With the presidential election a mere 127 days from the release of this report, and the candidates apparently not waiting for the once-traditional Labor Day kickoff, this is a good time to look at the partisan patterns in some major economic and financial indicators. The differences are significant, and worth thinking about for anyone with dollars at stake after January 20, 2009.
Not to spoil the suspense too much, but here are the basic conclusions. Since Franklin Roosevelt’s third term (1941–44), Democrats have generally presided over faster growth and stronger stock markets than Republicans; Republican administrations have been friendlier for disinflation and the bond market. Also, Republicans tend to preside over recessions early in their terms, with growth accelerating as time passes; Democrats tend to preside over earlier accelerations followed by slowdowns as the term matures.
Here’s a closer look at some major indicators. In the graphs, the parties are color-coded by the traditional Republican red and Democratic blue. Individual terms are in a lighter shade, and the party average is the darker shade.
Technical note Unless otherwise noted, the figure shown is average annual growth rate for a president’s term, from the year, quarter, or month of inauguration to the quarter or month of the next inauguration. For two-term presidents, results are the averages of both terms.
Editors' note: Our intent here is to present the historical record to balance the tiresome, and generally incorrect, generalizations one hears at this point in the election cycle. We are not venturing into politics. Philippa's grandfather is Finley Peter Dunne, creator of the Chicago barkeep Mr. Dooley, and we'll refer anyone with a horse in the race who is unhappy with how specific graphs may look to him: "Politics ain't beanbag."
Democrats have a clear edge on GDP growth: 4.4% vs. 2.6%. Even if you start the clock with Truman in 1949 (eliminating the war boom and immediate postwar bust), the Dem advantage survives, with average growth of 4.5%. The partisan difference is widespread, too, not dependent on a few strong or weak readings: the blue bars stack towards the top of the graph, and the red bars towards the bottom. It might surprise some readers to learn that the Carter years weren’t quite as bad as some remember—though the inflation performance was miserable.
In his new book, Unequal Democracy, Princeton political scientist Larry Bartels points out an interesting partisan contrast in the timing of GDP growth. Republican administrations tend to have recessions early in their terms, with growth strongest in the fourth year. Democrats tend to stimulate the economy on taking office, which leads to a prompt acceleration in growth, followed by a slowdown. (The graph to the right supports this point. There's volatility around the averages, of course, but there's still a pattern there.) Bartels theorizes that this rhythm makes it easier for Republicans to get re-elected, since voters generally remember only recent history, and are probably more impressed by improvements than averages.
The comparative partisan performance on employment is similar to GDP growth. Under Democratic administration, employment has grown an average of 3.0% a year (2.9% if you start in 1949); under Republicans, 1.3%. And here the blue bars are all at the top of the graph, and the red at the bottom. And it seems that the Bush family, whatever their other accomplishments, won’t go down in history as great job creators.
Reagan’s average was dragged down by the recession during his first term; his second term saw strong employment growth, an annual average of 2.7%, stronger than Bill Clinton’s average, and comfortably the strongest of any Republican four-year term. The only sub-1% terms were Eisenhower’s second (0.4%) and George W. Bush’s first (0.0%). The weakest Democratic terms on job creation were Roosevelt–Truman (1.6%) and Clinton’s second (2.2%).
With only few exceptions, Republican administrations have presided over increases in unemployment, and Democrats over declines. On average, the jobless rate has risen by 1.0 points under the GOP, and fallen by 1.9 points under Dems (–1.3 points if you start in 1949). The only exceptions to the partisan pattern were Reagan (–2.1), the Roosevelt–Truman joint term (+3.2), and Carter (no change).
We figured it was best to feature changes in the unemployment rate, but the averages show a similar pattern. Under Republicans, unemployment has averaged 6.0%, and 4.8% under Democrats (or 5.2% if you start with Truman’s first full term).
The inflation pattern is more mixed than the growth-related numbers. On average, Democrats preside over a small increase in inflation, and Republicans over a small decrease. The top and bottom positions are amplified versions of this distinction. Under Reagan, inflation (measured by the headline CPI) came down by 7.3 points; under Carter, it rose by 6.6 points. Still, there’s a mix of red and blue on both sides of the zero divide.
Though the picture so far is of the Republicans as the party of austerity and the Democrats as the party of stimulus, there’s a surprise when it comes to changes in the federal deficit: Republicans are more liberal with the red ink than Dems. On average, a Republican in the White House has meant a shift of –1.9% of GDP in the government’s budget balance (i.e., towards smaller surpluses or bigger deficits), while a Dem has meant a 1.5% improvement in the budget position (or 1.8%, if you start in 1949, thereby omitting the huge World War II deficit). And in this case, the average is a faithful representation of the distribution, with only one Democrat in the minus column and only one Republican in the plus.
Some of this reflects different tax policies, with Reagan and Bush 43 cutting, and Clinton raising income taxes. But it also reflects the partisan difference in GDP growth.
The blue years have an edge on stock returns, with the S&P 500 rising an average of 4.7% a year in real terms (price only, excluding dividends, deflated by the CPI) under Democratic administrations, compared with 2.9% under Republicans. (Starting the clock in 1949 raises the Dem average to 6.9%.) Still, there are some red bars towards the top of the heap and blue bars toward the bottom.
Strangely, there’s not all that tight a link between stock market performance and profit growth. In fact, the rankings of the two measures show a correlation coefficient of 0.43. Sometimes stocks march to their own drummer.
Unlike the stock market, there’s a clear partisan pattern to bond returns: Republicans are a lot more bond-friendly. Real total returns—price plus coupon, deflated by the CPI—averaged +4.2% a year under Republicans, vs. –2.1% under Democrats. And, as the graph shows, the average is a pretty faithful representation of the relative performance of individual administrations.
Recall that Clinton came into office with plans for a stimulus program, that were shelved under pressure from what he called “a bunch of ******* bond traders.” This should be kept in mind when evaluating the bond market’s prospects should Obama win in November. It may be that the world has changed to the point where the old Democratic pattern won’t hold this time.
Over the long sweep of history, the distribution of income in the U.S. became more equal from the early 1930s through the late 1960s, and has been growing more unequal ever since. But there are some partisan patterns to this story. On average, inequality has risen in Republican administrations, and fallen in Democratic ones. Bucking the long-term trend, inequality rose slightly during the Eisenhower years. And while not quite bucking the trend, it rose more slowly in the Carter and Clinton years than it did under Nixon, Reagan, or George H.W. Bush.
(Technical note: inequality here is measured by the Gini index, a number between 0 and 1 that represents the relative equality or inequality of a distribution. A perfectly equal society, in which all members have the same income, would have a Gini index of 0; a perfectly unequal one, in which one person had all the income, would have a Gini of 1. The level of the Gini makes little sense on its own; it’s best used to compare distributions across time, or to compare countries. The measure shown here is the percentage change in the Gini index over the presidential term; for two-term presidents, the change is divided by 2 for consistency with one-term presidents.)
In the book mentioned above, political scientist Larry Bartels looks at personal income growth at various points in the distribution, and finds that under Republican administrations, growth is strongest at the 80th percentile and above; under Democrats, it’s pretty equal across the distribution. Bartels, by the way, says he undertook his research as a totally nonpartisan, objective political scientist of a quantitative bent, and had absolutely no preconception about where his research would take him.
When John Liscio first commissioned us to look into Presidential economic records, we tried putting together a grading system. But we gave up—it’s impossible to figure out how to weight all the different variables. Tastes and interests vary.
Still, it looks like George Wallace was wrong. There is at least a dime’s worth of difference between the two parties. Past performance is, of course, never a guarantee of future results, but the trajectory of the U.S. economy and markets from 2009 forward may well depend in a large degree on who wins on November 4.
—Philippa Dunne & Doug Henwood