We’ve heard Democratic frontrunner Hillary Clinton argue countless times that the U.S. economy does better when there is a Democratic president in the White House.
And, guess what? Harvard professor Jeffrey Frankel is saying Clinton is “absolutely right,” especially when you look at the data. I guess she doesn't lie all the time...
In his latest Project Syndicate post, Frankel notes that the difference in U.S. economic performance under Democratic versus Republican presidents is “consistent and substantial.”
“Princeton University economists Alan Blinder and Mark Watson confirm this Democratic dividend in a recent study,” he said. The economists started observing data dating back to Harry Truman’s presidency up until Barrack Obama.
“[A]nnual GDP growth has averaged 4.3% during Democratic administrations, compared to 2.5% under Republicans. If one goes back further, to include Herbert Hoover and Franklin D. Roosevelt, the disparity is even larger,” Frankel said.
The trend is not only apparent when looking at GDP, Frankel continued, but even when looking at budgets and employment data.
“Since 1945, the unemployment rate fell by 0.8 percentage points under Democrats, on average, and rose by 1.1 percentage points under Republicans – a remarkable difference of 1.9 percentage points,” he said. “The structural budget deficit has also been smaller under Democratic presidents (1.5% of potential GDP) than when Republicans have been in office (2.2%), though this has not stopped Republicans from criticizing Democrats for excessive spending.”
What about stock markets? The findings show that the S&P 500, for instance, has been “substantially higher” under Democrats at 8.4% than under Republicans at 2.7%.
And Frankel doesn't think this is mere luck...the Democrats have to be doing something right.
A more startling figure is when you look at data over the last 8 times a president from one party was succeeded by a president from another party. “In the four transitions when a Republican took office, GDP growth slowed; in the other four transitions, when a Democrat moved in, the growth rate went up. That is as unlikely as getting heads on eight coin tosses in a row – a one-in-256 shot,” he said.
Oh, and not to mention, when Democrats control Congress guess what happens? Yup, the U.S. economy performs better.
The two Princeton researchers say 56% of the growth gap can be explained by the following 5 factors: oil shocks, productivity growth, defense spending, foreign economic growth, and consumer confidence.
However, as Frankel noted, it is impossible to quantify just how much these factors affect a president’s policies.
“[C]ontrary to widespread assumptions, fiscal and monetary policies are not more ‘pro-growth’ or expansionary under Democrats than under Republican presidents, and therefore cannot explain the performance differential,” he said. “But presidents make many policy decisions – concerning energy, anti-trust, regulation, trade, labor, and foreign policy, to name a few – beyond how much fiscal and monetary stimulus to pursue.”
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