In a 2004 interview with Wolf Blitzer, Donald Trump said, “I’ve been around a long time. And it just seems the economy does better under the Democrats than under Republicans.” However, a Gallup poll before the election found 53 percent of likely voters thought Republicans are better at managing the economy. Who’s right?
The Great Recession of 2008-2009, and the mess it left behind, makes it difficult to compare the economy’s performance under President Obama versus President Bush. Like most depressions caused by a financial crisis, it was deep and long. Even though recovery was slowed by government austerity efforts, declining public investment, and the first wave of the post-war baby boom generation’s retirement, the U.S. economy has added 11 million jobs since 2009, the unemployment rate has fallen in half, and housing prices have bounced back. The federal budget deficit dropped from almost 10 percent of GDP, in the fiscal year from October 2008 to September 2009, to a more sustainable level of 2.5 percent in the last fiscal year. After years of stagnating, median household incomes recently rose at the fastest rate ever recorded, and the economy seems poised for growth.
But would all that have happened anyway, regardless of who took office in 2009?
Fortunately, we have lots of data on the economy going back to President Truman, and we can compare how the economy changed under both Republicans (Eisenhower, Nixon, Ford, Reagan, Bush, and Bush) and Democrats (Truman’s second term, Kennedy, Johnson, Carter, Clinton, and Obama). We could even go back further, to Hoover and Roosevelt, the Great Depression and the Second World War, but that would really be an unfair comparison.
On average, real (i.e., inflation-adjusted) GDP has grown more slowly since 1948 under Republican administrations (2.6 percent per year) than Democratic administrations (3.8 percent per year). In spite of the late 1970s, the average inflation rate was not higher under Democrats. Even adjusting for population growth, real GDP per capita also grew more slowly under Republicans (1.4 percent versus 2.6 percent).
Over the last 50 years, real income for the median household rose by 0.2 percent per year under Republicans, and by 1 percent per year under Democrats. The difference holds for non-Hispanic White households, but it’s even greater for Black and Hispanic households.
What about jobs? Under Republicans, payroll employment grew by an average 1.2 percent per year under Republicans, equal to the average population growth rate. Under Democrats, however, employment grew by 2.4 percent per year. The civilian unemployment rate rose under Republicans, by 0.3 percent a year, and fell by an average 0.4 percent per year under Democrats.
What about business profits, which you would expect to be higher under Republicans? For both sole proprietors and corporations, as it turns out, real income grew more slowly under Republicans (1.6 percent and 1.7 percent, vs. 2.9 percent and 4.7 percent). Even the stock market did worse under Republicans, whether you compare the real Dow Jones Average (1.9 percent vs. 6.6 percent growth) or the real Standard & Poor 500 Index (1.3 percent vs. 8.4 percent). The data is pretty consistent, generation by generation.
Many economists have recognized the pattern, though they’re not certain about the cause. Maybe moderate policies that try to favor the working class over the upper class actually benefit the entire economy, or maybe Republicans have just been unlucky. Maybe it’s just coincidence, or maybe the economy is more affected by outside events or past policies. No President can do much without a cooperative Congress, and the economy is affected by many things the government can’t control.
What about the size of the federal government? Federal spending has grown as a share of GDP since President Truman, mostly because of increased spending on Social Security and Medicare, while other federal spending has declined relative to the overall economy. Federal employment has grown, but not as fast as in the rest of the economy. Federal employment was 4.4 percent of the nation’s civilian workforce in 1948, and it was 1.9 percent in 2016.
Has the federal government grown faster under Democrats or Republicans? Federal spending as a share of GDP rose by an average of 0.1 percent per year since 1948, and oddly enough it was the same average rate under Republicans and Democrats. The federal workforce rose under Democrats, but not Republicans (1 percent vs. 0 percent growth per year). However, because total employment rose faster under Democrats, the federal share of employment actually fell more under Democrats.
Even though federal spending grew at the same average rate under both parties, federal tax revenues tended to fall under Republicans and rise under Democrats, relative to GDP. As a result, the federal budget deficit tended to rise under Republicans and fall under Democrats. The effect of higher taxes under Democrats was more than offset by the difference in economic growth: real disposable (after-tax) personal income per capita grew more slowly under Republicans than Democrats (1.9 percent vs. 2.4 percent).
No matter how you measure it, Mr. Trump was right about the economy tending to do better under Democrats than Republicans. But Mr. Trump is now the President-elect, and the Republicans are now in charge of the economy. Mr. Trump has promised to bring back good-paying jobs and return us to an era when white working class men didn’t face so much competition at home or abroad, and the wealthy let working people keep a bigger share of the economic pie. Maybe Mr. Trump will continue to be lucky. He’s clearly different from any of our other postwar presidents, and perhaps outcomes will be different this time. But maybe not, not if his initial appointments are any sign.
Each president is different, situations change, and sometimes the best you can hope for is the people in power don’t screw things up. Still, if Republicans manage the economy as they have in the past decades, four years from now we may be trying to explain why growth was slower, unemployment was higher, and deficits were bigger.
Elliott Parker is a Professor of Economics at University of Nevada, Reno.