Democratic Presidents Are Better For The Economy

The economy has grown much more quickly under Democratic presidents. It has also grown more equally. Since World War II, working class incomes have grown eight times as fast under Democrats, and middle class incomes have grown twice as fast. Nor has this come at the cost of the wealthy, whose incomes have grown equally fast under presidents from both parties. The historical record suggests that there is no trade-off between equality and economic growth, and that rather than inequality being an inevitable result of market forces, it is actually the result of policies enacted by Republican presidents.

Let’s start with a straightforward but powerful measure of economic performance. Using historical income data from the Census Bureau, I calculated the average annual rate of real income growth at the 20th, 40th, 60th, 80th, and 95th percentiles of the income distribution. The results, shown below, in both graph and table format, demonstrate that income growth under Democrats has been around two percent per year for all income levels. In stark contrast, the pattern for Republicans shows almost no income growth for the working class (a mere 0.25% per year), and upper class income growth that still fails to exceed Democrats.

President Income Growth By Percentile

 

Income Growth by Party of President and Income Percentile

table of president income growth by percentile

The mysterious ‘t’ in the table above is the t-statistic showing how statistically confident we can be that the difference between Democratic and Republican presidents did not arise by chance. Higher values are better, so in this case the t-statistic basically just confirms our intuition that the differences at the 20th percentile are probably not due to chance, while those at the 95th percentile might be. So we can’t say confidently that upper income groups experience more growth under Democrats, but we can be fairly sure that that pattern we’re observing where lower income groups experience more growth under Democratic presidents did not arise by chance.

The difference between an annual growth rate of 2.16 percent a year and 0.25 percent a year is astonishingly large, particularly when considered over time. From 1947 to 2013 income at the 20th percentile went from $14,450 to $28,894 during a combination of 30 years of Democratic presidents and 36 years of Republican presidents. If, as a thought experiment, we suppose that incomes started at the same $14,450 but instead experience either nothing but the Democratic rate of growth (2.16%) or the Republican rate of growth (.25%), the 20th percentile would be at $59,200 (Democrats) or $17,050 (Republicans). To put all those numbers in a slightly better format:

RD simulation of 20 income growth

Next, let’s take a quick look at a direct measure of inequality, the income ratio between the 95th percentile and the 20th percentile. Under Republicans, the 95/20 ratio has grown at 1.4% a year, while it has remained flat under Democrats (-0.3%). This is a large difference, and again meets conventional standards of statistical significance.

9520 ratio by party

It is important to note that the Census Bureau data shows income before taxes and transfers. In other words, the income growth shown here does not include any government benefits.  In other words, this is not a result of income redistribution, but rather a change in initial income levels.

Finally, it’s worth noting that the trends in economic growth I’ve outlined are actually quite robust to accounting for a wide array of other factors, including congressional activity. The economists Alan Blinder and Mark Watson have a working paper in which they go into much more excruciating statistical detail. Their main finding is that gross domestic product has grown at an average annual rate of 4.35% under Democrats, compared to 2.54% under Republicans. They do find that Democrats have been slightly luckier with regards to oil shocks and the international economic climate, but even this does not explain the entire variance between Democrats and Republicans. Unfortunately, Blinder and Watson do not look at questions of distribution, but only overall GDP growth. Figure 1. A. of their paper (below) shows overall GDP growth rates by each presidential term, as well as the averages by party.

blinder watson overall GDP by term

Following previous research on this subject, and democratic theory, I have lagged the variables a year. In other words, I assume each president’s policies take a year after their inauguration to actually get passed and influence the economy. This means, for example, the Carter takes the blame for 1981, H.W. Bush for 1993, and Clinton for 2001, etc. For a more thorough justification of this approach see Larry Bartels’ 2008 book Unequal Democracy, which was the initial inspiration for my looking through this data. (I’m told he is currently working on an update, so it may be worth waiting to buy until the update comes out). Blinder and Watson have quarterly data, and so chose a lag of only one quarter instead of one year. Since the distributional data is not available on a quarterly basis that was not an option for this post.

I have also explored the results without lagging a year. They are substantively the same. For example, I’ve posted the first chart of this post below without the lag:

unlagged PI growth by percentile

Inequality is not inevitable. It is a choice, and it is a choice being made by Republican presidents. History suggests that economic growth doesn’t require inequality. Equality may increase economic growth by helping people to avoid the social ills that accompany inequality and drag down productivity (e.g. poor educational systems, geographic isolation/segregation, poor health care, etc.). We don’t have to sacrifice social ideals in order to achieve economic growth. Indeed, our economy may be better off if we don’t.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s