Guest commentary: Economic performance vs. economic promises

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— 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.

Comments

Murray Tucker 5 years, 11 months ago

"Statistics don't lie, liars use statistics." This works on both sides of the political spectrum. A counter example to Steven Hofman's commentary can be found in a book published by Princeton Professor Larry Bartels ("Unequal Democracy") and reported this past week by former Federal Reserve Vice Chairman, Alan Blinder in the NY Times (http://www.nytimes.com/2008/08/31/business/31view) Skewing data so that it fits a certain political point of view is generally easy. One has to make their own evaluation of where the economy is being directed. McCain wants to continue the Bush policy of unfettered "laissez faire" market; Obama subscribes to a modified market approach where regulation plays a role, when necessary and before chaos (see How Obama Reconciles Dueling Views on Economy By DAVID LEONHARDT NY Times August 20, 2008- not an easy read).

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Fred Duckels 5 years, 11 months ago

Steve: Apreciate the article. Murray: I agree that figures don't lie but liars figure. I am a believer in the theory that party trumps candidate. Lets follow the money to see what we might expect from the parties. The Democrats are supported heavily by the trial lawyers, unions ,environmental groups, and social liberals. They will be expecting nice dividends for their participation. They will be counting on legislation to achieve goals that may not be attainable through the free markets. On the other hand the Republicans are backed by business groups, those wanting less governmental regulation. social conservatives and proponents of free markets. Some contribute to both parties in order to cover all bases. Murray, I don't think either party has the majic bullet and each will dance with their partners.

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Steve Lewis 5 years, 11 months ago

Fiscal history will not affect my vote. Republicans need to stop counting beans (and sinners) and start looking ahead. I hear too little from Republicans about the trends that threaten their grandchildren's well being: Education falling. Emerging super powers. Competing world values. Finite energy resources. Etc. Etc.

Fred's list of Democrat supporters is telling: unions, environmental groups, and social liberals. Another way of saying the little guys are getting together to support the little guy. The donors who scare me are General Electric or Boeing, who support both parties. The role of big business (i.e. profit motive) in steering our laws and elections is our biggest problem.

Think about it. The G.E.'s and Boeing's make the expensive (no-bid?) weapons. Their profits stem from global conflict. The mega-billions spent on Iraq? The military industrial complex is obviously the recipient of most of that money. Lately our Gross National Product beans have a lot of blood on them. Mr. Hofman, is that a plus? or a minus.

Follow the free market? Count the beans? If only we could put peace on a shelf and sell it.

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JLM 5 years, 11 months ago

Interesting commentary but one thing is for certain --- when a candidate says he will RAISE your taxes, he ain't lying! The only solution is to keep said candidate out of office.

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Steve Lewis 5 years, 11 months ago

JLM, Is it as simple as taxes?

You don't believe your kids are better served when your choice is instead based also on Education? Energy? War?

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Matthew Stoddard 5 years, 11 months ago

JLM- one candidate's VP choice talked about how the other choice would raise everyone's taxes...while the FOX ticker line was saying that same candidate raised taxes on oil companies from 22.5% to 25% while governing her state.

So...do you put the one in office who says he'll raise the taxes on the upper 5% (and not the lower 95%, so not specifically MY taxes) or the one who says they won't raise your taxes...then actually does raise them when they think you aren't looking?

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Murray Tucker 5 years, 11 months ago

Here's what the Tax Policy Institute study of the candidate's proposed policy says: Income McCain Obama Tax Change Tax Change 38K-66K -325* -1118 66K-112K -994 -1264 112K-161K -2584 -2135 161K-227 -4437 -2796 Above this level, McCain continues to cut tax while Obama's Tax Change turns positive. Since 95% of income earners are below $250K where Obama becomes positive, the "burn" is on the top 5% of income earners. Does it destroy incentive??? Since the rate for the top 5% would be equal to what it was in the Clinton years when the economy was booming, I think a conservative would have a tough time arguing that the Obama plan is destructive- but they will anyway.

*Does not account for the McCain tax on health insurance policies that may discourage people with limited income from seeking insurance.

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