Presidential Economics: Myths, Facts

By Robert Weiner and John Larmet
The Milwaukee Journal Sentinel

Wednesday 15 August 2007

At last week's news conference, President Bush again said that he's reduced the deficit to $239 billion, created 8 million jobs and generated unemployment at a low 4.5%. He said the economy is strong, largely due to his tax cut policies.

On the other side, Rep. David Obey (D-Wis.), House Appropriations Committee chairman, has complained of our limited resources now because of Bush's "gargantuan deficits he created with that stupid war and those stupid tax cuts paid for with our money."

There is a widely held belief that Republicans are better for business than are Democrats. Let's look at the facts.

The wild stock market ride of recent weeks does not compare to the two worst stock events, the crash of 1929 and the 1987 free fall, which also occurred under Republican administrations. Since 1900, Democratic presidents have produced a 12.3% annual return on the S&P 500, Republicans only 8%. Gross Domestic Product growth since 1930 is 5.4% for Democratic presidents and 1.6% for Republican presidents.

Bush inherited from President Clinton an annual federal budget surplus of $236 billion, the largest in American history. Clinton balanced the budget for the first time since 1969. Budget surpluses were expected to total $5.6 trillion between fiscal year 2002 and 2011.

Despite this, Bush transformed the surpluses into a $1.1 trillion annual deficit in just three years because of the Iraq war and his relentless push for permanent tax cuts for wealthy Americans, a new iteration of Herbert Hoover's equally catastrophic "trickle-down" theory. Bragging about a $239 billion deficit sets such a low standard that Bush can claim horrific failure as a good thing for the country. The Bush administration's annual loss of three-quarters of a trillion dollars is unprecedented.

Bush presided over the loss of 2 million American jobs in his first 2 1/2 years and has net gained 5.6 million in six years, the worst since Hoover. Clinton created 23 million jobs.

It's not rocket science to figure out the difference. Clinton: tax breaks for the middle and lower incomes who actually spend the money, no Iraq war. Bush: disproportionate tax breaks for the wealthy (50% to the wealthiest 1% by 2010), $750 billion for a war monetarily benefiting only a few military contractors and a financial sieve for the country.

Democratic presidents spread the wealth through spending on needed social programs and targeting tax cuts to lower- and middle-income Americans, stimulating the economy more broadly. Republicans pump into defense contractors and high-income Americans, creating a significant detriment to the whole economy with larger deficits and higher interest rates.

Economist John Maynard Keynes was right in 1936: When you "prime the pump" into people programs (like jobs or lower income tax cuts to help Americans buy what they need), you get people results. On the other hand, when you move money from the economy into tax cuts for the rich and a military vacuum, you don't prime the economic pump; you deplete it.

Contrary to opinion, we do not have record high stocks. It would take 14,300 for the Dow Jones industrial average just to match for inflation the 11,750 under Clinton in 2000. We're now around 13,000, meaning, in real terms, a stagnant market with a loss for the past six years.

Democrats empower the buyers, Republicans the sellers. Misdirected tax cuts, plus the Iraq war, have taken the money not just from America's working class but from America's businesses as well.

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Democratic Versus Republican Presidents

Economic Indicators

In six major criteria - GDP growth, per capita income growth, job creation, unemployment reduction, inflation reduction, and federal deficit reduction - for the ten post-World War II presidencies until Bush, there is a record to track the reality of Democratic versus Republican economic success.

Democrats

• Lyndon B. Johnson's "Great Society" created robust economic expansion, first in both GDP and personal income growth. He also reduced unemployment from 5.3% to 3.4%. Economic growth remained robust through most of LBJ's presidency.
  
• John F. Kennedy campaigned on the idea of getting America moving again, and he did. Under Kennedy, America entered its largest sustained expansion since WWII. GDP and personal income growth were second only to Johnson, all with minimal inflation. Contrary to Republican attempts to say Kennedy's tax cuts are like Bush's, Kennedy's were targeted at middle and lower incomes.
  
• The economy added 10 million jobs under Jimmy Carter despite high inflation; Carter ranks first in job creation next to Clinton during just four years in office. Carter also reduced government spending as a percentage of GDP.
  
• Harry Truman's second term saw the fastest GDP growth and the sharpest reduction in unemployment of any president surveyed (of course, FDR's post Hoover-depression New Deal jobs are first).

Republicans

• Ronald Reagan focused on reducing the cost of capital through cutting tax bracket highs for the rich and reducing the size and scope of government. But, instead of lowering spending, Reagan shifted money to the military (i.e. Star Wars) and the deficit tripled with the tax cuts and military spending - as under Bush II.
  
• Under Gerald Ford, the deficit soared and the unemployment rate grew from 5.3 - 8.3% in just 2 years. His "WIN" (Whip Inflation Now) buttons were no match for economic inactivity.
  
• It was under Richard Nixon that inflation started to spiral out of control, from 4.4% to 8.6%, and the deficit shot up from $2.8 billion to $73.7 billion.
  
• The Eisenhower years were characterized by slow growth (2.27% annualized GDP growth) and relatively high unemployment (7.7% at end of term).
  
• George H. W. Bush had the poorest record for both GDP and income growth. During his single term, the deficit ballooned (from $152 billion to $255 billion) more than under every president but his son and Ford.

(Sources: White House Office of Management and Budget (OMB), U.S. Department of Labor (DOL), and White House Council of Economic Advisors)

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Robert Weiner is a former Clinton administration public affairs director. John Larmett, senior policy analyst at Robert Weiner Associates, was a legislative assistant to Sen. Gaylord Nelson (D-Wis.) and an analyst for the House Budget Committee.

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