Sunday, September 7, 2008
Steamboat Springs When it comes to the economy, presidential candidates, Democrats and Republicans alike, say many things. Once in office, however, campaign rhetoric often gives way to the reality of governing. George H.W. Bush famously asked voters to read his lips, "no new taxes." Taxes instead went up during his term. Franklin Roosevelt campaigned in 1932 on a pledge to balance the federal budget. Post-election, that pledge also was forgotten.
Will this election be different? Who knows. But in picking a new president, voters will make a judgment about future economic policy. Is the choice to be determined only by what the candidates tell us? Or is there a better way to understand how a McCain presidency may differ from an Obama presidency?
These are not mere academic questions. A myriad of economic challenges confront us, including: anemic growth teetering on a recession, expanding income inequality, rising unemployment, a depressed housing sector, continued rising health care costs, runaway energy prices, the threat of inflation, projected Medicare and Social Security insolvency, and the impacts of globalization and foreign trade.
My suggestion is to listen less to campaign promises and look more at what has occurred when a Republican or a Democrat actually controlled the levers of power. Do Democratic presidents produce stronger growth than Republicans? Is unemployment higher when a Republican rather than a Democrat sits in the Oval Office? What about inflation, taxes, federal spending, the deficit and long-term interest rates? Democrats and Republicans have a track record.
Consider data for the years 1970 to 2006. Democrats occupied the White House 12 years during this period, Republicans 25 years. So that each president would not be blamed or given credit for the policies of their predecessor, a two-year lag at the beginning of each new administration was figured into the assessment of each president. A new president inherits the policies and budget of the past president, and it is not until the third year in office that changes are realized from what amounts to a new president's first full budget and policy changes.
So let's look at performance as opposed to promises.
A key measure of overall annual economic performance is change in gross domestic product. GDP is the total market value of all goods and services produced within our borders during a full year. Throughout the past 36 years, Republican presidents averaged 3.3 percent annual growth. Democrats averaged 2.4 percent. In other words, GDP growth was 38 percent better on average per year when a Republican rather than a Democrat ran the White House. Score one for the Republicans.
Economic growth certainly is important, but so is the jobs picture. The unemployed worker takes little solace in growth numbers if they are unable to find a job. And on this measure, the Democrats have a better record. Unemployment averaged 5.8 percent under Democratic presidents. Republicans averaged 6.4 percent. Interestingly, these historical averages are well above the current rate of 5.7 percent. Score one here for the Democrats.
Inflation often is called the cruelest tax. It strikes hardest at those who can least afford rising prices. Although Republicans carry the image as the party of big business, they have been more successful at keeping inflation down. Their annual average is 4.6 percent, as compared to 5.1 percent for the Democrats.
Image and reality also are not in sync when it comes to long-term interest rates. One would expect the Republicans, again as the party of big business and the wealthy, to be the better here. Not so. Democratic presidents have averaged 7.94 percent, and Republicans have averaged 8.28 percent. Some economists would argue higher interest rates often are necessary to restrain inflation, which Republicans have done better than Democrats. But lower long-term interest rates make it easier for businesses to borrow, invest, create jobs and grow. The score remains tied.
On taxing and spending, traditional images reflect reality. Republicans tax and spend less than Democrats. On taxes, they average 17.7 percent of GDP, while Democrats average 19.3 percent. Spending is closer, with Democrats averaging 21.8 percent of GDP and Republicans 20.8 percent. The result of these differences gives Democrats a huge advantage on the federal deficit. Their willingness to tax more means the deficit averaged 0.87 percent of GDP during their years in office. Republicans, who did not restrain spending to match their unwillingness to raise taxes, were far higher, at 3.35 percent.
Obviously, these measures are not a slam dunk for the candidate of either party. And just as obviously, neither Barack Obama nor John McCain should be judged only by the results of past presidents. But voters should have more than just the candidates' words to judge their economic promises. Some history, which is not likely to make it into either candidate's 30-second ads, can make a more informed voter come the first Tuesday this November.
Steamboat Springs resident Steven Hofman is a former director of research and policy for the Republican leadership of the U.S. House of Representatives and a former assistant secretary of labor under President George H.W. Bush. This article was adapted from a lecture given at the policy breakfast seminar of Vectra Bank.