Are Democrats re­ally bet­ter for

Financial Mirror (Cyprus) - - FRONT PAGE -

Hil­lary Clin­ton has re­peat­edly claimed in re­cent months that the US econ­omy does much bet­ter when a Demo­crat is in the White House. Com­ing from the pre­sump­tive Demo­cratic pres­i­den­tial nom­i­nee, that prob­a­bly sounds like po­lit­i­cal spin. But the truth is that she is ab­so­lutely right.

The pres­i­dent, no doubt, is but one of many fac­tors shap­ing the econ­omy, and some pres­i­dents have cer­tainly been luck­ier than oth­ers. But that doesn’t mean that Clin­ton’s claim is only “half true,” as as­serted by some me­dia fact-check­ers (in­clud­ing the Pulitzer Prize-win­ning Poli­tiFact). The dif­fer­ence in eco­nomic per­for­mance un­der Repub­li­can pres­i­dents sub­stan­tial, with the above the thresh­old sig­nif­i­cance.

Prince­ton Univer­sity econ­o­mists Alan Blin­der and Mark Wat­son con­firm this Demo­cratic div­i­dend in a re­cent study. Their start­ing point is the ob­ser­va­tion that in the post-World War II pe­riod (from Harry Tru­man to Barack Obama), an­nual GDP growth has av­er­aged 4.3% dur­ing Demo­cratic ad­min­is­tra­tions, com­pared to 2.5% un­der Repub­li­cans. If one goes back fur­ther, to in­clude Herbert Hoover and Franklin D. Roo­sevelt, the dis­par­ity is even larger. The re­sults are sim­i­lar even if one as­signs re­spon­si­bil­ity for the first three months – or the first few quar­ters – of a Demo­cratic and is con­sis­tent and dis­par­i­ties clearly

for sta­tis­ti­cal pres­i­dent’s term to his pre­de­ces­sor.

But there is more. Over the 256 quar­ters in the 16 post-war pres­i­den­tial terms, the US econ­omy was in re­ces­sion for an av­er­age of 1.1 quar­ters dur­ing Demo­cratic pres­i­den­cies and 4.6 quar­ters dur­ing the Repub­li­can terms. The odds that such a large dif­fer­ence is the re­sult of mere chance are no more than one in 100.

And the trend is not re­stricted to GDP. Since 1945, the un­em­ploy­ment rate fell by 0.8 per­cent­age points un­der Democrats, on av­er­age, and rose by 1.1 per­cent­age points un­der Repub­li­cans – a re­mark­able dif­fer­ence of 1.9 per­cent­age points.

The struc­tural bud­get deficit has also been smaller un­der Demo­cratic pres­i­dents (1.5% of po­ten­tial GDP) than when Repub­li­cans have been in of­fice (2.2%), though this has not stopped Repub­li­cans from crit­i­cis­ing Democrats for ex­ces­sive spend­ing. Even re­turns on the S&P 500 have been sub­stan­tially higher un­der Democrats – 8.4% ver­sus 2.7%. (This dif­fer­en­tial is not as sig­nif­i­cant sta­tis­ti­cally, how­ever, be­cause eq­uity prices are so volatile.)

The like­li­hood that luck alone could have pro­duced such large and con­sis­tent dif­fer­ences in eco­nomic per­for­mance is ex­tremely low – a point that can be il­lus­trated even with­out fancy econo­met­rics. Take the re­ces­sion record. If the chances of a re­ces­sion start­ing dur­ing a Demo­cratic or a Repub­li­can pres­i­dent’s term were equal, the odds of four suc­ces­sive re­ces­sions be­gin­ning un­der Repub­li­cans would be 16 to one – the same as get­ting “heads” on four

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