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Economic Growth Rates, The President’s Party and the Party that Controls Congress

by Mike Kimel

Economic Growth Rates, The President’s Party and the Party that Controls Congress
Cross-posted at the Presimetrics blog.

This post looks at economic growth rates by President and party. However, it also looks at how that growth rate is affected by which party controls Congress. (This is a topic covered in a lot of depth in Presimetrics, my upcoming book written with Michael Kanell.

In this post, economic growth is measured as the annualized change in real GDP per capita, which was obtained from the Bureau of Economic Analysis’ National Income and Product Accounts Table 7.1. Growth rates are measured from the year before a President (or Congress) took office – call that the baseline real GDP per capita for any given President – to its last year in office. The analogy we use in the book is that of a sprinter; times are measured from when the starter’s pistol goes off (which is right before the sprinters start running) to right before they stop running all out (when they cross the finish line).

The BEA is the agency in charge of computing GDP, and the data goes back to 1929. The post will use all the available data with one exception – when many people are confronted with the fact that the data shows insanely fast growth during the FDR years the first reaction is denial as this isn’t exactly what pundits (not to say many authors) tell you happened during his term. Those who bother checking data move on to a second reaction, which is to insist that the rapid growth was due entirely to World War II. As a result, this post only includes FDR’s term until 1938, far enough before the start of World War II that the war shouldn’t be an issue.

So here’s what it looks like, color coded by the President’s party (red = Republican, blue = Democrat):

Graph 1

Despite what Glenn Beck and other media figures believe and tell us, even using only the six worst consecutive years of the FDR administration still leaves FDR at the top of the heap. Additionally, Democratic administrations tend to come out ahead of Republican administrations. Two notable exceptions are Truman and Obama, but for the latter only one year of data is available at this time. Bear in mind that FDR also had negative growth in his first year in office too, so there’s room for that to change. To a large extent, that depends on policies, and future post will examine policies that affect growth.

But for now, consider something different. For some Democratic Presidents, both houses of Congress were under control of the Democratic party for every year the President was in office. However, the Republican Party was in control for some or most years for other Democratic Presidents. The next graph shows growth rates for Democratic Presidents only, but is color coded by whether the Congress was under Democrat control for the entire time the President was in office (blue) or not (red).

Graph 2

Leaving aside the Obama administration, for which there is only a single year’s worth of data, the graph shows that, in general, Democratic Presidents who enjoyed a Democratic Congress every single year of their terms tended to produce faster economic growth than Democratic Presidents who faced Republican-controlled Congresses for part of their term.

What about Republican Presidents? Well, we can divide Republican Presidents into three groups: those who faced mostly split Congresses (throughout most of Reagan’s term, Republicans controlled the Senate and Democrats controlled the House of Representatives), those who faced all or mostly Democratic-controlled Congresses, and those who faced mostly Republican-controlled Congresses. The next graph shows the growth rates turned in by Republican Presidents color coded by who controlled Congress (Red = All/mostly Democrats, Blue = All/mostly Republicans, Gray = Mostly Mixed).

Graph 3

The best performance by a Republican President came under Ronald Reagan… who faced a mixed Congress until 1987, and Democratic controlled Congress in 1987 and 1988. Even among the remaining Republican presidents, it does not appear that having a Republican controlled Congress leads to faster economic growth. Hoover was the only President to enjoy a Republican controlled Congress during his entire term, and he produced (by far) the worst results of all Presidents. GW faced a Republican controlled Congress during most of his years in office, and growth during GW’s term was below the average growth for Republican Presidents who had to deal mostly or exclusively with Democratically controlled Congresses.

To summarize – among Presidents from 1929 to the present, Democrats produced faster economic growth than Republicans with quite a margin to spare. Additionally, both Democrats and Republicans in the Oval Office were more likely to produce faster economic growth the greater the percentage of years in their term that the Democrats controlled Congress.

I’m going to try to explain what accounts for these differences in future posts.

OK. This bit is not cross posted with Presimetrics – its special to Angry Bear, so to speak. Call it a bit of editorializing. None of this is rocket science. It all falls out of organizing the data the way politicians and voters would expect the data to be organized, and is apparent from a set of graphs. Presimetrics, the book I co-authored, which is coming out in August does a lot of this. And it does it for a lot of series, from abortions to crime to the national debt. Often Presidents who performed well on one issue tended to follow similar policies to other Presidents who did well on that issue. Likewise, Presidents who did poorly also often shared policies with others who did poorly.

And it’s pretty apparent from this graph that the policies followed on one side of the aisle aren’t performing as advertized. That doesn’t mean the other side of the aisle knows what it’s doing, merely that whatever mistakes it makes are small by comparison. Or one can take the Megan McArdle route, which is to insist that even though politicians have insisted on splitting themselves into these two groups, the process by which a politician happens to get a D or R after his or her name is completely random, so any patterns we observe are coincidental.

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Dem fund raisers…a WTF moment?

NY Post reports

That White House Chief of Staff Rahm Emanuel met Sunday night at the apartment of Jane Hartley and Ralph Schlosstein with Dem fund-raisers such as Orin Kramer, Stan Shuman, Roger Altman, Ann Hess, Robert Zimmerman, Pete Peterson and Joan Ganz Cooney.

Good grief. Pete Peterson a Dem fundraiser? Who is getting his money?

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Opinions on shape of proper stimulus differ. Both sides have a point.

Robert Waldmann

As he watches policy makers cry “fire fire” in Noah’s flood, Paul Krugman becomes almost shrill. He has a simple (rigorous) model which suggests more stimulus would be ideal and that, when in a liquidity trap, government spending should be set to give unemployment equal to the non accelerating rate of unemployment. In this model, he assumes Ricardian equivalence. That’s the problem.

In the model, there is no problem with running up a large public debt. The timing of taxes doesn’t matter at all. In the real world, we are concerned about the public debt. In normal times, Krugman is very concerned because, he believes, people mistake bonds for net wealth and this distorts consumption/saving decisions. In a liquidity trap there would be an additional advantage of public spending (giving a multiplier greater than 1). However, the debt will still be with us when we exit the liquidity trap.

This does not have to be true. It is possible to pay for the stimulus by cutting public spending when the economy exits the liquidity trap. This does not reduce the stimulating effect (if consumers are rational and forward looking it increases the effect as lower government spending in the future implies more private consumption now). It is also possible to pay for it by raising taxes in the future. However, both cutting spending and raising taxes is difficult. Below, I will just pretend that I find this argument that further stimulus is only OK if it doesn’t add to the deficit convincing, even though I don’t.

So the problem is how to cause increased aggregate demand without increasing the budget deficit.

I think the solution is a temporary increase in the progressivity of the tax code. A temporary tax cut for the poor will cause a large increase in their spending as many of the poor are liquidity constrained. A temporary tax increase for the rich will cause a small decrease in their spending as few of the rich are liquidity constrained.

Explicitly temporary tax cuts do not all become permanent. There is no movement to extend the temporary tax cuts in the stimulus bill, even though Obama promised permanent tax cuts which were to be identical except five fourths as big. It might be hard to let a temporary tax increase for the rich expire. So my approach might reduce the deficit in the long run.

I think it is likely that none of the people who claim they oppose further stimulus because it will add to the debt* will support my proposal. I do mean my subjective mode for the number is exactly zero. Few people will hear of my proposal. Few of them oppose further stimulus. Most people who oppose further stimulus and call themselves deficit hawks are hypocrites. Sincere deficit hawks might find my argument unconvincing.

Maybe there is one sincere deficit hawk who will read this and be convinced, but I doubt it.

* typo corrected.

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Automation patterns…any figures?

Market Watch reports:

Hewlett-Packard Co. on Tuesday said it will invest $1 billion to consolidate and automate its data centers, a move that will lead to the elimination of 9,000 jobs over a “multiyear” period.

The Palo Alto, Calif.-based computer and printing giant /quotes/comstock/13*!hpq/quotes/nls/hpq (HPQ 45.59, +0.01, +0.02%) said annual savings in its enterprise-services division would range from $500 million to $700 million once the transformation is complete. H-P plans to halve the number of data centers its operates to around 50.

Data centers are used to store computerized information of businesses, government agencies and other organizations.

At the same time, H-P said it would hire more than 6,000 workers in sales and other areas of its enterprise-services unit.

The shift toward automation will allow H-P to better deploy assets obtained via the acquisition of EDS in mid-2008, according to the company.

“We see the possibility of taking enterprise services to an entirely new level based on applying H-P industry-leading technology to the services business,” said Cathie Lesjak, H-P’s chief financial officer.

From the HP website:

Tier I: Proof-of-concept testing, porting services, Web testing, solution benchmarking, product/solution demonstrations and training, customer briefings.

Tier II: Solution benchmarking, product/solution demonstrations and training, customer briefings.

Tier III: Product/Solution demonstrations and training, customer briefings.

Are Tier 1 and Tier 2 jobs becoming Tier 3 jobs for people? The trend in this sector has HP a bit behind competitors.

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