Does The Economy Fair Better Under Democrats?
President Joe Biden and Vice-President Kamala Harris have promised to raise the economy. A successful run could give credence to the idea of an economy performing better under Democratic leadership. Is there any merit to this?
**Disclaimer: I am not an economist or historian. Economics is a very complex topic, and a single article cannot cover all the bases on any given subject. This is a personal opinion.**
The Clinton’s
In 2015, then Democratic Presidential-candidate Hillary Clinton boasted about the U.S. economy performing better under Democratic Presidents as opposed to Republicans.
It was a callback to her husband’s presidency in the 90s in which the U.S. government experienced a surplus.
When asked to provide evidence to backup her claim — the Clinton campaign cited, “Presidents and the U.S. Economy: An Econometric Exploration”, a study authored by Princeton Economists Alan S. Blinder and Mark W. Watson.
Blinder and Watson researched an array of economic statistics and found that the economy performed “much better when a Democrat is president than when a Republican is.”
A surplus doesn’t necessarily mean a healthy economy, but it’s a good starting point. So how did this occur under Bill Clinton’s administration?
Before the surplus
Bill Clinton’s presidential campaign had a simple but effective slogan, “It’s the economy, stupid.” The phrase was coined by James Carville, a strategist for Clinton’s presidential campaign. Initially, it was just a phrase among the campaign workers until Carville quipped the slogan televised.
The slogan sought to take advantage of the early 90s recession to unseat George H. W. Bush whose job performance approval dropped after the ground war in Kuwait (although the actual recession was attributed it to the loss of consumer and business mainly due to the 1990 oil price shock). The economy was also not fairing the best in general at the time.
Bush’s policies and the recession, including committing to a war many Americans felt unnecessary, ultimately contributed to Bush’s undoing. Clinton’s campaign framed Bush as someone who was sitting idly by while the economy tanked, although, in retrospect; it was only a mild recession.
So after Bill Clinton’s tenure in 2001 — it was the last time the U.S. would experience a surplus which many people understanbly point to as a success for a nation’s economy and for its citizens.
A surplus doesn’t tell the whole story
According to Investopedia, while the U.S. rarely has had a surplus, it actually isn’t necessary for a government to maintain one, though it does come with benefits.
A surplus implies the government has extra funds. These funds can be allocated toward public debt, which reduces interest rates and helps the economy. A budget surplus can be used to reduce taxes, start new programs or fund existing programs such as Social Security or Medicare. A budget surplus can occur when growth in revenue exceeds growth in expenditures, or following a reduction in costs or spending or both. An increase in taxes can also result in a surplus.
But a surplus is merely one indicator of an economy performing well. And an economy can still perform well in other sectors when experiencing a deficit.
Macroeconomics
The conclusion Blinder and Watson draw hints at something more than just a surplus and the GDP growth differences seemed to be the question that they were more concerned about whether than assessing which party was better for the United States overall.
There is a systematic and large gap between the US economy’s macroeconomic performance when a Democrat is President of the United States versus when a Republican is. While other macroeconomic indicators largely agree, we have concentrated on real GDP growth over the full sample, which is 1.8 percentage points higher under Democrats — a stunningly large partisan gap relative to the sample mean of 3.3 percent
Macroeconomic performance refers to an assessment of how well a country is doing by researching key objectives of government policies. GDP Growth is just but one basic measure. Unemployment and Inflation and other measures are incorporated into macroeconomics.
The main point of any economy when looked at from its macroeconomic provenance is the improvement (or lack thereof) of the standard of the average “real” standard of living for its population. (The definition of real means rising prices are taken into account to get an accurate picture of what we can afford to buy and spend.)
This is accomplished through macroeconomic policies such as price stability.
Every year since 2001, the U.S. has had a deficit
George W. Bush began his presidency the same year that the U.S. would see the worst attack on American soil which resulted in more American’s dying than in Pearl Harbor.
A series of four coordinated attacks carried out by the Wahhabi terrorist group Al-Qaeda on September 11th led to the The War In Afghanistan.
Military spending by the end of the decade increased 50 percent (adjusted for inflation).
But this is merely a piece of the albatross which sent the U.S. into a recession.
According to Pew Charitable Trusts, policies and legislative changes dramatically increased the deficit.
Between 2001 and 2011, about two-thirds (68 percent) of the $12.7 trillions growth in federal debt has been due to new legislation. Forty percent of this legislative growth was the result of tax cuts enacted after January 2001, and 60 percent resulted from spending increases.
What followed was the Great Recession in 2007–2009 due to the housing market crash which ripped through the U.S.
Despite spending due to the war, Medicare, and what became know as the “Bush Tax Cuts” — the Real GDP has grown at an average annual rate of 2.5%.
Enter the President Barack Obama Era
President Barack Obama began serving in 2008, and at the time, he believed healthcare to be the most important piece of legislation to pass. His advisers thought it could help reduce federal spending.
And it worked… Somewhat.
The Affordable Care Act (ACA), also known as, Obamacare — depending on who you’re talking to — did help reduce spending since 95% of United Citizens had some form of health insurance.
The deficit for each fiscal year shrunk and reached it’s lowest in 2015 since 2008.
So it sure seemed like Hilary Clinton was right.
However, during Obama’s time as President — an estimated $2.8 trillion to $9 trillion of debt was added.
But as we’ve established, the debt doesn’t tell the whole story.
According to Yahoo!, “in his eight years in office, U.S. GDP growth averaged 1.62% under Obama, about 70% higher than Trump’s growth rate.
So it’s important to establish what measures you’re going to use when comparing Presidents and their successes or failures in economic policy.
Trump will be scrutinized further now that he’s out of office and we’ll get a better picture down the line to see how he stacked up against his predecessors.
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