is Really Best for the Economy?
All I'm getting
from TV and the blogosphere is spin. So, I figured I would do a
little economic research. I picked a couple of leading economic
factors and did cross correlation between Republican vs. Democrat,
President vs. Senate vs. House. I have seen previous
work published by Slate that looked at the
President using averages, but in my opinion it was a little weak.
Simple averages are not going to cut it. I want a little statistical
inference to sway my vote. So here is my contribution to the signal
to noise ratio.
Since there will be
screams of bias from either side, here are my stances. I'm a
Libertarian, also known as a Goldwater conservative. I am socially
liberal and fiscally conservative. I have been a fan of John McCain
and was going to vote for him in 2000 before he dropped out.
However, I think Sarah Palin is an abomination and I'm not sure he is
putting enough distance between himself and Bush's policies. I'm not
convinced that Obama is the second coming, but I like his foreign
policy positions. His protectionist stances and dislike of nuclear
technology are big negatives in my book. Don't get me started on
FISA. Thus I am torn and looking for a little guidance.
While the idea was
good, there are a number of reasons to revisit the Slate article.
First, the premise was flawed by assuming that economic factors are
controlled by the president. Civics 101 teaches us that congress
controls the purse strings, so their impact should be much more
significant. Second, I assume a bias due to the source, a typically
liberal magazine. It's not that I don't trust their numbers, it is
just that data is sometimes cherry picked to support a conclusion. In
defense of the article, the author admitted that the analysis was
known to be limited.
I started by reproducing
the same data that Slate had by going to
government and financial sources. Also, I added historical Standard
& Poor data for the time period in question, since that was also
a debate that has raged in recent years. All the data here is
directly from the Whitehouse, Census Bureau, Bureau of Labor and
Statistics, and Bloomberg. I generated real GDP by calculating the
annual change and applying an inflationary correction. Spending is
shown as a percentage of nominal GDP. For the purposes of this
analysis, lower spending across the board is desirable, including
I used data from
national elections and created three series, one for for the
president, house and senate. For each year, a 1 is used represent
either a republican president, a republican house majority or a
republican senate majority and 0 for a democratic lead in each
respective position. Next, I used statistical correlation with each
of these series to determine if there is a relationship between an
economic factor and the political majority of that branch of
with a magnitude greater than .5 was considered high, while values
less that .3 were assumed to be inconclusive. A positive correlation
would infer a republican relationship and a negative correlation
would indicate a democratic one. An inversion variable was added to
account for the fact that some economic factors are desirable by
their increase, such as GDP, and others are preferable by staying
low, like inflation.
was performed with a 0 to 3 year lag to catch delayed effects. Any
longer and the lag would appear in subsequent administrations thus
further muddying analysis. A primary and secondary maximum were
selected from each of the categories to highlight the magnitude of
were seen between democratic presidents and budget surpluses,
republican presidents and low taxes and a republican senate and low
defense spending relative to GDP. S&P dividends strongly
followed a democratic house, however, the magnitude if their gains
were greater under a republican control. The rest of the
correlations are summarized below.
The selection of
1960 as a starting point is arbitrary. I have good data on the stock
market until then. If I find more, I might expand the scope. It
could also include World War I/II and the Great Depression. This
might change the conclusions, but I'm going with what I have. Also,
correlation does not imply causation. This is not political fact,
rather additional data to chew on while you decide.
With the house and senate available for
comparison, it was apparent that there are much stronger correlations
between the legislative branches than the executive for certain
categories. The strongest correlations were between the executive
branch in issues involving taxes and budgeting. The correlation between
a republican house & senate and reduced defense expenditures
relative to GDP was a surprising result and was further confirmed by
inspection of the averages.
The performance of the stock market relative
to the presidency was shown to have little to no correlation.
However, there was a strong relationship between stock performance
and a democratic legislature. The addition of the fact that average
performance was higher under republican legislative control was
somewhat contradictory. Given this information, this may lead to an
There was an obvious, although not
overwhelming, correlation between a democratic presence in government
and positive economic factors. The exception being lower defense
spending, taxes and inflation which are positive with respect to
republican influence. While a causal conclusion cannot be drawn from
this technique, there is enough evidence to peak interest and warrant