Are Republicans better at managing the economy?
Summary
The short answer is probably not. The economy typically grows more under a Democratic administration than it does during a Republican. Does that mean that Democrats are better economic stewards? Again, probably not.
When we dig more in the details it becomes apparent that while the President does have some influence on economic growth, it is almost impossible to find data that shows causal relationship between what actions a president takes during their term and how the economy performs as a whole.
For those that are interested, the full gist with source is at the end of the article. Interactive versions of the Python charts are available here.
Growth has been…pretty flat for the last 10 years
Like many things today, political affiliation tends to drive which party you think is better at managing the economy. Nonetheless, there it always seems that in general, equate economic management with Republicans. For example, despite the fact that the Trump Administration has, for the most part, grown the economy at the same rate as the Obama Administration, it isn’t difficult to find stories such as this that say otherwise.
While both presidents passed large stimulus packages to spur the economy, in the case of the Trump tax cuts, the spike in economic growth was short-lived and ended up driving up the deficit without any meaningful impact to long-term growth; in contrast the Obama Administration implemented a counter-cyclical stimulus package to help recover from The Great Recession, then actually proceeded to slightly reduce spending (though much of this may have been due to budget sequestration and intra-governmental politics preventing much from being done after the Affordable Care Act was passed). It is very plausible that the Federal Reserve has played a larger part in maintaining growth after 2008 then either administration.
Instructions for the interactive charts
Link also available here, https://codepen.io/tkpca/pen/wvBENQg.
Total US government debt has continued to increase under the Trump Administration despite President Trump constantly stating this is the best economy in history. The Trump Administration has also kept debt-to-GDP near Obama-era levels, though this is starting to increase again as of the end of 2019.
(Note: borrowing more is not inherently bad since interest rates have also continued to decrease since the 1980s and remain near all-time lows, see the following chart.)
Link is also available here, https://codepen.io/tkpca/pen/RwNYvmW.
So how does every president stack up on the economy?
Presidents Clinton and Reagan both grew the economy significantly while in office, though the Clinton Administration was able to do this without the same amount of leverage. While President Reagan did spur economic growth during his time in office, he also oversaw a 3x increase in government debt: President Clinton, on the other hand, did so by actually decreasing net debt, so case closed? Not exactly.
President Eisenhower, in fact, was one of the more fiscally-responsible (if not the most responsible) Commander-in-Chief. During the Eisenhower Administration the economy grew rapidly, unemployment remained low, massive public-works problems like The Federal-Aid Highway Act of 1956 were enacted, and government debt barely increased. Eisenhower also proved he was prescient during his farewell speech:
“In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists, and will persist.”
The above data, however, do not provide a complete picture on how well the president manages the economy. There are many other factors that complicate this analysis.
- Presidents Reagan and Obama both oversaw large increases in government debt, but both also inherited stagnant economies.
- Overall growth ignores nuances such as economic inequality and cost-of-living. While the GDP figures above have been adjusted for inflation, inflation metrics cannot easily take into account perhaps the most important costs the cost of housing, healthcare, and education continued to skyrocket while wages remain stagnant (see Pew for more information on wages).
- The president is (at least in theory) co-equal to Congress. The data above do not break out the statistics based on which party controls the House or Senate (since the data are already quite sparse it would be even nosier).
- In most cases it is difficult to line up the cause-and-effect of policy changes. For example, one could argue that President Clinton benefited from a combination of the Reagan-Era deregulations and tax increases under George H.W. Bush that allowed him to inherit a bumper economy. Conversely one might argue that Reagan benefited because President Carter appointed Paul Volker, giving Reagan cover for the weak economic growth during his first two years while also helping tame inflation.
What about the stock market?
The stock market has been kinder to Republicans throughout history, though both the Obama and Clinton Administrations saw significant increases in the value of the S&P 500 while in office.
Paradoxically has stock market capitalization has continued to increase despite relatively tepid economic growth, spurred by large increases in corporate profits combined with a low-interest rate environment that has made equity investments relatively attractive. This also likely explains some of the growth in income equality since wages have remained flat while the stock market has done extremely well (and only about half of Americans own any stock and ownership is relatively concentrated among wealthy households).
Link is also available here, https://codepen.io/tkpca/pen/RwNYvmW.
An interactive version of this chart is available here.
In contrast to GDP and most macroeconomic metrics, the stock market is forward looking: it is what investors collectively expect equities to be worth in the future. If Republicans are seen as better mangers of the economy, it would make sense that this captured in equity prices. Based on the S&P 500, a Democratic administration tends to be better for the stock market (however this type of statement is subject to the same caveats mentioned earlier).
Further, these types of metrics don’t take into account concentration. In fact, top five companies in the S&P 500 typically account for 15–20% of its value, it is likely that the Bill Gates, Steve Jobs, and Mark Zuckerberg (and really the internet) played a larger role in stock market doing so well than Presidents Clinton and Obama (which makes the terrible returns under President George W. Bush even more remarkable), or maybe even Al Gore, who is widely panned for taking (justifiable) credit for spurring adoption of the internet:
But the men who did invent the internet, TCP/IP designers Bob Kahn and Vint Cerf, wrote in Gore’s defense in 2000. They argue that Gore was “the first political leader to recognize the importance of the internet and to promote and support its development.”
“As far back as the 1970s Congressman Gore promoted the idea of high speedtelecommunications [sic],” the pair wrote. “As a Senator in the 1980s Gore urged government agencies to consolidate what at the time were several dozen different and unconnected networks into an ‘Interagency Network.’” Gore sponsored the 1991 High Performance Computing and Communications Act, which Kahn and Cerf say “became one of the major vehicles for the spread of the internet beyond the field of computer science.“
That isn’t to say the President has no impact on the stock market: President Trump probably reduced some of the gains in the stock market via the trade war with China and President Reagan helped make the stock market more accessible to average investors through deregulation.
Directly attributing a strong economy to the current president is tough. Obviously what the president does has an impact on the economy, nonetheless attribution is still incredibly difficult. In some cases, like that of George W. Bush, it is a bit easier to gauge performance (not good), but a lot it comes down to nuance — not exactly ideal for the polarized world we live in.
*Note that due to limitations with the FRED data this focuses on presidents elected after 1945. As such data for Franklin Roosevelt spans only 3 months because he was succeeded by Harry Truman in April 1945. Also note that the Github gist below does not save formats from the Pandas styler. See https://github.com/tkpca/Python-Scripts.git for the source code.
