Megan McArdle Has a Question
Megan McArdle has a question:
What happens to the cottage industry among Democratic-leaning armchair economists grinding out analyses proving that Democratic presidents are, like, totally awesome for the economy? Presuming that we’re stuck–as seem very likely–in at least a couple of years of really grinding low-to-no growth, Obama is going to destroy their figures. Are we in for a resurgence of belief in exogenous growth factors?
Given my co-author and I will have a book out next year that McArdle and her readers would consider “analyses proving that Democratic presidents are, like, totally awesome for the economy” I figure I’m qualified to respond. (BTW – regular readers of this blog know how hard I have tried to get across the not so subtle and one would think completely obvious point that if one band of sorry oafchucks is less bad for the economy than the other band of sorry oafchucks, that doesn’t in any way imply that the less sorry oafchucks “are, like, totally awesome.”)
So here’s my response: it depends on the motivations of those Democratic-leaning armchair economists, doesn’t it? The right is not the only side with its Mankiws and its Sowells. There are plenty of those on the left too, and they’re no different than their right wing counterparts. They believe that a (D) following some politician’s name is short-hand for “that human being is somehow laudable.”
But there are others who believe that a (D) is short-hand for something else, namely that the politician generally hews a bit more closely to a particular set of policies that have worked a little better than the policies adhered to by people who have an (R) after their name. Its not a guarantee of performance.
I have noticed that many people who take the second approach have been criticizing Obama’s approach even before he took office. I for one have posted (over and over and over) on the folly of bailing out the financial institutions that have caused this mess (since when is taking from the poor and middle class and sending to the fabulously wealthy compatible with the policies that generally define Democrats?), and I’ve had a few posts noting that Christina Romer was a very poor choice for CEA chair (Mankiw’s endorsement alone should have been a tip-off even to someone who never read her “narrative economic history” paper).
Sure, exogenous factors do matter. Truman was a Democrat, but the economy was awful for the first few years of his administration; transitioning from WW2 to a peacetime economy ain’t easy. And it sucked in 1933 too, which was FDR’s first year. This despite the fact that annualized, real GDP per capita grew much faster under FDR than any other President over the time period for which the BEA computed GDP, even leaving out the War years. Which also indicates something else – the economy might still turn out alright despite the many Obama mis-steps. Time will tell.
But there are a few other things – for one, you don’t have only one (R) or (D) administration to look at. You have probability and statistics. (And to forestall the point that inevitably gets brought up again and again and again and again, that’s what degrees of freedom are for.)
And while no theory is perfect, the better ones require fewer exceptions. If Obama starts acting like a Democrat and the economy still sucks by the end of his term, that means Democrats have to explain away Obama and Truman. Republicans still have to explain why Republicans generally do so much worse when it comes to real GDP per capita growth rates. The BEA has only been calculating real GDP per capita since 1929, and yet the best performing Republican, Reagan, is beat out by four Democrats, and all but one of the entire bottom half of the sample is taken up by Republicans. Tip to Megan McArdle: nobody can tell you for sure who’s going to win next year’s World Cup in South Africa, but betting on Grenada to pull it off is a bad idea.
And then there’s the question that McArdle herself keeps bringing up – the mechanism. The mechanism doesn’t apply if you don’t have the right inputs. As I noted above, Obama has not yet behaved like a Democrat; his policies on the bail-out have been essentially the same as those of his predecessor who most certainly was no Democrat.
So in the end, here’s what I say to Megan McArdle: ask your question again when Obama starts doing things a Democrat would do. Pushing through the “public option” on a healthcare would be a start.