The economic incompetence of Republican presidents

November 02, 2020 08:49
Photo: Reuters

One hears many strange things nowadays, not least because “they” (a complicated term) are flooding the zone with misinformation. Without a shared set of facts upon which to base ethical and policy debates, democracy inevitably breaks down. The system’s virtue lies in its unique ability to elevate and consider a broad range of ideas emanating from society. Ideally, through a good-faith exchange of arguments and a weighing of the alternatives, a majority of voters converges on the best course of action.

But we have lost one of the most basic conditions for this process to work properly: a reality-based public sphere. While there were always deep, even intractable, disagreements in the past, people at least were talking about the same thing. One could watch the Abraham Lincoln-Stephen Douglas debates and decide which figure was more trustworthy and convincing without being buffeted by a wave of informational manipulation and distortion.

One increasingly prevalent piece of misinformation holds that the United States will face a monumental trade-off on Election Day. On one hand, electing a Democrat as president will mean that America no longer has a government that abducts children and permanently breaks up families just because it can. On the other hand, putting Democrats in power is supposedly risky for the economy, because the GOP is the party of business.

The Wall Street Journal columnist Peggy Noonan recently framed the election this way, before complaining that Joe Biden “shouldn’t be seated in a handsome chair waiting for the crown to be passed, or going out for ice cream in a mask like John Dillinger on the lam.” After seeing Democratic vice presidential candidate, Kamala Harris, dancing onstage at a campaign rally, Noonan concludes that, “It was embarrassing … If you can’t imitate gravity, could you at least try for seriousness?”

But it is a false choice. No one has been more embarrassing to the US than President Donald Trump, and the GOP has no claim on sound economic management. As economists Alan S. Blinder and Mark W. Watson showed in a 2015 paper:

“The superiority of economic performance under Democrats rather than Republicans is nearly ubiquitous; it holds almost regardless of how you define success. By many measures, the performance gap is startlingly large – so large, in fact, that it strains credulity.”

In terms of annualized real (inflation-adjusted) GDP growth, for example, Blinder and Watson find that Democrats outperform Republicans by “1.8 percentage points in postwar data covering 16 complete presidential terms – from [Harry] Truman through [Barack] Obama.” Were this analysis to be extended back through the eras of Herbert Hoover and Franklin D. Roosevelt, the gap would grow to about three percentage points per year. But it is also worth noting that, prior to the COVID-19 crisis, Trump presided over unusually strong growth (that is, for a Republican administration) during his first three years, when the US economy matched the average 2.4% annual growth rate achieved during Obama’s second term.

Blinder and Watson are flummoxed as to where this performance gap comes from. They consider the roles played by stronger fixed investment, greater consumer optimism (and thus higher spending on durables), fewer unfavorable oil shocks, and faster growth abroad. But these factors explain less than half of the gap. And no, the answer is not that Democrats, unlike Republicans, tend to pursue over-inflationary policies that borrow growth from future generations.

When I first encountered Blinder and Watson’s paper, I suspected that the oil factor was the critical issue. The Republican administrations of George H.W. Bush and then George W. Bush – as well as those of Richard Nixon and Gerald Ford, with Henry Kissinger as Secretary of State – were deeply confused about whether a high or a low oil price would be better for US real income growth. By contrast, other administrations had not hesitated to keep oil prices low when they could.

In any case, US history over the past century strongly suggests that Republicans simply have no idea which economic policies are likely to work at any given time. In the 2000s, for example, it seems never to have occurred to Bush or his advisers that under-regulation could produce a catastrophic financial crisis.

Moreover, in the 1980s, it seems never to have occurred to Ronald Reagan and his advisers that creating massive federal budget deficits would lead either to a collapse in investment or a commensurate increase in external borrowing. This was when the US started importing much higher volumes of manufactured goods, thus turning the Midwest industrial base into the Rust Belt. Finally, it seems never to have occurred to Nixon and his advisers that low interest rates combined with wage and price controls could keep both inflation and unemployment low.

In light of these failures, Trump has played true to type. After calling the North American Free Trade Agreement the worst trade deal in American history and the Trans-Pacific Partnership the second-worst, his administration has merely added various TPP provisions to NAFTA, given the agreement a new name, and pronounced America “great again.” Trump has also launched a full-bore trade war against China, promising that it would be “good, and easy to win.”

What have these policies achieved? There has been no improvement in US manufacturing employment, the manufacturing trade deficit has widened, and US consumers’ real incomes have fallen now that they are bearing the costs of import tariffs. Clearly, neither Trump nor his trade advisers have any clue how to conduct a trade war.

This should surprise no one. Republican administrations have been failing at economic policymaking at least since the 1920s. The only choice this Election Day is between a return to sound economic management and a continuation of glaring incompetence.

Copyright: Project Syndicate
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Former deputy assistant secretary of the US Treasury, is Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research.