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Democrats are better for the US economy – Opinion News

Under President Joe Biden, the U.S. economy has performed much better than virtually anyone would have predicted. And yet voters seem unaware of this – an obvious conundrum that has been much discussed recently.

In fact, this discrepancy between public perception and economic performance is nothing new. Since World War II, the U.S. economy has consistently performed better under Democratic administrations, but a large share of Americans – perhaps even a majority – believe that Republicans are better economic managers.

At first glance, the claim that the economy always does better under one party might sound like a blatantly implausible partisan claim that isn't even worth examining. But anyone who looks at it – the relevant statistics have been compiled before, including by me – will find that it is completely true.

In the 19 presidential terms since World War II – from Harry S. Truman to Biden – new jobs have been created at an average rate of 1.7% per year under Democratic administrations, compared to 1% under the Republican Party. The difference in GDP growth is even larger: 4.23% among Democrats versus just 2.36% among Republicans. If you look back to the Great Depression and add the administrations of Republican Herbert Hoover and Democrat Franklin D. Roosevelt, the difference in growth rates is even greater.

Could Democratic presidents benefit from Republicans' legacy of good economic management? Unlikely. When it comes to average growth rates, the results are similar whether one assigns responsibility for the first quarter of a president's term to him or to his predecessor.

Even those of us who believe that Democrats, on the whole, have better economic policies than Republicans have difficulty explaining such a large difference in performance. Finally, many powerful and unpredictable factors influence economic performance, often to a far greater extent than any of the policy levers under the president's control.

Furthermore, it takes more than four or even eight years for the effects of many policies, good or bad, to become apparent. For example, Jimmy Carter deserves much credit for appointing Paul Volcker as Federal Reserve Chairman in 1979 with a mandate to break the back of inflation. The disinflation that followed helped create the conditions for the “Great Moderation” of the next 20 years. But the immediate impact of Volcker's fight against inflation was a recession. Most economists believe the ultimate benefits were worth the initial costs.

But the downturn contributed to Carter's defeat in the 1980 presidential election. In any case, this was the only recession in the last 100 years that began with a Democrat in the White House. The U.S. economy has been in recession in only one of 16 quarters of the average term of a Democratic president, compared to five quarters under Republicans.

One might be tempted to argue that this is a question of correlation rather than causation: Yes, Democrats have actually been in power during more periods of better economic performance than Republicans, but that reflects luck. The application of generally accepted statistical methods says otherwise.

The last five recessions all began under a Republican president: Ronald Reagan, George HW Bush, George W. Bush (twice) and Donald Trump. (If you're skeptical, you can look at the chronology for yourself.) If the actual probability of a recession beginning were exactly the same regardless of whether a Democrat or a Republican was in the White House, the probability of this outcome being due to chance comes about, the same high very low: one of 32 – (1/2)(1/2)(1/2)(1/2)(1/2) – or 3.125%. Five consecutive coin tosses give you exactly the same chance of getting heads. Such a result is “statistically significant at a confidence level of 95%.”

What if we went back even further? There have been 17 recessions in the United States in the last century. A remarkable 16 of them began when a Republican was in the White House. The probability of this result occurring purely by chance is only one in 10,000 (17/217 = 0.00013)!

And then there's the effect of party switching on growth – discussed in a 2015 paper by Princeton University economists Alan Blinder and Mark Watson. Since World War II, the party that controls the executive branch has changed ten times. Every five times a Republican succeeded a Democrat, the growth rate fell from one term to the next. Conversely, the growth rate increased in all five cases in which a Democrat succeeded a Republican. This is just as likely as getting heads on 10 consecutive coin tosses: one in 1,024. The difference is therefore statistically significant at the 99.9% level.

So we know that the economy has performed worse under Republican presidents and that this is no coincidence. What we still don't know is what exactly explains the much better record of Democratic presidents. So much remains a mystery.

Jeffrey Frankel, professor of capital formation and growth at Harvard University and research fellow at the US National Bureau of Economic Research

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