“It’s the economy, stupid!” This slogan, popularized during former President Bill Clinton’s campaign, highlighted one of the most important issues in politics.
Both Republicans and Democrats love to spout policy rhetoric to their core voting base. But at the end of the day, Americans care about how an administration will affect their wallets.
President Clinton was able to tap into that sentiment successfully. Don’t be surprised if the 2016 Election also hinges on which party delivers the economic goods.
Hillary Clinton fired the first shot early on in the primary season. During a Democratic debate on Oct. 13, 2015, Clinton bluntly stated, “The economy does better when you have a Democrat in the White House and that’s why we need to have a Democrat in the White House in January 2017.” She followed up those remarks by saying, “There’s a lot of evidence that when we have a Democrat in the White House, unemployment is lower, income is higher, and even the stock market is higher.”
No stranger to controversy, Donald Trump has been a repeated critic of liberal economic policies. His most high-profile target is U.S. Federal Reserve Chair Janet Yellen. Trump characterized the low-interest-rate environment promoted by the Fed as being politically motivated. He further raised eyebrows by stating that Yellen should be ashamed of herself.
Despite the expected back-and-forth between the Democrats and Republicans, it’s hard to ignore public perception. The global financial crisis exploded under former President George W. Bush’s watch, hurting Senator John McCain’s chances for the White House. While President Barack Obama is very unpopular in conservative circles, by the fortune of history, he was the leader that saw the economy recover.
But are the Democrats really better for the economy? Or is their perceived performance a beneficiary of arbitrary timing?
These are the questions that will shape the 2016 Election in the closing stages. We’ll take a deeper look at three metrics — the Dow Jones Industrial Average, GDP growth and workers’ wages — to reveal the truth of the matter.
Republicans vs. Democrats: Dow Jones Industrial Average
The assertion that the stock market performs better under Democratic rule is controversial because on paper, it’s absolutely true. According to data compiled by Bloomberg, returns for the Dow Jones Industrial Average under Republican executive leadership are nearly 17%. For Democrats, that statistic jumps to over 57%. There’s a 246% differential! No matter what the Republicans say, those are hard facts that can’t be easily dismissed.
Of course, there’s no proof that the Dow Jones responds affirmatively to Democrats. Stock market valuations are the aggregate of multiple influencing factors. But is such a skewed result caused solely by statistical anomalies?
In many ways, yes. Consider a road trip from Los Angeles to Las Vegas. A typical journey may take five hours at an average speed of 70 miles per hour. Included in that average speed are the periods when you floored it to near-triple digits, as well as getting stuck behind slow traffic. It would be arbitrary, then, to forecast how long the trip will take based on a specific time interval.
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The enormous differentials between absolute returns versus average returns is due to the weight associated to market collapses. Republicans have historically bad luck in presiding over a crash in the Dow Jones Industrial Average. But such volatility has proven to be relatively short-lived.
Unfortunately, absolute returns don’t allow time for markets to naturally recover because of the hard cutoff in time frame. That punishes the incumbent President, and gives an incredibly low standard for the newly incoming President to merely hop over.
Verdict: Inconclusive.
Republicans vs. Democrats: GDP Growth
Regardless of political leanings, we can all agree on this: using the Dow Jones Industrial Average as a barometer for presidential competency is imperfect. Extreme speculation and even trading algorithms gone mad can wreak havoc on the markets. But it’s a lot harder to fake or manipulate GDP growth. Either the economy is improving, or it isn’t.
In this arena, the Republicans do have some bragging rights. Since 1945, GDP growth under Republican rule averaged almost 25%.
For Democrats, that figure came under 22%.
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The big question is why. While Republicans may interpret this result as evidence of their superior economic policies, I would urge caution. In previous generations, both Democrats and Republicans enjoyed robust economic activity. But today, our economy has matured, and it’s harder to spark momentum. As evidence, both George W. Bush and Barack Obama have produced similar gains in GDP growth.
That said, some credit should be given to the Republicans. The younger Bush took over a booming economy from Bill Clinton, and still managed to add on top of it. Obama had the once-in-a-lifetime benefit of taking over during a cataclysmic market collapse, yet has affected rather disappointing change.
I would argue that the Republicans do have better economic policies. It’s just that they’re not the panacea that they think it is.
Verdict: Slight edge to Republicans.
Republicans vs. Democrats: Workers’ Wages
John F. Kennedy famously stated, “ask not what your country can do for you — ask what you can do for your country.” But without the threat of a Soviet nuclear attack, the political focus has steadily shifted towards the American wallet.
And if you’re a supporter of Donald Trump, that wallet thinned dramatically during the Obama years. So which party is truly better for the average American worker?
In the 2016 election cycle, we’ve been hearing a lot of talk that wage growth has been stagnant for several decades. That implicates both Republicans and Democrats.
When looking at the hard numbers, there are two conclusions that can be made. “Big Politics” has done an exceedingly poor job of fighting for the American worker. With that said, workers tend to do better under conservative leadership.
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When 2016 data is finally calculated, Barack Obama will likely improve his record, which stands at 5%. However, don’t expect the Democrats overall to make meaningful gains. Workers’ wages were a disaster under President Jimmy Carter, and surprisingly, Bill Clinton didn’t make a dent. With all the rhetoric of Democrats being the party of the blue-collar worker, they do surprisingly little for this key constituency.
Republicans aren’t that much better. But they are better, and that fact can’t be avoided.
Verdict: Overall, Republicans increase wealth more for American workers.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
