The economy is a key issue in this year’s presidential campaign. Is America better off now than when Barack Obama took office? Presumably the answer matters because it sheds some light on how things will go over the next four years if Obama is reelected. But how much light?
As one successful investment manager says, “Luck matters in the short term, but skill matters in the long term.” The implication is that Americans looking for skillful economic leadership from the White House would be better served by considering the long-term economic performance of Democratic and Republican presidents rather than the vagaries of the past four years.
Even the simple-seeming question of whether America is better off now than when President Obama took office hides important complexities. Our economy survived what could have been another Great Depression and is now growing, albeit slowly. GDP and the stock market are up; but unemployment remains painfully high, and most people’s real incomes are lower than they were four years ago.
It is even less clear how much credit or blame Obama deserves for any of these conditions. The U.S. has rebounded from the Wall Street meltdown more successfully than most other industrialized nations. But is that because of Obama’s policies, or in spite of them? Economists disagree about the expected path of recovery from major financial crises and about the extent to which specific policies like the president’s stimulus package have actually helped.
Not surprisingly, given these complexities, partisans disagree sharply about how much to blame Obama for the nation’s economic problems. In a June Gallup poll, 81 percent of Democrats but only 16 percent of Republicans said “not much” or “not at all.” But for people with no partisan ax to grind, uncertainty about how much blame or credit Obama deserves seems both inevitable and reasonable — and, sure enough, political independents in that Gallup Poll split almost equally between blaming Obama “a great deal” or “a moderate amount” (51 percent) and “not much” or “not at all” (47 percent).
A fairer and more reliable way to judge the parties — and to guess how things might go under Obama or Mitt Romney over the next four years — is on the basis of long-term performance. How have Democrats done, not just under Obama, but over a span of decades? How about Republicans? People readily grasp the diagnostic value of long-term performance in other walks of life. A judge has ruled that poker is more skill than luck; though luck may beat skill in any given hand, the better player is very likely to win in the long run.
Most people do not construct a careful running tally of the parties’ long-term economic performance, of course. However, my 2008 book, "Unequal Democracy," examined the economic record of Democratic and Republican presidents since the late 1940s using official tabulations from the Bureau of Economic Analysis, the Bureau of Labor Statistics, and the Census Bureau’s Historical Income Tables. I found that GNP growth was generally stronger, unemployment lower, and incomes more equal under Democratic presidents than when Republicans were in the White House. The real incomes of middle-class and working-poor families grew much faster under Democrats, on average, even after allowing for a variety of possible confounding factors — long-term trends in growth, family structure and labor force participation, world oil prices, and “trickle-down” effects of previous growth.
Newly updated Census Bureau tabulations through 2011 continue to show substantial partisan disparities in income growth rates over the entire postwar period. (These tabulations include revised data from previous years as well as new data from 2006 through 2011.) Average income growth under Democratic presidents has been fairly robust across the income spectrum, while growth under Republican presidents has been much weaker and has mostly benefited affluent families. Over more than six decades, the average incomes of middle-class families have grown more than twice as fast under Democratic presidents as they have under Republican presidents. The average incomes of working poor families have grown nine times faster under Democrats.
[caption id="attachment_13061119" align="alignleft" width="460" caption="Income growth under Democratic and Republican presidents (1948-2011)"][/caption]
Of course, a lot has changed in the American economy and politics since the late 1940s. How does the partisan comparison look if we focus solely on the past 30 years, beginning with Ronald Reagan? The most striking difference is that structural changes in the economy have produced much weaker income growth under both Democrats and Republicans than in the boom years of the 1950s and 1960s. However, the partisan differences in income growth over the past 30 years look much the same. Republican presidents have continued to preside over very unequal growth, with the real incomes of working poor families actually declining over the 20 years in which Ronald Reagan, George H.W. Bush, and George W. Bush held the White House. Average income growth has been stronger across the board under Democratic presidents (Bill Clinton and now Obama), by amounts ranging from 1.6 percentage points for working poor families to 0.6 percentage points for affluent families.
[caption id="attachment_13061182" align="alignleft" width="419" caption="Income growth under Democratic and Republican presidents (1982-2011)"][/caption]
Are differences of this sort large enough to be meaningful? For a middle-class family, the income growth record typical of Republican presidents in the past 30 years would produce a cumulative gain of $1,000 over a four-year Romney term; the corresponding cumulative income gain at the average Democratic growth rate would amount to almost $7,000. For working poor families, the partisan gap is smaller in absolute dollars, but it represents the difference between likely modest income growth under Obama and losing ground under Romney.
Of course, as investment advisers always say, “Past performance does not guarantee future results.” Nevertheless, for voters making a bet on America’s economic future, the past performance of Democrats and Republicans in the White House provides important evidence about how President Obama or President Romney would be likely to play whatever cards they are dealt over the next four years.