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MAR
07
The Thing About Politics and the Economy
Tags: Politics

With all of the media coverage out there, it is hard to believe that we are STILL eight months away from Americans heading to the polls to vote for the next President of the United States. We are barely two months into 2016 and it feels like there is nothing else going on in the world other than the latest sound bite from the candidates. I would contend that whether you are "feeling the Bern," looking to "make American great again," or are somewhere in between, that we can all agree on one thing--this goes on for entirely too long.

 

One of the dangers of such a drawn out electoral process is that it becomes exceedingly easy to get lost in the rhetoric that each candidate throws out and lose sight of the facts that support their claims. For example, if you ask any of the Republican candidates, our economy is in terrible shape and getting worse. While Democrats will point to unemployment numbers and stock market growth to say that the economy has thrived under the current administration. The Republicans will tell you that the high taxes that support Government programs like Obamacare, Medicare and Welfare are hurting our citizens. The Democrats will tell you that we need level, or even higher taxes, to expand the very programs that Republicans say are hurting the country. That it is the responsibility of the Federal Government to make sure everyone has a fair shot.

 

So where is the truth? Does the economy thrive under the Democrats with higher taxes and more Government programs, or do we need more free enterprise, lower taxes, and the ability for consumers to drive the economy forward? Honestly, it is hard to find an impartial answer. Believe me, I've looked. And in today's world it feels like you can't say anything without an assumption of support for one side or the other.

 

Frankly, it is what makes writing this article so difficult. I am not looking to express a political opinion. On the contrary, my goal is to provide meaningful information that helps clarify the truth from the rhetoric. That said, it is challenging in this case, because the data, the research show a very one sided story--virtually every major economic indicator points to better economic growth when there is a Democrat in the Oval Office.

 

For fifty years, economists have studied gross domestic product, or GDP, as the best measure of economic growth. GDP is the broadest of all measures of economic activity. It represents the monetary value of all goods and services produced within a nation's border over a specific period of time (usually measured annually). While it is not the end all be all, it is the tried and true way of measuring our economy against other global economies.  If you measure GDP growth since 1930, the results are one sided. In years when there is a Democrat in the White House the average rate of growth is 4.33%. Under Republican Presidents, the GDP grows by 2.54%. That means that in a four year term, the economy grows nearly 8% on average under Democratic leadership.

 

Take it a step further. Look at the differences between when Republicans control both the Legislative and Executive branches of our government versus the Democrats and even divided control.

 

ANNUAL GDP GROWTH BY PARTY CONTROL

Democrats in charge

4.3%

Division of power

2.3%

Republicans in charge

1.2%

 

Ironically, even a divided Government, when Congress doesn't seem to be able play well in the sandbox with people from the other party, the GDP sees higher average growth than when under entirely Republican control.

 

Other economic measures paint the same picture. Over the past 30 years the stock market has grown 11.4x faster under a Democratic President, though admittedly, there are many factors here which have nothing to do with whose curtains are in the Oval Office. Unemployment is lower under a Democratic President. While some will argue that this alone is not a reliable measure because it does not take the labor participation rate into account, that notion can be dispelled by the job creation rate, where the Democratic party continues to dominate.   

 

While the relationship between these factors and the President can certainly be bantered about, the numbers paint a very clear picture. The logical question at this point is where does the perception of a stronger economy under Republican leadership come from? I believe there are a couple of answers to that, which exemplify the differences between macro and micro economic thinking.

 

One reason is that corporate America tends to favor Republican economic policy. They do so, because the corporate tax rate is usually significantly lower under Republican leadership. Couple that with lower capital gains taxes (the rate investors pay on gains from stock sales) under Republicans, and you arrive at a much more advantageous and profitable environment under Republican leadership. The company benefits, and the people who invest in the company benefit, so you can't fault them for that.

 

The other reason is not so dissimilar. Lower tax rates mean that people have more money in their pockets. They see larger portions of their pay checks and therefore spend more freely. Republicans believe wholeheartedly in the notion that free enterprise, that is the right for you or I to decide where our money goes. It is not that they don't want to help people who are in need, it is that they don't believe the Government is in the best position to  control where the money goes. It sounds corny, but people like to feel free. When they are free, they are happy.  When they are happy, they perceive that everything is going well. And they are right...on the most micro-level everything is going well.

 

You might be asking yourself, "why should I care about the macro-level when the micro-level feels fine?" At the end of the day, THAT is the biggest political question facing our country in this election. People are divided on the idea of whether they should have anything other than a me-first attitude. Why should you care? I find my answer from award winning social psychologist Dan Gilbert, the foremost authority on affective forecasting. He argues, rightly, that people overestimate the value of current pleasure and underestimate the hurt of future pain. This is why people go to Disney World instead of saving for retirement. Why people go bananas when the stock market goes down by even a few points, even though it will go up in the long run. Our tolerance for delayed gratification has been whittled down to almost zero.

 

The truth is that no one is wrong here. The Democrats are not, and despite the data, the Republicans are not. We must find a way to keep a balance of the macro and micro because they both play a role. If we sacrifice what the data tells about how we move the needle for all of us because of how something feels today, we will all be poorer for it.


Disclaimer
The purpose of this article is to provide factual, unbiased information based on third-party research and independent data. It is in no way meant to express a political opinion or act as an endorsement for a specific political party or candidate. If any reader perceives a political opinion, it is without intention, and does not reflect the opinion of American Portfolios Financial Services, American Portfolios Advisors, or any party other than the writer, Ari M. Teplitz.

 

Sources

http://politicsthatwork.com/blog/which-party-is-better-for-the-economy.php

http://www.forbes.com/sites/realspin/2013/11/29/beyond-gdp-get-ready-for-a-new-way-to-measure-the-economy/#34e68a6c2a30

http://www.factcheck.org/2015/10/clinton-economy-better-under-democrats/



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