This past week a couple of article appeared in the Washington Post and the New York Times which talked about how the economy over the past 60 years has faired much better under Democratic presidents than under Republican ones.  Technically it is true.  But it is really only part of the story.  Don Luskin has an article refuting some of the claims here.  I offer some additional facts which show the claims by the columnists are not totally true. 

 

·        First of all, when the president takes the oath of office on January 20, the economy does not change on a dime.  Contracts between business and labor are not nullified; investments in plant and equipment stopped.  The first presidential budget is not signed into law until at least nine months after he takes office.  So there is an overlap of economic activity between presidents.

·        In the post-war era, every Republican who took over as president from a Democrat inherited either a country in a major war or the beginnings of a recession.  Every Democrat who took over for a Republican inherited a country not in a war and the economy and an expanding economy.  In other words, Republicans had to spend a year or more dealing with problems inherited by the Democrats.

·        Eisenhower came into office with the U.S. in the Korean War.  The war ended about six months into his term, but the economy went into a recession as the manufacturing sector switched from war production to a domestic production.  The U.S. went through a minor recession in 1957.

·        President Kennedy inherited from President Eisenhower a nation at peace and economy which grew 2.5% in 1960 (in the 1Q the economy grew 9.1%; in the 2Q it fell 2%; in the 3Q it grew 0.6%; and in the 4Q it fell 5.1%).  Given the economy grew 2.4% and 7.7% in the first two quarters of 1961 indicates the economy was not in bad shape when President Kenned took office, despite the negative GDP in the fourth quarter of 1960.

·        The growth in GDP during the Kennedy/Johnson administrations were due to two things:  the supply-side tax cuts and government spending on the Vietnam War.  The deceiving thing about the growth in the Johnson administration was it was financed through a high growth in the money supply by the Federal Reserve—not through taxes or borrowing.  Financing government programs affects the private-sector economy.  The first two (taxes or borrowing) dampen growth in the private sector at the time of spending; while the negative aspects of the growth in the money supply is felt years later.  President Johnson enjoyed all the benefits of higher government spending without the associated reduction in private-sector spending.

·        President Nixon took office with the U.S. fighting an unpopular war; domestic unrest in many cities; and inflation rising due to the policies of the Federal Reserve.  Within a year the U.A.W. struck General Motors for 69 days.  In addition, President Nixon could hardly be categorized as a believer in free-market economics.  He pulled the U.S. off the gold standard and implemented wage-and-price controls.  As he said:  we are all Keynesians now.

·        When President Carter took office, the U.S. was fully out of Vietnam and the economy was experiencing seven straight quarters of economic growth—though inflation was a problem.

·        When Reagan took office in 1981, the economy had experienced a contraction of 0.2% in 1980 and double digit interest rates and inflation. The recession during the first two years of his administration was primarily caused by the Federal Reserve’s reduction in the growth of the money supply to combat inflation.  During the last six years of the Reagan administration and the first part of the Bush administration witnessed the longest peacetime expansion in history.

·        When President Clinton came into office, the economy had experienced seven straight quarters of positive growth.  More importantly, President Clinton took office at the end of the Cold War.  In 1996 President Clinton signed into law welfare reform and in 1997 reductions in the capital gains and dividend taxes.  If a Republican president did this, people would call him anti-middle class. 

·        In 2001, George W. Bush inherited an economy at the beginning of a recession.  Within a month the stock market fell as the tech bubble burst—a bubble created during the Clinton Administration.  With nine months the U.S. suffered terrorist attack.  One could argue had Clinton dealt effectively with al-Qaida when in office this would not have happened.  Then there were the corporate scandals, which took place during the Clinton administration, but came to light in the Bush Administration.  Then in the past year the economy had to deal with the bursting of the housing-bubble.  A partial result of the Fed keeping interest rates too low for far too long.  Yet though all of this, the economy has experienced growth in 26 out of the last 27 quarters.

 

In January 2009, the next president will inherent from a Republican president an improving situation in Iraq and an economy which has weathered the worst of the housing meltdown and showing signs of renewed growth.  Too bad Democratic presidents are not as considerate.