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Home Publications Blogs Beat the Press Do Democrats Do Better on the Economy? Robert Samuelson Gets the Story Largely Right

Do Democrats Do Better on the Economy? Robert Samuelson Gets the Story Largely Right

Monday, 25 August 2014 04:51

Robert Samuelson discusses a new analysis from Princeton University economists Alan Blinder and Mark Watson that finds the economy has generally grown more rapidly under Democratic presidents than Republican presidents. Samuelson notes that Blinder and Watson can explain much of the difference on factors like the OPEC price shocks, wars, and trends in productivity, but there is still a portion that remains unexplained.

Samuelson then comments:

"Actually, the explanation is staring them in the face.

"The parties have philosophical differences that affect the economy. To simplify slightly: Democrats focus more on jobs; Republicans more on inflation."

Clearly there are differences in attitudes towards the willingness to promote jobs as opposed to concerns about inflation. However, the party breakdowns are perhaps not as clear as Samuelson suggests. After all, it was Richard Nixon who imposed price controls in 1971 as an alternative to contractionary fiscal and monetary policy that would have slowed growth and eliminated jobs. And Jimmy Carter was the person who appointed legendary inflation hawk Paul Volcker as head of the Federal Reserve Board. More recently, it was Republican Alan Greenspan (originally appointed by Ronald Reagan, although reappointed by Bush I, Clinton, and Bush II) who argued with Clinton appointees Janet Yellen and Lawrence Meyers that there was no reason to raise interest rates in 1995-1997 and that the economy could be allowed to continue to grow and create jobs.

Anyhow, Samuelson's point is right. There are differences between the priorities that are placed on jobs and employment versus the risk of higher inflation. This is a fundamental policy decision. It is unfortunate that most of the public is unaware of the decisions the Fed makes on this trade-off. As a result the voices that tend to dominate the debate come from the financial sector, which pushes the Fed to focus on the risk of inflation. Unnecessarily high unemployment has little consequence for bank profits, even if it means millions of people needlessly out work and tens of millions lacking the bargaining power to demand higher wages.



Allan Lane correctly takes me to task for seeming to accept Samuelson claim that the differences between the parties are "philosophical." That was not the part I was agreeing with. There are differences with Democrats tending to be more responsive to concerns from unions and workers more generally about jobs. On the other hand, Republicans are more likely to be listening to their backers in the financial industry. So there are differences, but they don't necessarily come from philosophies.

Also, as noted above, the differences are not always clear cut. The Democrats also count on support from Wall Street.

Comments (10)Add Comment
written by xteeth, August 25, 2014 6:41
Now about this Volker as inflation hawk. Isn't it the case that the money supply tripled while he was running the FED? Doesn't sound too hawkish to me.
written by bananaguard, August 25, 2014 8:13

If Volcker doesn't seem hawkish to you, perhaps it's because you aren't looking at the evidence in a useful way. Inflation and employment both weakened as a response to a Volcker-sponsored rise in interest rates. If you were to attempt a Romer-like evaluation of statements regarding policy goals, you'd also see that Volcker was committed to reducing inflation.

Now, M2 did rise during Volcker's tenure, but the pace of rise slowed dramatically. Your choice of focusing on the level rather without looking at the rate of change also suggests you are not handling the evidence in a useful way.

Finally, a question for you. There was an acceleration in money supply growth for a while under Volcker, and the cause was very well known. If you are competent to express a view, you should know the history of the period well enough to say what caused the accelerated rise. Even if you don't know the history, a bit of economic thought could turn up an answer.
An Expert on Everything is an Expert on Nothing
written by Last Mover, August 25, 2014 8:17
There’s a larger lesson here. The Blinder-Watson study implies that the economy’s performance during a president’s term is a good test of the soundness of policies. Not so. There’s often a long lag between the adoption of policies and their true effects.

Typical Samuelson. Whip up a large pot of economic potpourri, throw everything imaginable into the soup, then stand back and declare as an expert chef on "true effects" he can actually read each tea leaf and see exactly where everything was and where it is headed.

Arrogance at that level always comes full circle. There's often a lag between what Samuelson says is true and what comes to pass as true, and somehow the two never add up.
Philosophical differences?
written by Allan Lane, August 25, 2014 8:34
Dean, I am shocked you let Samuelson get away with using "philosophical differences" as an explanation. I am more shocked you kind of went along with it! As you have often said, politicians don't have philosophies, they have interest groups that back them for re-election. Republicans clearly cater to the rentier, interest-receiving class in their policies, and while that may be bad for the economy as a whole, at least their funders think it's good for them. Democrats have been recipients of union money from the working class, and seem to rely on more small individual donor funding than Republicans, so have looked after their interests more. What has always amazed me was the number of Wall Streeters who would back the Democrats. But many of them are Jewish, and in that tradition there is a strong element of caring for the poor which may actually be a philosophical/religious difference which makes a difference!
Samuelson gets something right!??!!
written by ifthethunderdontgetya™³²®©, August 25, 2014 9:16
"Man bites dog."
written by willf, August 25, 2014 10:04
Democrats have been recipients of union money from the working class, and seem to rely on more small individual donor funding than Republicans, so have looked after their interests more.

This may be true in a historical sense, but the modern Democratic party no longer looks after their interests at all, having decided that Wall Street donations will take the place of funding that they used to get from their base, whom they now ignore.
What about 1998-2000?
written by Arne, August 25, 2014 11:00
"there was no reason to raise interest rates in 1995-1997 and that the economy could be allowed to continue to grow and create jobs."

Can I take it that the lowering the rate in 1998, pushing unemployment below 4.5 percent, was too far?

The irrational exuberance comment was in Dec 1996.
PCE inflation reached a minimum (12 mo) of 1.71 in May 1999.
written by skeptonomist, August 25, 2014 2:08
Around 2008 Larry Bartels, a political scientist, claimed to show that there was a large difference in growth of inequality according to which party controlled the White House. This turns out to be false, as I showed at the time:
The difference is better explained simply as a matter of time, and that in turn is best explained as a result of change in policies - policies were different in the early part of the era 1947-present. In some ways the policies of the Eisenhower and Nixon administrations were more liberal economically than those of the Clinton and Obama administrations, and there was obviously progressive deregulation and growth of finance industries.
So looking at inequality tells the same story as growth - it's not that Democratic Presidents know some magical ways to restrain inequality or promote growth, it's a matter of changes to more "conservative" policy over time. Dean has been describing the specific changes for a long time. Rather than "conservative", better terms might be "plutocratic" or "finance-oriented" - as Dean says, not really a matter of different philosophies, but of who gets the benefits of government actions and policies.
written by skeptonomist, August 25, 2014 2:19
Here is the link for my previous comment:

written by skeptonomist, August 25, 2014 2:31
Volcker and Burns before him did absolutely everything they could to control the growth of the money supply, trying to follow Milton Friedman's suggestion that inflation could be controlled simply by making the money supply grow steadily at the same rate as GDP. They failed miserably - not only did the rate of growth of the aggregates oscillate wildly, but they never went down to anything like the desired levels (see the data on money supply at FRED). The Fed has some influence on the money supply, but it obviously doesn't control it (the money from QE which is supposed to be expanding the money supply now is just sitting in reserves). At the same time in the 70's, the other operating dogma of the Fed - the Phillips curve - was exploding completely. Although unemployment was raised very high, inflation did not come down. Even if you think, in spite of the evidence, that Volcker conquered inflation, it would seem that unemployment had to be raised as high as 10.8% to do it. Should we expect the Fed to repeat this if inflation kicks up again, for example because of events in the Middle East?

Economists don't understand inflation, period. Until they do, the Fed should probably just imitate the policy followed during and after WW II, keeping rates low and constant. Total and average inflation during that time were lower than in the succeeding period starting around the late 60's, when the Fed desperately tried to control inflation.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.