U.S. GDP Growth Under Different Presidencies
September 26, 2008
In this fifth and final examination of a key economic indicator during the last nine presidencies, I turn to the most important one of the bunch, real GDP growth. Price stability, a healthy labor market, a well-regarded and firm currency, and a robust stock market are each favorable pre-conditions for sustainable and brisk expansion in real economic activity. The first four items represent intermediate objectives. Economic growth, and more specifically per capita growth, is a more ultimate prize.
For the forty years from 1961 to 2000, the president was from the Democratic Party half of the time and from the Republican Party for the rest. Each side had four presidents in those 40 years. During the administrations of the four Democrats, real GDP expanded 4.1% per annum, 1.2 percentage points faster than the average growth during Republican administrations of 2.9% per annum. Growth over the 7.5 years that George W. Bush has been president has averaged just 2.3% per annum.
The Democrat administrations achieved the three fastest rates of growth and four of the top five on that ranking. Real GDP advanced at an annualized rate of 5.2% during the Kennedy years, 5.1% during the Johnson years, and 3.6% when the Clinton administration was in power. GDP rose 3.5% per annum in the Reagan years despite a severe recession in 1981-2. Growth averaged a respectable 3.2% per annum when the Carter administration governed — and yes, some people no doubt were better off in 1980 than 1976 — and the Nixon years experienced growth of 3.0% per annum. In none of these presidential periods was growth substantially less than the 3.4% average pace for the whole second half of the 20th century.
Both Bush presidential periods and the Ford years experienced growth of barely more than 2.0%. The growth rate in the first Bush presidency was 2.1%, identical to the performance of the Ford Administration. The current Bush administration has achieved marginally faster growth of 2.3% per annum. However, that pace has also been substantially less than the long-term trend. From several respects, the current administration’s performance is puzzling, worrisome, and instructive. It is puzzling because a 7.5-year period will be less sharply influenced by a recession than an administration with a shorter lifespan like Ford’s and because fiscal policy and monetary policy were loose. Also, productivity was strong during this period. It is worrisome because this is the most recent presidential observation and might reflect a stochastic downshift in what the United States can expect in long-term average growth. It is also worrisome because the banking crisis and the drag from the implementation of solutions to the current problem suggest that worse times may lie ahead. Finally, it is instructive in discrediting the theory that war is good for growth. Sometimes that has been unquestionably true. World War II helped America escape the depression, and growth was very buoyant when the Vietnam War was fought in the 1960’s. The wars in Iraq and Afghanistan and tightening of homeland security have not given a discernible lift to growth.