Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers. A longer version appeared at Project Syndicate and the Guardian.
In a few days, Americans will choose a president. Polling suggests that voters favor former Vice-President Joseph Biden when it comes to social policy, foreign policy, the environment and managing the pandemic, not to mention the question of personal character. But on economics, polls have reported that voters favored President Donald Trump, until recently.
A general impression that the US economy does better under Republicans is long-standing. The facts do not support it, however.
The historical record: Republicans vs. Democrats
In the 16 complete presidential terms since World War II, the rate of growth of GDP averaged 4.3 percent during Democratic administrations versus 2.5 under Republicans — a remarkable difference of 1.8 percentage points, up to 2016. (That is from Truman through Obama. If one goes back further, to include Hoover and Roosevelt, the difference in growth rates is even greater.)
Donald Trump’s presidency has now pulled down the Republican score further. Indeed, the average rate of growth during his term to date has actually been negative.
Is the difference due to bad luck?
The qualifier needed in such comparisons is that the president is only one of many influences on what happens to the economy. Luck of course plays a big role. One might choose to exclude 2020 from Trump’s record, for example, on the grounds that the coronavirus was just bad luck. Even excluding the pandemic period, however, the increases in GDP, employment and the stock market merely continued trends that he inherited from Barack Obama (who, for his, part, inherited an economic crisis).
One cannot excuse Trump from responsibility for mis-managing the pandemic. His only “plan” remains ever-renewed predictions that the virus will disappear within a few weeks. He has aggressively undermined the health measures urged by the experts, such as masking and testing, which would have better protected national health as well as delivered a better economy. (He has company, in the leaders of Brazil, Mexico, and the United Kingdom, who have done poorly. Countries that did much better both economically and health-wise include China, South Korea, Taiwan, Japan, Germany and Finland.)
In any case, the difference in average economic performance between Democrats and Republicans is statistically significant, that is, it is not attributable to pure chance.
A very simple calculation can make the point. The last five recessions, including the current one, all started while a Republican was in the White House. If the chances of a recessions starting during a Democrat’s term were equal to that of a Republican’s term, the odds of getting that outcome would be (1/2)(1/2)(1/2)(1/2)(1/2), i.e., one out of 32. Just like the odds of getting “heads” on five out of five coin-flips. Not very likely. The odds are even smaller if one goes back ten business cycles. (Ten of the last eleven recessions have started under Republican presidents. The odds of the Democrats doing that well just by chance are less than 1 in a hundred.)
The difference in past performance seems too strong to be true. One would feel better if one where able to confidently identify and quantify policies that Democratic presidents have adopted that could directly explain better outcomes. That is a tall order. Let us, instead, turn to the policies that the current candidate, Joe Biden, can be expected to implement, at least if he gets a Senate he can work with. In these partisan times, that means a Democratic Senate.
Trump has been telling voters that a vote for Biden is a vote for radical leftist policies. Some other candidates for the Democratic nomination this year did indeed support policies that, if interpreted literally, were well to the left of the American electorate, even to the left of the median Democratic voter. One such policy was the “Medicare for All” proposal of Bernie Sanders, which would have abolished private health insurance. Another was the provision in the proposed “Green New Deal” legislation that the government would guarantee a job for everyone.
As Biden said in both presidential debates, he won the Democratic nomination; his rivals lost. He has explicitly not supported these policies, despite Trump’s false claims that he does.
But there is a huge difference between Biden’s economic plan and Trump’s policies. [I did a video on this Wednesday.]
The Republican national convention did not produce a platform, so we must look at the president’s past actions to assess what he might do in a second term. Trump, in practice, has pursued three economic policies that stand out in his first term: attempts to dismantle Obamacare; a trade war that has managed to leave almost everybody worse off; and the December 2017 tax cut that mostly went to corporations (and certainly did not pay for itself, as its proponents claimed it would). I don’t count as “policies” the many promises in Trump speeches are the diametric opposite of his actions, including promises to help workers, drain the swamp, and protect health insurance for those with pre-existing conditions.
What would Biden do?
Biden’s proposed policies pursue the goals that most Americans share – restoring economic prosperity while doing a better job of helping the median household who had been left behind even before the pandemic, and also while restoring progress on environmental protection. His proposals would pursue these goals in ways that are practical, rather than merely sounding good on a bumper sticker.
What should and would Biden do? A partial list includes:
- Rather than evading responsibility for the coronavirus and undermining the advice of the experts, implement a federal plan to beat it, informed by the expertise of the science and health professionals. Biden’s plan includes making free testing widely available, eliminating cost barriers to prevention and treatment of Covid-19, developing an actual reliable vaccine rather one than that exists only in speeches, and building our public health capacity (as we should have done even before the pandemic hit), to be able to deal better with future crises.
- Assuming he were to win enough support in the Senate, Biden would immediately renew big spending programs that the Congress bi-partisanly enacted in response to the coronavirus recession but has allowed to lapse. These include emergency paid sick leave, extended unemployment compensation, and help for state and local governments with finances devastated by the coronavirus… Continue strong macroeconomic stimulus until income and employment are back to their pre-pandemic levels.
- Undertake large-scale investment in infrastructure (especially of an environmentally friendly sort), research and development, and education. These sorts of spending add to productivity growth over time, which is not true of most of the things that Trump has increased spending on.
- Build on the progress made by Obamacare, to reduce sharply the number of Americans who lack health insurance (adding a public option, increasing subsidies, preserving access for those with pre-existing conditions), rather than shifting into reverse, as the Republicans have ceaselessly worked to do.
- Finance such spending by progressive taxation, Two specific measures would be rolling back the 2017 corporate tax cut and raising the cap on wages that are subject to the payroll tax which helps fund social security. Biden would also make the income tax system more progressive. He has said these tax increases will not apply to incomes less than $400,000. He would also raise estate taxes, not allowing unrealized capital gains to go permanently untaxed. Moody’s Analytics estimates that the gains from Biden’s proposed new spending would outweigh the dampening effect of his tax increases, with the result that 2024 GDP would be 4 ½ percent higher than under current policies.
- Pursue environmental goals aggressively, but in ways that are economically efficient while creating jobs. This strategy includes continued rapid expansion of renewable energy. But don’t pretend that solar and wind power can supply 100% of our energy needs in the near future. There may still be a role for natural gas as “bridge fuel.” Biden doesn’t think that fracking should be banned in those parts of the country that want the jobs it brings. But methane leaks and other negative environmental side-effects can and should be tightly curbed by regulation; if not, then fracking should not proceed.
- Return the USA to its role in the international community by supporting the WHO and rejoining the Paris climate agreement, abiding by international agreements that we have made, and treating our allies better than our adversaries.
In few elections has one been able to assess such a big difference between the two candidates in the likely quality of their economic policies. Biden’s are better.
This post written by Jeffrey Frankel.