Wednesday, August 04, 2004

Ted Kennedy Wants Your Pickles

2. If Republicans are such good stewards of the economy, why is it that among the 11 presidents our country has had since comprehensive quarterly GDP first became available in 1946, Democratic presidents rank 1, 2, 3, 4, and 6 in GDP growth during their terms while the Republicans rank 5, 7, 8, 9, 10, and 11?

President GDP growth Rank
Truman 4.65% 3
Eisenhower 2.44% 9
Kennedy 5.33% 1
Johnson 4.88% 2
Nixon 3.09% 7
Ford 2.06% 11
Carter 3.20% 6
Reagan 3.47% 5
Bush I 2.12% 10
Clinton 3.56% 4
Bush II 2.48% 8

Democrats 4.33%
Republicans 2.65%

The first problem with this question is the confused notion of stewardship it embodies. We hear the political rhetoric of whether the president has the economy "on the right track", as if an economy of 250 million dynamic hard-working and highly educated people is dependent upon the actions of one man. The impression is given that, in your lifetime, the most important economic decisions you will make will amount to punching a chad once every four years (or not fully punching one, if you live in Florida), and all the time in between you merely need to cross your fingers. It also suggests that, in the history of the United States, which has been marked by an overall growth trend disrupted occasionally by a recession and in one case by a severe depression, what saved us from the economic abyss that, say, the Soviet Union fell into, was our great wisdom as voters. Somehow we always know to elect the guy that is going to bail us out. One problem with that theory: in the early stages of the Great Depression, we elected FDR, whose policies contributed to the length and severity of the Depression.

The rhetoric reflects the grandiose self-importance of Democratic politicians. See how important they are? Rather than saying, during my tenure, over 100 million new jobs were created, they say that "I created over 100 million new jobs." The only way a president creates a new job is to expand an already bloated bureaucracy, and no one (excepting of course bureaucrats and Democrats) wants more bureaucrats.

That said, facts is facts, and the rankings tell a story. But if it is the story that my friend implicitly suggests, why doesn't he pursue the notion that correlation implies causation in this case, and publish a nice article in a respectable economics journal? The referee comments on that would make this blog look downright civil.

The best that can be said about the rankings is that they prove no President can really screw us up for long, or even at all in some cases, despite their best efforts to do so. And party affiliation, unfortunately, is not necessarily a great predictor of the economic policy inclinations of the President. Kennedy passed huge cuts in personal income taxes, whereas Nixon instituted price controls. Is it fair to suggest that this should make us identify efforts to cut taxes with Democrats, and efforts to heavily regulate markets with Republicans? LBJ scores very high on the list, but the growth during that period occurred simultaneous with the abysmal failure of his War on Poverty; poverty won a resounding victory, and drew new adherents to its side in droves while taxpayers watched the money go down the drain. Carter is barely beneath Reagan, but of course Reagan had to take the hard and necessary step of wringing inflation out of the system that occurred under Carter's watch, which every economist knows causes a temporary recession (1981-82). There are a million other reasons why the suggested causation is not worthy of serious speculation.

The notion that Republicans are better stewards of the economy, if it is even generally held, has its source in the comparative attitudes of Democrats and Republicans to business, unions, the social safety net, regulation, and the role of government. Across the board, Republicans are generally correctly perceived as desiring policies that are better for the economy.

Social Safety Net: Look at countires that have instituted social policies that Democrats would adopt in a heart beat, like most of the countries in Western Europe, and you see stagnant economies with high unemployment. The problem is that these guys have made the social safety net so soft, that all of their citizens just want to bounce on it all day. The Democrats look to Cuba as a model for health care and education.

Unions: Hey, they served their purpose at one time, but now they serve merely to prop up a monopoly based on thuggery. Were again 'em, and Democrats are for 'em.

Business: Big Pharma, Big Oil, Wal Mart, Halliburton, etc. Were for 'em, Dems are again 'em. Wal-mart, a particular whipping boy of the Democrats, was estimated to have accounted for 25 percent of productivity growth in the late '90s. And you can't find a liberal these days who has anything nice to say about them. You can say: what about Enron? And I would answer, what about it? The guys are going to jail, and they were equal opportunity political contributors, giving lavishly to both parties. And Halliburton's no-bid contract to provide services in post-war Iraq? Turns out they got the same contract for Kosovo under the Clinton administration. Why? Because no one else can bid on it. The rhetoric that Big Corporations are out to screw you, and that government is there to protect you from that happening, doesn't ring true for most people. From Wal-Mart, I can get a five gallon bucket of pickles for $3; from the Federal government, $3 might buy the same, but Ted Kennedy would eat four of the five gallons before I ever got to chomp on a Vlassic.

Regulation: Excessive regulation may not have a large negative effect on GDP growth, but nevertheless its hard to claim that an increasing share of GDP owing to regulatory compliance efforts is a good thing. My employment is directly tied to the regulatory apparatus - but nothing that I do in my job contributes to consumer welfare. The same can be said of the entire Northwest section of Washington D.C., a very wealthy and highly educated populace that could be curing cancer if it weren't so much more easy to make a buck as a lawyer. And guess what? Though we are all employed ostensibly in the regulatory apparatus, there is some truth to the "capture theory of regulation", which suggests that the industry tends to capture the regulators, turning them into an ally that protects the industry rather than a watchdog. Why? Because those on the regulation side want to land in a nice soft job handling regulatory affairs for the industry that they regulate, and pissing people off does not serve that strategy.

Government: Two paraphrased quotes. Bill Clinton, on discussing what to do with the surplus: "We could give it back to you, but if you don't spend it right..." (see Ted Kennedy and the pickles). Ronald Reagan: "Government is not the solution to the problem; government is the problem."


Blogger Stax said...

Here is another problem with the Democrats concept that the GDP increased while Democrats were in office....fact is the economy does not react instantly to reforms and policies. There is serious lag between the time of cause & effect. Maybe look at why the GDP responded the way it did when it did and then trace the cause of that rise. The cause in many cases is due to the policies established by prior administrations. Which in this case is most often due to the Republican administration that preceded the Democrat administration.

This is less of a reality today. Today's Democratic and Republican leaders are mainly hockey pucks. But given the choice between two morons, I choose the one that drools the least. In this case, it's the Republicans whom are at least more financially conscious.

7:24 AM  
Anonymous Anonymous said...

Was Clinton referring to the fact that people need to recognize their tax burdens either today or in the future. Since there was a debt when Clinton made his comment maybe he was implying that the bill would come due sooner or later and most people would ignore that fact thus failing to save for their future burden?

8:53 AM  
Anonymous Anonymous said...

At long last we see some numbers (albeit uncited) to support assertions in the blog. Let's see what went unsupported....most countries in western Europe have stagnant economies and high unemployment...Canadian health care has long lines (oh sorry that was yesterday)...the rhetoric about big corporations and govt doesn't ring true for most people...

Don't kid yourself - the Democrats aren't the only ones taking credit for new jobs. The R's do it just as often and frankly with a little more credibility than the D's. (not alot more--just a little)

The "lag" comment is a good one and I will go one further to point out that the President is not a king. We have a Congress that many times is at odds with the President. Sometimes, the Congress even legislates! So, do we blame Clinton for allowing the Enron debacle to come to pass, or do we blame Congress? Who can we blame for keeping us in Vietnam? Did Reagan end the cold war or should the Congress who approved the military buildup be credited with that one?

Finally, I'm not sure GDP is the best measure for how well the national economy is doing...perhaps we should use "how many Doritos one can buy with a food stamp" as the new, more comprehensive measure.

9:48 AM  
Blogger Professor Vic said...

I like the fact that one of the posters comments on the use of a few data points to support the assertions in the blog. I'll take issue with Hatch's comment, "in the early stages of the Great Depression, we elected FDR, whose policies contributed to the length and severity of the Depression." This statement, as usual, is not supported by any data. Here are the yearly GDP statistics for 1930 through 1940 and I'll let you decide. (Annual, detailed GDP data first becomes available in 1930 while quarterly data, as mentioned at the begining of the blog, is available starting in 1946. This is Bureau of Economic Analysis data, the non-partisan folks who are the data collectors for GDP.)

1930 - 8.61%
1931 - 6.42%
1932 -13.00%
1933 - 1.28%
1934 10.81%
1935 8.91%
1936 13.01%
1937 5.13%
1938 - 3.45%
1939 8.07%
1940 8.78%

So, a quick look at the data suggests three disasterous years under Hoover from 1930-1932, a significant slowdown in the contraction in 1933 (FDR's first year in office) and rapid recovery during 6 of the 7 next years. In fact, excluding the war years of 1942-1944, the years 1934-1936 experienced the fastest economic expansion in U.S. history, albeit from a pretty poor starting point. Perhaps 4 more years of Hoover's policies would have resulted in an even faster, quicker recovery, but it's not obvious to me from the data that the Depression is in any way FDR's fault. It looks to me like the damage is pretty much done by the beginning of 1933 and recovery follows quickly on the heels of FDR's election. The one bump in the road in 1938 was the result of attempting to balance the budget before the recovery was complete, a clear mistake, but one that FDR and Congress rectified the next year.

I fully realize that this simplistic analysis would indeed be ripped apart by an anonymous referee in an academic journal. So too would a comment like, "in the early stages of the Great Depression, we elected FDR, whose policies contributed to the length and severity of the Depression," without an data to back such a comment up.

10:39 AM  
Blogger Hatcher said...

I thought that the comment that Canadians have to wait a long time for surgery was as universally known and as well accepted as the rotation of the earth, but apparently I need to substantiate it. I simply googled "surgical waiting Canada" and had more than enough hits; the first one I linked to said that the peer-reviewed literature suggests Canadians have among the longest surgical waiting times in the world. For some reason, I cannot make the link in this comment. So, unfortunately, we are back to trusting me. Not exactly a safe course, I understand. I'll try harder going forward.

11:52 AM  
Anonymous Anonymous said...

The fact that "Canadians face long lines" is so well accepted is the very reason I seek support for the comment. It's almost as unquestioned as "President Bush misled the people of America into war with Iraq" and as such warrants further scrutiny.

Kudos to the Hatcher on a most excellent and thought-provoking article.

5:16 AM  

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