by Mike Kimel
Canadian economic growth is about two percentage points higher under Liberal governments
Cross posted at the Presimetrics blog.
Frances Woolley has a piece in Worthwhile Canadian Initiatives that begins like this:
Canadian economic growth is about two percentage points higher under Liberal governments. At least, that’s what my colleagues Stephen Ferris and Marcel Voia found in their recent article in the Canadian Journal of Economics (earlier ungated version here).
This is a large impact. For example, if the economy was growing at 1 percent under a Conservative government, switching to a Liberal government would increase the predicted GDP growth rate to around 3 percent.
If you’ve been reading my blog posts, or Presimetrics, the book I co-authored with Michael Kanell, you’ll recognize this is about the same conclusion that can be drawn about the United States.
Because of the similarity in outcomes for Canada and the US, its worth considering whether the drivers are the same. Woolley suggests two explanations for the Canadian results. The first:
One hypothesis begins with the observation that the Liberals are Canada’s natural governing party – they have been in office more often, and for longer, than any other political party. Temporary interruptions to their rule, for example, the election of R.B. Bennett, occur when something goes seriously wrong.
This explanation doesn’t work for the US. Democrats have outperformed Republicans from 1929 (the first year for which data is available from the BEA) to the present. That’s 81 years, and Republicans have had the Oval Office for 39 of them – just slightly less than half. In the period from 1953 to the 2008 the period we focus on in our book, Democrats still easily outperform Republicans, there are a total of 56 years, and Republicans have been President for 36 of them.
The second explanation:
A second hypothesis is that Liberals pursue pro-poor policies and Conservatives don’t. This means that Liberals will tend to be elected when people are feeling poor, that is, at the bottom of the business cycle, whereas Conservatives will tend to be elected at the top.
This one also doesn’t work in the US. Yes, FDR and Obama were elected when economic disasters were underway, but malaise was the word of the day when Reagan was elected. (And leaving out FDR and Obama doesn’t change results.) On the other hand, JFK was elected and both Truman and LBJ became President when the country’s mood was exceptionally strong. (Growth under LBJ was second only to FDR, and Truman turned in the worst performance among Democrats thus far.)
Frankly, I think the first sentence of the second hypothesis may have some juice to it, but you have to divorce it from the sentence that follows it:
A second hypothesis is that Liberals pursue pro-poor policies and Conservatives don’t.
The difference in “pro-poor” versus not “pro-poor” explains tax policy, and tax policy correlates with growth in the US. The difference in “pro-poor” versus not “pro-poor” explains tax policy, and tax policy correlates with growth in the US. I suspect, but I haven’t checked yet, that there are two other differences between Democrats and Republicans in the US, and Liberals and Conservatives that matter:
1. Where the money gets spent. (i.e., “pro-poor” spending v. not “pro-poor” spending)
2. Regulation of externalities