REPUBLICANS, DEMOCRATS, THE DEBT, AND THE ECONOMY

Here are the three takeaways from this post:

• The U.S. economy is strong, it’s growing and creating jobs, despite the Federal Reserves’ interest rate increases.
• Over the last 90 years (the period for which data has been captured), the economy has been significantly stronger under Democratic Presidents than Republican ones.
• Republicans’ current concerns over the federal government’s debt and deficit are hypocritical as they had no such concerns when Trump and other Republicans were president.

(Note: If you find my posts too much to read on occasion, please just read the bolded portions. They present the key points I’m making.)

The U.S. economy finished off 2022 with strong 2.9% growth in the 4^th quarter in Gross Domestic Product (GDP, the total of all goods and services sold). GDP growth was 2.1% for the full year. The economic growth was strong despite big interest rate increases by the Federal Reserve (the Fed) designed to slow the economy in an effort to reduce inflation. Employers added 4.5 million jobs in 2022, the second-best year on record; 6.7 million jobs were created in 2021 (available data goes back to 1940). The unemployment rate is 3.5%, a 53-year low. [1]

Inflation is down significantly. Actually, in December, prices were DOWN 0.1% from the previous month. Over the last six months, prices have risen just 1.9%. This is below the Federal Reserve’s target rate of 2%, which would suggest that the Fed should stop increasing interest rates in its fight against inflation. [2]

However, the mainstream media have focused on the fact that prices in December were 6.5% higher than a year earlier, even though this is a significant decrease from June when they were up 9.1%. This focus supports the Fed continuing to increase interest rates, which benefits the banks, investors, and financial elites, but hurts workers and everyday Americans trying to buy homes and pay debts.

Moreover, the current inflation is different than inflation historically; it’s being driven by corporate price gouging, supply chain problems, and the war in the Ukraine. Therefore, interest rate increases are not likely to be as effective in fighting this current inflation as they have been historically. Nonetheless, the Fed’s interest rate increases may well needlessly drive our economy into a recession.

Reviewing economic growth historically, there’s a stark pattern in the U.S. over the last 90 years (the period for which data have been captured): The economy has performed significantly better under Democratic presidents than Republican ones. Although a president has limited control over the overall economy, this pattern is true for all the major measures of the economy: GDP growth, job creation, incomes, productivity, and even stock prices. And the gap is significant in size. [3]

Over the last 90 years, there have been seven Democratic presidents and seven Republicans. (This does not include the current president.) In terms of annual GDP growth, the top four (FDR, Kennedy, Johnson, and Clinton) and number six (Carter) are Democrats. Three of the bottom four are Republicans (Trump [worst], G. W. Bush, and G. H. W. Bush) with Truman (D) as the third from the bottom. Overall, since 1933, the average annual GDP growth has been 4.6% under Democratic presidents, but only 2.4% under Republicans.

Looking at job growth (instead of GDP growth), the top six rates were under Democrats (the five top performers above plus Truman), while the bottom four were under Republicans (the three bottom performers above plus Eisenhower). Trump, by the way, is at the bottom and is the only president in this 90-year period with negative job growth.

Identifying the cause of this pattern is difficult, and, therefore, a bit inconclusive. However, it’s NOT spending and, in particular, it’s NOT deficit spending. In fact, Republican presidents have run up larger deficits than Democrats. (I’ll come back to this below.) Control of Congress is not the answer either.

The answer with the most supporting evidence is that Democratic presidents have been more willing to be pragmatic and follow evidence about which policies have actually strengthened the economy in the past. On the other hand, Republicans have clung to the theory that tax cuts (tilted heavily toward wealthy individuals and corporations) and deregulation will spur economic growth, despite consistent evidence to the contrary based on actual experience. Interestingly, tax increases enacted by President G. H. W. Bush in the late 1980s (to reduce the deficit created by Reagan) and by President Clinton in 1993 were both followed by strong economic growth.

In addition, it may be that Democratic presidents are more aggressive at using the government to respond to crises and that they are more focused on ensuring people have jobs. Democratic presidents may also be more aggressive in having the government invest in job-creating innovation when the private sector doesn’t, such as in medical research and clean energy.

While the causes of the better economic performance under Democratic presidents than Republican ones may not be entirely clear, the pattern is clear, strong, and long-term. (I have written about this pattern before, here.)

In terms of the federal budget deficit and the debt, over the last 40 years, Republican presidents have run up larger deficits and added more to the debt (a bit over $12 trillion) than Democrats (a bit under $7 trillion). (I have written about this pattern before, here.) The last president to balance the federal budget was Clinton (D), who actually reduced the debt over his eight years in office. Previous to that, President Johnson (D) was the most recent one who had a budget surplus.

So, when Republicans oppose raising the debt ceiling, it’s blatant hypocrisy. Under President Trump, they voted to raise the debt ceiling three times as $6.6 trillion was added to the federal debt. The tax cut they passed in 2017 raised the annual deficit by about $200 billion. Moreover, raising the debt ceiling simply allows the government to pay for the spending Republicans and Democrats have already approved in annual budgets.

Republicans’ rhetoric about the debt and deficit is a smokescreen for their efforts to cut spending that supports average Americans, like Social Security; Medicare, Medicaid, and Obama Care that provide health insurance; and the Child Tax Credit that helps low-income families with children. On the other hand, they support spending that benefits wealthy individuals and corporations, often giving them the money through tax breaks. Moreover, Republicans have for years cut the funding for the IRS, preventing it from enforcing our tax laws. As a result, wealthy individuals and corporations are dodging about $100 billion a year in taxes they owe under current tax laws.

Without the Republicans’ 2017 tax cut and with better enforcement of tax laws by the IRS, the federal government wouldn’t be hitting the debt ceiling now. So, Republicans’ opposition to raising the debt ceiling has nothing to do with fiscal responsibility or the debt. Rather, it’s all about holding our government and economy hostage to their demands for cuts in spending that supports everyday Americans. Meanwhile, they protect the wealthy (who provide lots of money for Republicans’ campaigns) from having to pay their fair share in taxes. [4]

[1]      Wiseman, P., 1/27/23, “Slow US economy grew last quarter,” The Boston Globe from the Associated Press

[2]      Kuttner, R., 1/13/23, “The misleading reporting on inflation,” The American Prospect (https://prospect.org/blogs-and-newsletters/tap/2023-01-13-misleading-reporting-on-inflation/)

[3]      Leonhardt, D., 2/2/21, “Why are Republican presidents so bad for the economy?” The New York Times

[4]      Warren, E., 1/24/23, “The Republican con on the debt ceiling,” The Boston Globe