“It’s the economy, stupid.” —James Carville, strategist for Bill Clinton’s 1992 presidential campaign
Here’s the big deal. A 2016 study by Blinder and Watson (updated this year in a publication from Harvard University) showed that since WWII, there have been ten times when a president from one party was succeeded by a president from the other party. Ten switches from Republicans to Democrats or Democrats to Republican (five of each). What happened each time was fascinating. Every time a Republican came into office, the U.S. economic growth rate went down. No exceptions. And every time that a Democrat succeeded a Republican, the growth rate went up. No exceptions.
I’ve written about this on several occasions, but I keep coming back to it because it’s important. Somehow Republicans have managed to cement themselves in the public’s mind as the better party for the economy. How have Republicans done this? Follow me for a moment.
In October of 2020, Donald Trump said that “the policies of the left would unleash an economic disaster of epic proportions.” He went on to state that a Democratic win would lead to sharply higher taxes and would “destroy our country.”
What actually happened? The economy grew, and it grew faster under Biden than it had under Trump.
I’m going to start here by removing 2020 from our analysis, since it’s pretty hard to blame a worldwide pandemic on one person. So during 2017, 2018, and 2019, the economy grew by a pretty good average annual rate of 2.7 percent. That’s robust growth for the largest economy in the world.
But during 2021, 2022, and 2023, under Biden, the economy grew by an average annual rate of 3 percent.
Somehow the Republicans want you to believe that 2.7 percent annual growth is better than 3 percent, and somehow tens of millions of people believe them. Why?
Because the rate of inflation in the U.S. went from 1.8 percent in 2019 to 8 percent in 2022. It’s now down to less than 3 percent, but prices remain high. Is this the fault of Biden and the Democrats?
According to the Council on Foreign Relations, worldwide inflation was 1.9 percent in 2019 and 7.9 percent in 2022—nearly identical to U.S. inflation. What happened?
In short, the pandemic. The pandemic caused global bottlenecks in the supply of almost everything, driving prices up everywhere.
In other words, the recession during the Trump administration was caused by the pandemic and so was the inflation during the early Biden years.
Either the recession was Trump’s fault and the inflation was Biden’s, or they both get a pass. I vote for giving them both a pass But don’t forget the 3 percent average annual growth under Biden. Once again, a Democratic administration presided over faster growth than its Republican predecessor.
100 Years of History
While the Republicans have somehow become known as the better party for the economy, during the last century—100 years!—a recession has begun under every single Republican president. No exceptions.
Democrats are not immune to recessions, but the last one that began under a Democratic president was in 1980, 44 years ago.
So if you want a recession, vote Republican. It’s been a sure bet for over a century. While having a Democrat in office is not a guarantee of avoiding recessions, the odds have been much better under Democrats.
What’s Going On?
The U.S. economy is extremely complex and diversified. It’s hard to credit one person with its success or failure. But it’s also hard to ignore such a long history of failure by the Republican party when it comes to managing the economy.
Why have they failed so consistently? Here’s a radical idea. Recessions are not bad for everyone. They are actually good for some people. If you run a large business, some of your smaller competitors might go out of business during a recession and that can mean more market share for you. If you have a lot of money and want to buy something expensive, like a vacation property, during a recession you might be able to buy it cheaper.
Who gets hurt in recession? It’s almost always lower wage earners. When companies lay people off during a recession, it’s rarely the highly paid managers. It’s the lower paid line workers.
So could it be that recessions are engineered to the benefit of large companies who want to gain more market share and wealthy people who want to be able to buy assets cheaper? It sounds far-fetched. I really don’t believe it’s true.
Giving More Money to People Who Already Have Enough
I think the explanation is less likely a conspiracy and more likely a difference in philosophy. For the last 44 years, since the beginning of the Reagan administration, Republicans have believed that the best way to stimulate the economy is by cutting taxes.
In other words, for roughly half of the time since WWII, Republicans have relied on tax cuts. In 2001, when G. W. Bush was inaugurated, Vice President Dick Cheney famously said that Reagan proved that deficits don’t matter.
Tax cuts do have a history of stimulating the economy, but it’s not the most efficient way to do it. The obvious reason is that taxes are paid by people with money. When taxes are cut, a large portion of the people that benefit are those who already have enough money. That means that in those households, little or no additional spending takes place as a result of a tax cut. The treasury just collects less money without any benefit.
The Republicans love to complain that the Democrats are the party of spending. But unlike tax cuts, government spending is 100 percent spent. In other words, every penny of government spending gets into the economy.
I can think of no bigger reason to explain the dramatically different economic performance of the Republicans and the Democrats.
Hal Masover is a Chartered Retirement Planning Counselor and a registered representative. His firm, Investment Insights, is at 508 N 2nd Street, Suite 203, Fairfield, IA 52556. Securities offered through, Cambridge Investment Research, Inc, a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Investment Insights, Inc & Cambridge are not affiliated. Comments and questions can be sent to hal@getyourinsight.com These are the opinions of Hal Masover and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal. Past performance is no guarantee of future results.