They find GDP tends to grow much faster under Democratic presidents (averaging 4.33% per year) than Republican presidents (averaging 2.54% per year)….The authors find two important factors that might be expected to matter but don’t: fiscal policy and monetary policy. The GDP growth gap cannot be simply explained by higher government spending during Democratic presidencies or wiser policy coming from the Fed; if anything, Republican presidents may have gotten slightly more economic growth when they had their preferred fiscal and monetary policies in place.Instead, developments from abroad seemed to do the most to help explain the growth gap: oil price shocks, and war (through its effect on defense spending). Oil prices cooperated during the early years of the period under study, including the Truman, Kennedy, and Johnson presidencies. But rising prices held the economy back during the mid 1970s, early 1990s, and mid 2000s when Republicans were in power.Wartime mobilization may be an even bigger factor in explaining the gap, especially given the differential timing for Democrats and Republicans. Truman and Johnson oversaw increases in defense spending during the wars in Korea and Vietnam, while Eisenhower and Nixon oversaw the drawdowns. The authors show that if they eliminate just the Truman and first Eisenhower terms from the analysis, the GDP gap shrinks by about 20%.Greater productivity growth (possibly reflecting a quicker pace of technological change), more consumer confidence, and faster economic growth in Europe during Democratic terms also contributed to the gap to varying degrees over this period.The authors note that these factors are less obviously related to economic policy levers, but they could still reflect aspects of presidential influence.The price of oil, the global economy, overseas events that lead to wartime mobilization — all could be responding in part to U.S. foreign policy, so some of the GDP gap may be a reflection of how Democratic and Republican presidents have conducted diplomacy abroad. Productivity gains, too, could potentially result from systematically different policy decisions about regulation, innovation, and basic research, although the authors don’t focus on finding specific policy choices that might explain the gap.Furthermore, as much as 45% of the GDP gap isn’t explained by any of the factors listed above, so the authors conclude with an invitation for others to try to deduce other factors that can explain the divergent economic performance of Democratic and Republican presidents.
Source: American Economic Association