Clinton Highlights Political Performance Gap, Avoids Details

"If you look at the Republicans versus the Democrats when it comes to economic policy, there is no comparison. The economy does better when you have a Democrat in the White House." - Hillary Clinton, Oct. 13, 2015

Clinton could have said, "a lot better," or "based on various metrics," and still been correct in her statement. What she left out was a key finding of the economic research she is fond of citing on the superior economic performance under Democratic presidents: the lack of causality.

Princeton University economists Alan Blinder and Mark Watson looked at data on economic growth, employment, real wages, inflation, stock market performance, interest rates and recessions from the start of Harry S. Truman's first elected term in 1948 through the end of the President Barack Obama's first term in 2012. By almost every measure, the Democrats come out ahead.

In that time period, real GDP growth averaged 4.33 percent under Democratic presidents versus 2.54 percent under Republicans, a "statistically significant" 1.8 percentage point difference, according to Blinder and Watson. They call the performance gap "startlingly large" given "how little influence over the economy most economists (or the Constitution, for that matter) assign to the President of the United States."

Had Ms. Clinton read the 96-word abstract at the front of the 37-page paper (excluding footnotes) or glanced at the 1-page conclusion, she would have gleaned the following:

"Our empirical analysis does not attribute any of the partisan growth gap to fiscal or monetary policy," Blinder and Watson write. 

My first reaction, before reading the paper, was: The authors forgot to consider Congress. After all, the legislative branch is responsible for enacting tax and spending policies. Surely divided government, with one party controlling the White House and the other controlling Congress, might improve outcomes with its inherent checks and balances.

Blinder and Watson didn't forget to consider the effect of Congress or of divided government. It turns out growth was strongest when Democrats controlled both houses of Congress and the White House (4.69 percent). In second place with 3.86 percent average real GDP growth is a Democratic president and Republican controlled Congress. The difference between these two averages is statistically insignificant, according to Blinder and Watson.

What is significant is that growth averaged less than 3 percent under Republican presidents, regardless of which party controlled Congress. 

What about the idea that one administration inherits the policies of the previous one, so any responsibility for success, or failure, must lie with the previous administration? Maybe that can explain the performance gap?

Again, no such luck, even when growth in the first quarter of a president's term is attributed to the previous occupant of the White House. And Republican presidents start with a leg up: They "inherit" an average growth rate of 4.25 percent from the final year of the previous term versus the Democrats' 1.94 percent. In other words, advantage Republicans - and downhill from there.

Blinder's and Watson's exhaustive study finds statistic Republicans can be proud of: The stock market does better between Election Day and Inauguration Day when a Republican is headed for the White House. That said, the stock market performs better under Democratic administrations.

What about the role of monetary policy? Blinder and Watson give each Federal Reserve chairman the same party designation as the president who first appointed him. Democratic Fed chairmen outperformed Republican chiefs by a long shot. And real GDP growth under a Democratic combo (president and Fed chief) averaged 5.27 percent, more than twice that with a Republican in both positions (2.41 percent). 

So what explains the economy's better performance under a Democratic president? Luck, I'm afraid. Even Blinder and Watson concede the better outcomes under Democrats may be "blends of good policy and good luck," reiterating that their empirical analysis does not assign causality to fiscal or monetary policy. 

Instead, the authors attribute 70 percent of the difference to positive oil and productivity shocks, war-related defense spending (Korea, Vietnam) and stronger overseas growth. The other 30 percent remains a mystery, to be exploited by politicians.

The usually astute Carly Fiorina was clearly unfamiliar with the political performance gap when she penned a Wall Street Journal op-ed last month. The GOP presidential candidate quotes Clinton saying  the economy does better with a Democrat in the White House and then proceeds to discuss the economy's performance under Obama. 

Fiorina dodged a question on the issue - on Democratic presidents' superior record on job creation - at the fourth GOP debate last week, segueing first to an anecdote from the campaign trail and then to her pitch for smaller government and tax reform. 

Fiorina calls herself Clinton's "worst nightmare" and dangles the image of a mano a mano debate between the two female candidates for president. If such an event comes to fruition, she would do well to have the facts on hand to counter Clinton's claim that the U.S. needs a Democrat in the White House. As Blinder and Watson point out, living in the White House is not a policy endorsement.

Caroline Baum is a contributor to e21. You can follow her on Twitter here.

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