I set out to learn which party did a better job for the American economy. What I found out taught me more about data than politics. In a time of market-based panic and bloviating presidential candidates, we need thoughtful data analysis, not empty rhetoric.
Here’s a challenge for you. Just for a moment, try not to think as a democrat, a republican, a liberal, or a conservative. Try to read this as someone seeking the truth.
A correspondent sent me a link to this article in Forbes, which proves that if you want a better economy, you should vote Democrat. For example:
- Personal disposable income has grown nearly 6 times more under Democratic presidents
- Gross Domestic Product (GDP) has grown 7 times more under Democratic presidents
- Corporate profits have grown over 16% more per year under Democratic presidents (they actually declined under Republicans by an average of 4.53%/year)
Much of the growth under Democratic presidents has been the result of private-sector investment and increased consumption. They have been blessed with lower oil prices, larger increases in productivity and better global economic conditions. The timing of Democratic presidents appears impeccable compared with Republicans—Mr Clinton took office just as the technology sector began to boom, whereas George W. Bush could not get out before the financial crisis.
What’s really going on here? Well, there is an enormous amount of economic data. Democrats and Republicans regularly trade power in the White House and Congress. And depending on how you pick your definition of “in power” and “economic conditions,” you can get any answer you want.
An amazing article by Christie Aschwanden on fivethirtyeight.com illuminates this through the phenomenon of “p-hacking,” which is as common as dust in every scientific discipline. You gather your data. You look for correlations and powerful effects. You try different combinations of variables. And since there are thousands of possible combinations, just by chance, you’re likely to find an only-one-time-in-a-hundred effect. That’s how randomness works: examine more than 100 possibilities and you’ll find one that’s significant at the 1% level, just by chance.
Sure enough, using the really cool p-hacking tool on that site, I proved that under Democratic Presidents and Congresses, unemployment, GDP, and stocks are better:
Of course, if you look specifically at Congress only and examine the factors that matter most (that is, make for the most dramatic effect), employment and inflation, then Republicans are better stewards of the economy.
This is not truth. It’s bullshit. With this tool, you can get any result you want. That’s how demagoguery works — find the data that supports your economic theory and flog the hell out of it.
Here’s the truth and the bullshit when it comes to presidents, lawmakers, and the economy.
- There are thousands of factors that affect the economy. Many of them, including oil prices, Chinese leaders wrestling with market dynamics, sectarian conflict in the Middle East, and Greek brinksmanship, are out of the control of American politicians. They’re powerful, but not all-powerful.
- The Federal Reserve Bank has more of an impact on the economy than actions of presidents and congresses, and it doesn’t shift according to transitory Democratic and Republican ideas.
- Most economic interventions by politicians take years to have an effect. This means by the time something goes wrong (or right), the other guys may be in power.
- Some policies increase both prosperity and risk. If you drive too fast you’ll often get where you’re going sooner, unless of course you have a disastrous accident on the way. People who advocate risky policies often reside over prosperity.
- The biggest risk is the one we haven’t seen before. As much as you want to blame politicians for failing to anticipate and account for the risk of a real-estate/tech/stock/bond/China/derivative bubble, nobody gets political cover for legislating against a risk that hasn’t happened yet. So there is no action, only blame. Ultimately, we all share that blame.
- Presidents don’t get to set policy. Neither do congresses. They either negotiate a result or fail to act at all. Either way, we get a result that’s neither Democratic nor Republican, but a mix of the two. This makes it hard to assign credit and blame.
- Stocks go up. Stocks go down. Is Obama supposed to get credit for the long rise in stocks, or is that due to the Republican-controlled Congress, or just due to the fact that things were so depressed when he got started? Is he to blame for the recent drop, or is that just the inevitable “correction” that happens after a runup? It’s all just hot air. When your 401(k) goes down (or up), the appropriate response is not “Thanks, Obama!”
Choose your politician based on the policies they espouse. Do you want more regulation, or less? Do you want action on global warming, or not? Do you want international engagement and the risk that comes with it, or protectionism and the risks that come with that? Make a smart decision. Sure, politicians affect the economy, but they sure can’t take credit for it.