by Mike Kimel
Previewing Blinder and Watson (2015)
The U.S. economy has performed better when the President of the United States is a Democrat rather than a Republican, almost regardless of how one measures performance. For many measures, including real GDP growth (on which we concentrate), the performance gap is both large and statistically significant, despite the fact that postwar history includes only 16 presidential terms. This paper asks why. We find that the answer is not found in technical time series matters (such as differential trends or mean reversion), nor in systematically more expansionary monetary or fiscal policy under Democrats. Rather, it appears that the Democratic edge stems mainly from more benign oil shocks, superior TFP performance, and more optimistic consumer expectations about the near-term future. Many other potential explanations are examined, but they fail to explain the partisan growth gap.
Having co-authored a book on how Presidents performed on a wide range of issues, including the economy, it’s nice to see some high-powered academics stumbling on some of the same relationships we found. However, attributing very much to oil shocks doesn’t make sense. See, if oil shocks are a big driver, then depending on how one chooses to define an oil shock and the lags one selects, we should either have seen rapid growth during the tail end of the GW and start of the Obama administration (the price of oil was about $1.70 per gallon at the end of 2008 and start of 2009), or we should be seeing it now several years into our wonderful world of fracking. Since even Larry Kudlow stopped bleating about the goldilocks economy in December of 2008, I’m guessing it won’t come as a shock to anyone that the economy was pretty dismal in 2008 and 2009, and hasn’t been anything beyond mediocre at any point since.
So here’s what’s going to happen. Blinder and Watson are going to write another paper in which they tell us what is really driving economic growth. If I had to guess, it will come out November 2015. Let me give you a preview of that paper because it’s going to be one of the pivotal papers of the decade. The most important table in the paper Blinder and Watson will write in November 2015 will look kinda like this: