Amer­ica’s econ­omy?

Financial Mirror (Cyprus) - - FRONT PAGE -

out of four coin-flips. par­tic­u­larly likely, yet it is hap­pened in the last 35 years.

If one were to go back ten busi­ness cy­cles as­sum­ing an equal chance of a re­ces­sion start­ing un­der a Demo­cratic or a Repub­li­can pres­i­dent, the odds be­come even longer. There is only a 100-to-one chance that nine out of the last ten re­ces­sions would have be­gun un­der Repub­li­can pres­i­dents. Yet they did, as con­firmed by the NBER Busi­ness Cy­cle Dat­ing Com­mit­tee.

An even more star­tling fact emerges from a re­view of the last eight times an in­cum­bent from one party was suc­ceeded by a pres­i­dent from the other party. In the four tran­si­tions when a Repub­li­can took of­fice, GDP growth slowed; in the other four tran­si­tions, when a Demo­crat moved in, the That is ex­actly

not what growth rate went up. That is as un­likely as get­ting heads on eight coin tosses in a row – a one-in-256 shot.

Democrats thus have not suc­ceeded by luck alone. (In fact, Blin­der and Wat­son also ob­serve that the US econ­omy per­forms bet­ter when Democrats con­trol Congress or have ap­pointed the Fed­eral Reserve chair, though the main de­ter­mi­nant re­mains the party of the pres­i­dent.) So what ac­counts for the par­ti­san per­for­mance gap?

Blin­der and Wat­son sug­gest that five fac­tors – oil shocks, pro­duc­tiv­ity growth, de­fense spend­ing, for­eign eco­nomic growth, and con­sumer con­fi­dence – may to­gether ex­plain 56% of the growth gap. But it is im­pos­si­ble to know the ex­tent to which these fac­tors were in­flu­enced by the US pres­i­dent’s poli­cies. We know even less about the fac­tors re­spon­si­ble for the other 44% of the per­for­mance gap.

In as­sess­ing Clin­ton’s state­ments on this topic, the fact-check­ers make much of the find­ing by Blin­der and Wat­son that, con­trary to wide­spread as­sump­tions, fis­cal and mon­e­tary poli­cies are not more “progrowth” or ex­pan­sion­ary un­der Democrats than un­der Repub­li­can pres­i­dents, and there­fore can­not ex­plain the per­for­mance dif­fer­en­tial. But pres­i­dents make many pol­icy de­ci­sions – con­cern­ing en­ergy, an­titrust, reg­u­la­tion, trade, labour, and for­eign pol­icy, to name a few – be­yond how much fis­cal and mon­e­tary stim­u­lus to pur­sue. There is no way to test econo­met­ri­cally this myr­iad of poli­cies.

It is this un­cer­tainty that has driven the fact-check­ers to rate Clin­ton’s state­ments as half-true. But she never at­tempted to pin­point par­tic­u­lar poli­cies to ex­plain the per­for­mance gap. All she said was that the US econ­omy does bet­ter un­der Demo­cratic pres­i­dents. That is 100% true.

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