the figure, indicating for the time period covered that Democratic presidents outperformed Republican presidents in annualized growth in real GDP per capita.

Source: Presimetrics: What the Facts Tell Us About How the Presidents Measure Up on the Issues We Care About, by economist Mike Kimel and Michael Kanell.

II. Congressional Party Influence on Economic Outcomes

Kimel and Kanell address a very obvious question: What about the effect of who controls Congress? After all, it’s Congress that passes the budget. Figure 1-6 produced an unanticipated finding.

The surprising finding associated with Congressional control:

“While Democrats controlled Congress for three times as long as Republicans did (thirty-six years versus twelve years), the growth was exactly the same regardless of which party ran Congress.”

Many people might legitimately ask what happens to the analysis if the first year of office is eliminated. After all, a newly elected president’s first year economic outcomes are largely determined by his predecessor. Kimel and Kanell adjust for this inheritance factor and produce Figure 1-7, depicting growth rates in real GDP per capita, leaving out the first year’s growth rate for each administration.

Leaving out the first year of office doesn’t change the overall rankings but it does change the numbers, according to Kimel and Kanell’s analysis. When absolute number changes are assessed Democratic presidents look better than Republican presidents.

III. Other Research

Quoted in U.S. News:

“Sam Stovall, chief equity strategist for S&P Capital IQ, conducted an analysis recently showing that GDP, stock prices, and corporate earnings have all increased more under Democratic presidents than under Republicans.”

Manufacturing Jobs Growth Differs Sharply Across Post-World II Presidential Administrations shows State-level manufacturing job growth has varied across the 16 presidential administrations since 1948, with significant gains in most states across the seven Democratic terms and significant losses under the nine Republican, according to The Manufacturing Jobs Score, 1949-2011, a new analysis of official government data by the Keystone Research Center (KRC) and Iowa Policy Project (IPP). The Democratic administrations have added an average of between 160,000 and 250,000 manufacturing jobs each year, while Republican ones have lost manufacturing jobs at about the same rate.

IV. Conclusion

I’m of the belief that Presidents get too much credit for an economy that’s growing  and too much blame for economic downturns or recoveries. The reality is 1) Congress has control of the budget and IRS tax code;  2) the Federal Reserve has control of monetary policy; and 3) there’s something called the normal business cycle.

Nevertheless, Presidents do have a huge role in setting the agenda and through the use of their platform can pressure Congress to act on important economic initiatives.Given the caveat in the above paragraph, it appears from the evidence that Democratic administrations do a better job in moving the economy forward than Republican administrations. Interestingly, the research points to greater economic growth associated with Democratic presidents and Democratic control of Congress.