I haven’t watched any of the debates among presidential contenders, Republican or Democrat. I won’t do it and you can’t make me. But I did hear about Hillary Clinton’s claim that GDP growth was better under Democratic presidents than among Republicans and I thought that was worth commenting on. Take a look at the chart above, sampled from this post from the blog of the Manhattan Institute. Here’s what its author, Caroline Baum, has to say:
“If you look at the Republicans versus the Democrats when it comes to economic policy, there is no comparison. The economy does better when you have a Democrat in the White House.” – Hillary Clinton, Oct. 13, 2015
Clinton could have said, “a lot better,” or “based on various metrics,” and still been correct in her statement. What she left out was a key finding of the economic research she is fond of citing on the superior economic performance under Democratic presidents: the lack of causality.
Citing a paper by Alan Blinder and Mark Watson she goes on to note that the difference can’t be explained by differences in fiscal policy or monetary policy and can’t be waved away by differences in Congressional majorities or split government. Nobody can really explain the difference. The post ends up attributing it to some felicitous combination of policy and dumb luck.
I think there’s more to it and I want to explain what I think that might be. Lord Keynes’s old friend, “animal spirits”. Democratic presidents are just better at talking up the economy. Look at the top growth presidential terms: Truman, Kennedy, Johnson, and Clinton. It isn’t until #4 that you have the first Republican and it’s, who else, the Gipper. What’s different about Reagan when compared with Eisenhower, Nixon, Ford, or either Bush? He wasn’t a downbeat or even pessimistic old scold. What’s different about Carter or Obama from the other Democratic presidents? They are scolds.
The moral of the story is don’t ignore the role of mood in evaluating economic growth.
BTW, the Manhattan Institute isn’t exactly a bastion of left wing thought. Remember the old rabbinic saying: when a woman comes from a far country and tells you she’s divorced, believe her.
Since the chart is by term, you can’t tell year by year what was happening. Is it possible that we tend to elect Democrats when the economy is on an upswing, and GOP when it’s turning down?
Another take on the animal spirits explanation.
Well, you may remember coming out of the Truman Administration. I start with Reagan. (Sorry.)
My reaction is: too many variables. One thing is undeniable. The following Presidents inherited recessionary / requiring remediation environments. Reagan, Bush II, and Obama. The following walked right into recoveries: Clinton.
The politics is that Ms Clinton will take credit for her husband. The truth is he had dumb luck on recession timing, a tech/productivity boom and easy credit. He left a housing bubble which started in 1996-1998, and a stock market bust, especially the NASDAQ. I wonder if such perspective will come from media commentators in the general election. Ain’t hold’n my breath.
I have never understood the cause and effect that’s used to explain how Bill Clinton is responsible for the 90s boom. I’ve expressed my view plenty of times here: 15 years of significant capital investment that’s very hard to explain finally paid off. IMO we’re still living off that capital investment and that’s also why I keep whining about too low levels of business investment.
Actually, I do remember when Truman was president. My memories of the Eisenhower presidency are much more vivid.
while repudiating every policy he pursued. It’s a good trick if you can make it work.
There are those who blame the deterioration of the economy late in Clinton’s term on the surpluses he ran. I’m skeptical because they were only surpluses on paper. Once you’ve hacked your way through the underbrush of all of the fund accounting, we were still running a deficit.
“Actually I do remember…”
And here I was just taking a good natured cheap shot…..
“While repudiating…….”
Well, she seems to have avoided liar, liar pants on fire – not to mention arrest – wrt a high tech bribe (cattle futures), Star Trek-like tele-transportation of subpoenaed billing records, and the absurd notion of an uber-inflammatory and violence inspiring YouTube video. Why, who knows, she might even be able to run the State Department privately out of her kitchen, while doing weddings, bar mitzvahs and yoga routines……
“…we were still running a deficit.”
Oh, c’mon. Next thing you are going to be telling me is he didn’t sign repeal of Glass Steagal, Bush did.
@Drew
… he didn’t sign repeal of Glass Steagal …
Let’s give credit where it is due.
He also refused to regulate CDS’s, and he pardoned Marc Rich. Then, President Obama was so impressed with Timothy Geithner’s work during the housing bubble, he promoted him to Secretary of the Treasury where he (Geithner) immediately started working to get the Wall Street fat cats bonuses restored.
I realize you may have a different opinion of the events, but you and the Republicans are not the ones whining about “liar loans” and any other dumb-ass shit the Democrats throw at the wall.
If GDP includes government spending, it might tend to increase when government spending increases.
Well, TB. I’m sure mortgage brokers got overzealous. I just think there is a reason people are free to contract after age 18: its time to wake up and take responsibility. No banker or broker ever pulled a Don Corleone and put a gun to a mortgage seeker’s head.
Ben Wolf made a salient point over at OTB awhile back. If GDP were calculated consistently (its been boosted recently) it would be right at recessionary levels over the past year to year and a half. That makes the graph above incorrect. But as you can learn consistently over at OTB, when he took office Obama donned his cape with an S on it and single handedly pulled the economy – losing one billion jobs a month I think – out of its tailspin. Why a man of such talents hasn’t continued to keep us in Nirvana more recently is somewhat of a mystery………snicker.
“No banker or broker ever pulled a Don Corleone and put a gun to a mortgage seeker’s head.”
But they did push loans that put the client at risk while maximizing their profits. They did give out loans to people when they had no idea about their income (more than 50% of the loans at the peak). They did misrepresent the safety of the loans they were giving out. They did hire assessors who fraudulently inflated the value of properties.
Query– No one ever put a gun to people’s heads and forced them to buy electricity. So you were OK with the Enron folks and what they did to jack up prices, including shutting down plants during peak periods? Is it always caveat emptor in Drew land?
Steve
“If GDP were calculated consistently (its been boosted recently) it would be right at recessionary levels over the past year to year and a half.”
The manipulation of numbers (GDP, UE, PPACA sign-ups etc.) creates a vacuum of gleaning real information about the genuine state of anything. Supposedly 2010 was supposed to be the Summer of Recovery. Was it?
Just like all the promises rendered about how much money people were going to save on healthcare, so were the platitudes regarding economic and job growth. It’s been dismal. And, yet the administration keeps plugging along with the same policies, goals, obstacles to growth in place, along with an intrinsic smugness aimed at their political rivals. Political gamesmanship is the end game, not policy moderation or doing what is good for all the people.
“or doing what is good for all the people.”
Like cutting taxes on the wealthy. That is, in essence, the GOP economic plan.
Steve
Until I see some coherent argument for “why” I will continue to chalk it up to coincidence. Presidents have little control over the direction of the economy.
Silly analogies, steve. It’s hard to take you seriously anymore.
@steve
Do you wake up in the morning and plan your day with the goal of remaining an idiot? It is a rhetorical question.
While there may be abused, no-doc loans are a legitimate product. They are for people who do not have a steady income, but can repay the loan. You must have a high credit score among other qualifications. Part of the theory is that people with high credit scores would not want to ruin them.
Among the people who would need a no-doc loan are contractors who purchase run-down or older houses, and fix them. They remove the pink bath tub, shag carpet, cheap paneling, and cheesey wallpaper. If they have are working on several at once, the revenue stream is not steady nor is it consistent, but it does exist. They are an excellent risk.
When a housing bubble bursts, a lot of excellent credit risks change status, but that is a different matter. The methodology for determining risk is another subject. It was being distorted, and those on your side were not blameless.
I have been through this multiple times, and I do not feel like repeating, but here is a thumbnail sketch. There were humongous pools of money, and the money found its way into the housing sector. Today, it is flowing into the stock market among other areas.