Democratic vs. Republican Economies

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I didn’t catch this yesterday, but Kevin Drum had an interesing post regarding Red vs. Blue economic growth and performance, based on this from Angry Bear:

Last week I had a few posts about the differences between elected Republicans and elected Democrats. I noted that for whatever reason, we observe higher growth rates in real real (GDP less increase in national debt) per capita under Democratic Presidents than under Republican Presidents. In fact, looking at complete administrations (i.e., assuming JFK & LBJ form one administration, and Nixon & Ford form another), all three Democratic administrations outperform all five Republican administrations. I noted this discrepancy was true for Congress; real per capita growth less increases in the debt was higher under Democratic Congresses than under Republican Congresses.

I advanced a few guesses as to why this discrepancy might be observable which I hope to test as time permits, but I think perhaps the biggest one is simply that Democrats tend to pursue policies that are less likely to run up the debt.

Kevin’s take:

As longtime readers know, Democratic administrations routinely deliver better economic performance than Republican administrations. Among other things, they deliver lower inflation, lower unemployment, higher economic growth, better stock market growth, and higher median wage growth. This performance is remarkably robust and consistent, and holds up even if you lag the analysis by a few years to allow time for economic policies to have an effect.

It’s also a bit odd, since as I’ll readily concede, presidents have only a modest effect on the economy. But it’s not a statistical fluke. There have now been enough years, enough administrations, and enough separate measurements since WWII to make these results something that can’t just be shrugged off.

I have my own idea about what causes this difference (nickel version: broad policy preferences that favor the working and middle classes vs. policy preferences that favor economic elites), but that’s just a guess.

Well, that’s interesting. What does ol’ Spencer have to say? In comments left at both blogs:

Under democrats the economy does significantly better than under republicans. That is pretty solid. So why? I do not buy the argument that it is long and variable lags. Rather, I think the difference is in the impact of Keynesian policies as compared to supply side policies. Generally, democrats implement Keynesian type policies. This is based on the premise that you use deficits to give consumers extra income and they will go out and spend it. This generates strong corporate profits and strong markets that in turn lead to strong capital spending. Supply side policy, in contrast is based on the premise that you use deficits to give tax cuts to the wealthy, or the investor class, and they will investment their extra income and this will generate capital spending that pulls the economy up.

So both are based on the premise that using deficits to give different groups extra income will lead to greater capital spending and a stronger economy. If you look at the record of what happens to capital spending you see that democratic or Keynesian stimulus is followed by very strong capital spending so this thesis seems to work. In contrast, supply side tax cuts are followed by weak capital spending so at best the supply side argument is unproven.

There’s a lot of interesting information here (Spencer’s argument is incredible), so I encourage you to take a look.