Larry Bartels spoke in our seminar the other day and talked about this paper on Democrats, Republicans, and the economy. It started with this graph, which showed that incomes have grown faster under Democratic presidents, especially on the low end of the scale:
He looked at it in a number of ways, and the evidence seemed convincing that, at least in the short term, the Democrats were better than Republicans for the economy. This is consistent with Democrats’ general policies of lowering unemployment, as compared to Republicans lowering inflation, and, by comparing first-term to second-term presidents, he found that the result couldn’t simply be explained as a rebound or alternation pattern.
But then, he asked, why have the Republicans won so many elections? Why aren’t the Democrats consistently dominating? Non-economic issues are part of the story, of course, but lots of evidence shows the economy to be a key concern for voters, so it’s still hard to see how, with a pattern such as shown above, the Republicans could keep winning.
Larry had two explanations.
First, he found that, although the economy does better under Democrats on average, the Republicans have consistently outperformed the Democrats during the 4th year of each Presidential term. The average pattern is, for Democrats: strong economy in years 2-3, weak in year 4; whereas with Republicans, it’s weak in years 2-3, strong in year 4. (Larry didn’t include year 1 in his analysis since you’d attribute performance there to the previous president.) Why this would be isn’t completely clear, but Lucy Goodhart suggested it could be a natural consequence of the different goals of the two parties, and the general belief that a president has the most ability to do what he wants during the first two years after his election. The Democrats have unemployment-reduction and economic-expansion goals, which expand the economy in the first two years, but then some combination of budgetary constraints and a desire to move toward the political center lead to contraction in the second part of the term. Conversely, Republicans are more likely to pursue deflationary policies when they can (at the beginning of the four-year term), and then their move to the center later on has the electoral benefit of expanding the economy. And lots of evidence shows voters to be responsive to economic performance in year 4, not to the four-year total.
Larry’s second explanation involved campaign contributions. I can’t remember all the details of his arguments here, but the basic idea was that strong economic performance at the top of the income scale motivated more campaign contributions for the incumbent, and, in fact, incumbents with more campaign funding do tend to do better in elections (even after controlling for economic conditions). So the Republicans have had policies which benefit the rich, which have (on average) stimulated campaign contributions that have helped them win elections. (It’s not just Republicans–the rich did well under Clinton, and he got lots of contributions–but that’s the average pattern.)
It’s an interesting and coherent story that makes sense of some pretty large patterns in politics and the economy in recent decades. One comment raised in the discussion is that it would be helpful to look at actual policies, rather than just looking at outcomes, to get a better understanding of how the presidents do what they do. I also thought it would be good to get some leverage on the problem by studying variation among states, or among individual voters, although I’m not quite sure how to do this, if it’s the national economy that’s being studied.