Canadian economic growth is about two percentage points higher under Liberal governments
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
Mike, when making these types of comparisons, GDP to Goverment spending, how much is defined by liberal government increased spending, and how much is due to private sector growth. Since GDP includes government spending, can we separate or measure them to see a real/significant difference?
We have seen with the current stimulus, that the bulk, in some instances all, of the GDP growth was due to government spending.
So in good economies, how much can be attributed to actual private sector growth? Otherwise this study, and maybe several others, just show us that liberal spending policies were 2% higher than conservatives.
CoRev,
Possible. Don’t know if that is probable based on US experience. You have seen my posts on debt. In the US the Presidents that have boosted debt/gdp since ww2 ended were Ford, Reagan, Bush 1, Bush 2 and now Obama. Perhaps you notice a pattern.
“Since GDP includes government spending, can we separate or measure them to see a real/significant difference?”
GDP include **net** gov’t spending, spending minus taxes. In the U.S. the Dems are for increased gov’t spending but increased taxation. The Reps are for increased gov’t spending and reduced taxation (despite their rhetoric). You’d have to check, but that suggests that net gov’t spending is generally a greater part of GDP under the Reps. 🙂
Min, aren’t you overlaying math with politics? 😉
As I said, you need to check, but I am overlaying politics with math. 🙂 The Reps’ Two Santa Claus strategy is no secret. If you just look at gov’t spending and GDP, you do not get an accurate picture of the portion of GDP that is accounted for by the gov’t. You have to include taxes. (The effects of gov’t spending and taxation on the GDP is another matter, and beyond the scope of the question. :))
“Where the money gets spent. (i.e., “pro-poor” spending v. not “pro-poor” spending)”
On WCI, one of the commentators suggested that the Liberal/Conservative growth differential is partly due to differences in military spending. In Canada where we don’t have a large defence industry, money spent on “guns and bombs” probably has a low multiplier. So the spending story could well be part of it.
There’s also differences in monetary policy (Liberals are more expansionary) and immigration policy (Liberals are more pro-immigration) – though in general anti-immigrant sentiment rises in economic downturns so it’s hard to figure out what the causal mechanism is there. On the other hand, a lot of commentators on WCI have argued that, because political platforms change so much over time, it’s hard to identify any political party with any particular policy stance.
Min,
I think you missed the last vote extending the now Obama tax cuts into the future. So I would say the Rs are for increased gov spending and reduced taxation and teh Dems are for greatly increased gov spending and reduced taxation.
But CoRev has a good question.
Islam will change
Mike,
Just one shot then I’ll leave.
“Democrats have outperformed Republicans from 1929 (the first year for which data is available from the BEA) to the present.”
This makes the assumption that the party of the President, and nothing else, controlls US GDP Growth rate. As you mentioned in the list, that assumption does not pass the giggle test. (There are even more sillier assumptions implicit in your statement but I’ll just go with this one).
That sentance should read: During times when a Democrat has held the oval office the GDP growth rate has, on-average, been greater than when an R has held office since 1929 to the present (the first year for which data is available from the BEA).
BTW, how are we doing under the current ‘D’ administration?
And lastly is this the same liberal government that passed all those free-speech restrictions? Where I could go to jail or be sued for putting up a picture of Mohammed doing his 9-year old bride doggy style if I was a Canadian blogger…that’s the liberal government you want to endorse?
Sorry if that last was over the top – but liberals tend to trade their freedom away as a rule.
Islam will change
I will add this graph…which is a better idea of the influence of the President on US growth. Just
Buffpilot –Six quarters into the recovery under this Democratic administration real GDP has increased 4.5%.
Six quarters into the recovery under George Bush the economy expanded 3.1%.
So under this D the economy is doing about 150% better than it did under the last R.
Facts are funny things, aren’t they.
Spencer I await my 5% unemployment and 5.4% GDP growth as per the promise under LBJ.
And you obviously missed Mike’s last post were he had added Obama to the mix. He spent considerable time trying to paint Obama as not a ‘D’ even to the point of coloring his part of the graph a different color than the rest of the Dems.
And Obama didn’t get hit with a 9/11 either…but I forgot that would have no effect on GDP growth since it was obviously not controlled by the President.
Facts are a funny things, welcome to 9-10% unemployment!
Islam will change
Spencer, And you missed the point once again.
The idea that the party of the President determines GDP growth doesn’t pass the giggle test.
Islam will change
Spencer, you know full well that most of the Obama economic growth is stimulus spending. Nearly dollar for dollar. Maybe, just maybe, the private sector is starting to turn on. Crossing my fingers in hope.
Which may actually confirm my point, is it the private sector economy or increased Government spending under the Ds or Ls which is showing up in analyses comparing GDP growth?
buffpilot: “teh Dems are for greatly increased gov spending and reduced taxation.”
Obama is a Rockefeller Republican.
Frances Woolley,
Thanks for your response. Mine required a graph, so I posted it here: http://www.presimetrics.com/blog/?p=350
Dan will probably post it on Angry Bear in a day or two.
Thanks.
CoRev,
We’ve been through this before. Since WW2, the big gov’t spenders and borrowers have been Reps.
Mike, are you arguing from assertion? Or authority (yourself)and not showing the data, or just ignoring the question?
I’ll try again:
If GDP= C+Inv+G+(eX-i)
then what part of the GDP increase under Canadian liberal Govts was due to increased G (Govt spending.)
Your assertion that Repubs spend more is unspported in your answer. Your assertions of correlations between Canada and the US is totally unsupported. And, the current administrations looks to be changing, in spades, the borrow and spend paradigm.
It’s kinda ironic having the same person writing an article of Rules To write By and then breaking so many in his next article and his responses.
spencer – Buffpilot –Six quarters into the recovery under this Democratic administration real GDP has increased 4.5%. Six quarters into the recovery under George Bush the economy expanded 3.1%. So under this D the economy is doing about 150% better than it did under the last R. Facts are funny things, aren’t they.
For a guy who likes to use many graphs in presentations, you apparently don’t understand this one posted on 19 October 2010:
http://economix.blogs.nytimes.com/2010/10/08/comparing-recessions-job-recovery/?src=twt&twt=nytimeseconomix
http://www.valuesvoternews.com/2010/10/graph-recession-recovery-comparisons.html
And you don’t want to try to compare the current recovery for employment with the one that occurred under Presidetn Reagan; note the graph:
http://www.valuesvoternews.com/2010/10/graph-obama-vs-reagan-and-comparing.html
I’m not a fan of the political hype that is thrown around on Angry Bear, and it’s clear that some of you go overboard. I have never faulted President Obama for the last recession nor those which occurred under Bush II. That approach accomplishes nothing of merit in light of all the factors that came into play. But the political hacks, including some economists, drool over it as evidenced here.
CoRev,
I am not arguing on assertion. I am arguing on the basis of tens, maybe hundreds of posts I’ve written – you’ve commented on many of ’em so I know you’ve read ’em. Its also in my book.
And your argumeing about borrow and spend to push up C to push up GDP – I brought that up years ago. (And its in the book too.) I even gave it a name: “pulling a Reagan.”
For instance, consider this post from 2008 – commenting on something you sent:
http://www.angrybearblog.com/2008/02/comparing-presidents-when-its-done.html#comments
So… what would you have me do? Repeat everything I have ever written that you have read in every new post I write? At some point, if I’ve pointed something out with data a bunch of times, I think I have the right to state it without it going through the whole rigamarole over again.
Mke said: “So… what would you have me do? Repeat everything I have ever written that you have read in every new post I write?” I would have you follow yoor own rules! Stop the argument by assertion, support your argument with references (meaningful please) , and stop arguing from authority.
In reverse order: Writing a book does not make its contents (whole or part) correct, the reference you provided was interesting but completely irrelevant to the subject at hand, providing the backup to your assertions (Canadian liberals are better for their economy and Canada experience = US) are still totally unsupported.
CoRev,
The fact that O keep mentioning the US experience should tell you I am not discussing Canada. I am providing some background about a similar trajectory in the US.
Additionally, are you planning to say I have not been supporting my work with data in the posts and the book? Really?