By Gerald F. Seib and David Wessel


    Why Does Economy Grow More Under Democratic Presidents?

    The U.S. economy has performed better since World War II when the president is a Democrat rather than a Republican, two prominent Princeton University economists conclude. The reasons, they say, involve more luck than successful policies.

    Associated Press

    Over the past 64 years and 16 presidential terms, the U.S. grew at an average rate of 4.35% when a Democrat was in the White House and at a 2.54% when a Republican was, a gap the economists call “astoundingly large.”

    The research was done by Alan Blinder, a macroeconomist who served in the Clinton White House and has advised several Democratic candidates, and Mark Watson, an econometrician who hasn’t dabbled in partisan policies.

    “Democrats would no doubt like to attribute the large Democrat-Republican growth gap to better macroeconomic policies, but the data do not support such a claim,” the professors conclude in a new 55-page working paper, “Presidents and the Economy: A Forensic Investigation.”

    “Democratic presidents have experienced, on average, better oil shocks than Republicans, a better legacy of productivity shocks and more optimistic consumer expectations,” they conclude.

    Professors Blinder and Watson identify three factors that stand out statistically in their attempt to explain why the economy does better with a Democratic presidents. Together they account for somewhere between one-half and two-thirds of the growth gap:

    – Oil price shocks explain between one-eighth and one-fourth of the Democrat-Republican difference in growth rates, and tend to occur when Republicans are in the White House. They don’t blame President Richard Nixon for the first OPEC oil shock or President Jimmy Carter for the second, but suggest that George H.W. Bush’s Gulf War and George W. Bush’s Iraq war were policy decisions that affected oil prices.

    – Surges in productivity, or output per hour, account for about one-quarter of the gap. “As with oil shocks, we consider them as mainly reflecting luck,” they say.

    – Swings in consumer confidence explain about a quarter of the Democrat-Republican gap between 1962 (when the University of Michigan’s survey data begins) and 2013. This, they say, “comes tantalizingly close to a self-fulfilling prophecy in which consumers correctly expect the economy to do better, and make that happen by purchasing more consumer durables. But direct measures showing increasing optimism after Democrats are elected are hard to find.”

    Professors Blinder and Watson consider and reject a long list of other explanations for the growth gap between Democratic and Republican presidents – including whether the president has previously been a member of Congress or a governor, is younger or is taller. (“Growth is higher under younger and taller presidents, but…the differences are not statistically significant,” they say.) The difference between growth rates when Democrats control Congress and Republicans do is trivial, they find. It’s the president’s party that matters. They reject the assertion that Democrats inherit stronger economies from Republican predecessors than vice versa.

    Nor does it matter much which party was in the White House when a new Federal Reserve chairman is chosen. They do see a slight tendency for Fed-influenced interest rates to rise during Democratic presidencies and fall during Republican presidencies. They doesn’t suggest the Fed playing politics, they insist. Rather, it’s what one would expect if the economy grows faster with rising inflation, which is what tends to happen when Democrats hold the White House.

    A similar partisan growth gap is seen in Canada, but they found no statistically significant difference between economic growth records of left and right governments in the U.K., France or Germany.

    –David Wessel


    Recommended reading from around the Web:

    Pope Francis



    While the concept of private money not backed by a government is sound, bitcoin is likely to fail, says Reuters Breakingviews columnist Edward Hadas (@edwardhadas). “Its value is uncertain, its legal status is unclear, and it could easily become valueless if users lose faith. Besides, if bitcoin ever really started to take off, governments would either ban it or take over the system,” he says. [Dealbook]

    Unless the Doha round of world trade talks succeeds soon, the global trading system is at risk of degenerating into a series of regional agreements – and that would weaken the World Trade Organization and its rule-setting and dispute-resolution authority and generally would be bad for the world economy, says Columbia economist Jagdish Bhagwati. [IMF]

    The co-founder of Udacity, Sebastian Thrun, says the company’s massive open online courses are a “lousy product” for educating underprepared college students. [Fast Company] And critics say, “We told you so.” [Chronicle of Higher Education]

    Budget analyst and PR man Stan Collender (@TheBudgetGuy) gives 10 reasons Washington won’t reach a grand budget bargain before 2019. [CapitalGains]

    More than a dozen veterans have been recruited to run for Congress in 2014. Both parties hope the candidates will be seen as perfect antidotes for partisan gridlock in Washington. [Huffington Post]


    Sign of the Times

    Minor milestones we’ve spotted:

    Some 13.8% drivers in the U.S. are uninsured, according to the industry-funded Insurance Research Council. That’s down from above 16% at the end of the 1980s, but the percentage was below 13% in 2000. [WSJ]

    Travelers left $531,395 in loose change at Transportation Security Administration check points in fiscal 2013; the money goes to airport security projects, such as translating signs into foreign languages. [Bloomberg Businessweek]

    On Thanksgiving Day, 45 million people went shopping, up 27% from last year. [WSJ]

    Because the unemployed are more likely to start or resume smoking, the Great Recession has increased the number smokers in the U.S. by about 600,000 since 2008, researchers at the International Institute for Applied Systems Analysis estimate. [IIASA]

    About 6,000 Western tourists visited North Korea this year, around 20% of whom are Americans. In 2004, the country had fewer than 700 foreign tourists. [WSJ]

    Only one in five British people born since 1975 believes in God, some with doubts. That’s roughly half the level among people born before the end of World War II. [Real Clear Politics]

    In the booming Washington, D.C., metro area, crowded public schools have installed more than 2,000 temporary classrooms. [Washington Post]

    Almost 60% of U.S. minimum-wage workers are in either food service or sales. [New York Times]




    For the latest Washington news,

    For outside analysis,
