(revised article and infographic)
Even though the US presidential elections are a year away, the campaigns of presidential hopefuls are in full swing. Economic policy is central to the debates and candidates are promising an array of measures to boost the economy. Yet the debates do not only focus on the future; the economic legacies of Reagan, Bush or Obama are often brought to the table. Yet what can economic history tell us about the country’s economic performance under presidents from the two parties?
The figure above graphically illustrates the economic and political changes in the United States between 1960 and 2013. Historically, it tended to be the case that after a few consecutive years of slowing GDP per capita growth (negative slope in the graph), Americans voted against the incumbent party (change of colour of GDP per capita). This was the case in 1968, 1980, 1992, 2000, and 2008, but it did not prove to be the case in 1988. This makes intuitive sense; voters often look for a change when economic conditions become relatively more difficult. This association is by no means a reliable predictor of election outcomes. Nevertheless, it can only be good news for Hilary Clinton or Bernie Sanders, the most likely presidential candidates from the Democratic Party, as the past few years have seen a relative expansion of the American economy.
Growth rates of GDP per capital and the unemployment rate have historically been higher under Democratic presidents (marked blue in the infographic). At the same time, the volatility of GDP per capita growth rates has historically been higher when Republicans occupied the Oval Office. This is confirmed by the standard deviation of growth rates, a measure of the spread of the distribution, as it is larger for Republicans.
These statements are very hard to interpret. It could be that Barack Obama and his predecessors had a positive effect on growth rates. It could also be that they were elected at times of relative prosperity. At the same time, these averages may mean very little if the Democratic presidents’ policies were not the drivers of growth, and growth was caused by external factors. Similar reasoning can be applied to the volatility of growth rates and the unemployment rate figures.
This is because a country’s economic policy does not depend solely on the president. In the case of the US, the House of Representatives, the Senate, as well as state governing bodies also play a crucial role in setting the economy on the right (or wrong) course. Similarly, economic policy is not the sole determinant of growth rates. What exactly drives the business cycle depends on the school of economic thought one subscribes to. Nation-wide economic policy is only one of the factors influencing the economy’s performance. Even when it does, it carries significant lags. Therefore, no generalisations can be made about how the economy faired under Republicans and Democrats based on these simple aggregate figures.
Sweeping claims about the economic performance of the economy under either of the parties are very easy to make by presidential hopefuls, yet not many of them can withstand careful scrutiny. Aggregate figures are helpful in demonstrating general economic trends, for example that changes in the Oval Office are associated with relative economic slowdowns, yet they shed little light on the suitability of either of the parties to govern. Chances are that neither of the parties will make or break the economy, as long as reasonable people are in power. Let’s hope that this is not too much to ask for.