Economic Growth and Politics:

1929 - 2010

Economists tend to reflect past experience when applying economic policy measures in their recommendations. That experience is unique to every economic situation.  But economists do not formulate and implement economic policy—politicians do.  Recent political debates indicate that conservatives tend to favor a laissez-faire type of economics, less interventionist and more critical of government.  Liberals tend to favor a broader role for government and often intervene actively when there is unemployment or when economic growth and the safety net are adversely affected.  It might be useful to review the experience of conservative and liberal policies in regard to economic growth as we discuss strategies of recovery from a deep and prolonged recession.

Let’s take a look at the experience of American Presidents when it comes to growth and jobs, going back to 1929.  The average growth rate in GDP in constant dollars equals 3.0% for the 39 years when we had Republican Presidents and 6.7% for the 42 years we had Democratic Presidents. That is a statistically significant difference in favor of the kind of liberal-leaning economics favored by Democrats.

What about Congress?  For the 17 years when there was a Republican majority in the House, the average growth rate of the U.S. economy was 2.8%; for the 64 years when there was a Democratic majority, the growth rate was 5.5%.  In the Senate, Republicans have held a majority for 33 years, during which the nation averaged a growth rate of 2.0%; over the 56 years when the Democrats (have) held the majority, the U.S. posted an average annual growth rate of 6.4%.

Were we to judge politics on its association with creating economic growth, we would find that the numbers favor liberal-leaning policies.  This is especially true for the periods when a Democratic President had Democratic majorities in both the House and Senate:  For the 12 years since 1929, when this was the case, the average growth rate was 7.29%.  We also have experienced 9 years of a Republican presidency supported by Republican majorities in both the House and Senate.  The average growth rate for those years was 1.07%.  That was the second worst growth rate over the period.   

The second highest growth rate occurred when we had a Republican President and a Democratic House and Senate.  We had that configuration for 22 years, for which the average annual rate of real economic growth was 5.22%.  The third highest growth rate was 4.74% — that occurred for the 8 years we had a Democratic President with Republican majorities in both the House and the Senate.  The fourth highest growth rate was, as stated above, for a Republican President and a Republican Congress: 1.07%.

What political constellation achieved the distinction of the worst growth rate?  That was for the 8 years we had a Republican President paired with a Republican Senate and matched with a Democratic House — for an annual economic “growth” of  -1.11% — 2 of those years under Hoover and 6, more recently, under Reagan.

What about the historical performance of a Democratic President with a Republican House and a Democratic Senate, as in the current situation?  The current situation is unique — there was no such constellation of political power between 1929 and 2010.  It is, however, exactly the inverse of the worst configuration for economic growth that we have voted into office.  It seems that a split Congress may not, in general, be conducive to growth.

There are many variables that affect growth, including war and peace, unemployment and inflation, education and health, savings rate and innovation, technology and recessions.  But it seems that politics has been underestimated as a factor in economic growth.  Politics does exert ideological pressure on economic policy, and the data appear to show that liberal-leaning policies have an advantage over conservative policies when we examine their effects on economic growth in the United States over time.