More on Bartels

I’m a little surprised that the Bartels result is receiving so much attention because the result, in slightly different form, has long been known to political economists under the rubric of partisan business cycle theory.  In a nutshell, the theory of partisan business cycles says that Democrats care more about reducing unemployment, Republicans care more about reducing inflation.  Wage growth is set according to expected inflation in advance of an election.  Since which party will win the election is unknown wages growth is set according to a mean of the Democrat (high) and Republican (low) expected inflation rates.  If Democrats are elected they inflate and real wages fall creating a boom.  If Republicans are elected they reduce inflation and real wages rise creating a bust.  Notice that in PBC theory neither party creates a boom or bust it’s uncertainty which drives the result – if the winning party were known there would be neither boom nor bust.

Ok, there’s plenty to question about the theory but let’s look at the data.

Pbcdata
Notice that in the second year of just about every Democratic Presidency there is a boom.  Interestingly, the boom is biggest for Truman whose reelection was highly uncertain (remember Dewey wins!) thus expected inflation would have been low and the boom big.  Similarly the boom is smallest (relative to the surrounding years) for Clinton II a relatively certain reelection.

Now look at Republicans in just about every second year of a Republican Presidency there is a bust.  The one major exception being Reagan II where uncertainty about the outcome was low.

It’s pretty clear that this result can explain Bartels’s result which is exactly Tyler’s point in his post.   It’s equally clear that when we consider Presidents there aren’t many data points.  (PBC does appear to hold somewhat in other countries).

Notice that the reason for the result, according to PBC, is sticky wages and the business cycle and not some nefarious story about taxes, oligarchies and political conspiracies.

Comments

Alex-

After I read about the Bartels piece I was curious about the results and went back to historical GDPs. I was surprised to see that growth was fairly strong during Carter's presidency. Alas, inflation was also going up, too. I think the growth was goosed by more inflation each year. It took a couple of years into Reagan to clean up the mess.

It's only been a little more than a century since Democrats and Republicans explicity endorsed inflation versus sound money policies in their presidential campaigns, with direct appeals to the social classes and constituencies that would benefit accordingly.

The William Jennings Bryan "Cross of Gold" speech pretty well sums up the raw conflict: http://en.wikipedia.org/wiki/Cross_of_gold_speech

Yes Rich the first term Reagan recession can be seen as necessary to break many years of inflation expectations built up by previous administrations. This also answers Luis question - if inflation is not to skyrocket someone has to cut inflation and bring on the recession. If the Republicans didn't, inflation would skyrocket until Democrats were willing to bear the costs. Keeping the Democrats in power, therefore, doesn't work.

Put differently, in PBC you need Republicans to get a Democrat boom and you need Democrats to get a Republican bust.

Luis point about lower real wages is well taken but I wouldn't take the model too seriously. You can also push the model in terms of sticky prices which gets you similar results but a more clearly rising real wage.

Interesting that there is virtually no difference in GDP growth rates under Democratic and Republican administrations, in spite of all the bleating and posturing about the economy that we hear during political campaigns.

It was not just ReaganII but the election of Eisenhower for both term ,Johnson in 1964, Nixon in 1972,and Clinton in 1996 were not uncertain.

There was also little uncertainty about Nixon and Eisenhower re-election. Landslide victorys for both of them in their second elections.

Um Ned, "Interesting that there is virtually no difference in GDP growth rates under Democratic and Republican administrations, in spite of all the bleating and posturing about the economy that we hear during political campaigns." There is a 50% difference in GDP growth between the parties. Look at the chart again. GDP doing 1.5 times better under democrats hardly seems like "virtually no difference".

Also, I'm confused about real wages rising under Republicans as Alex seems to take for granted. The data I've seen says the opposite. Here's Angry Bear: http://angrybear.blogspot.com/2007/10/comparing-presidents-average-real.html

"If Democrats are elected they inflate and real wages fall creating a boom. If Republicans are elected they reduce inflation and real wages rise creating a bust."

Not to be really clueless, but could you elaborate on the specific mechanism you are suggesting administrations use for affecting inflation here? Changing G? Changing T (actually t)? Browbeating the supposedly independent central bank?

Not that I know from economics, but my Macro 101 instructor said that it wouldn't be that much of a stretch to call the Reagan I recession the Volcker recession because the actions of the Fed are assumed to have brought inflation under control.

Also, in your chart you list Bush (Senior) and Bush I, which I assume is a typo ...

"Furthermore, over 70% of the national debt run up since 1776 has been under just three republicans, Reagan, Bush I and Bush II, while Clinton actually closed a record deficit leaving a record surplus."

Uh... you're comparing year 1850 dollars with 1950 dollars with 2000 dollars? Surely you can't be serious?

This is an interesting topic. I agree that inflation and unemployment are pretty narrow standards of measure. National debt and budget deficits, and tax rates are important too.

If one looks at inflation numbers instead of GDP (granted, using the imperfect CPI measure, from ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt), one finds that regardless of party, the median inflation rate in the last year of a presidental term is for the most part higher than the previous couple of years.

Mean totals for the Republicans decrease the first three years before increasing in the last year, while Democrats spike in the 2nd year of a term on average and stay high until the end of their terms. This is the case even if you drop the highest and lowest numbers for each party.

Inflation tends to be higher when following a Republican term of office -- for both parties -- compared to when someone follows a Democrat into office. This is where the Fed policies of Burns and Miller might be skewing the averages, though.

Tom the reason Volcker puled back was the economy was in a recession, not anything Carter said or did.

Both parties are boobs, creating a duopoly via regulation of the political market. Blah. Can't count on either of them for squat.

And I also have to say I think this is a pretty tenuous cause-and-effect relationship being established, that leaves virtually no room for specific events of the time, factors beyond unemployment and monetary policy, etc.

And GDP is just one indicator. How have Presidents left the economy when their term was over? Did America have a higher or lower standard of living after eight years of Reagan, or four of Carter, or eight of Bush?

PBC is fun stuff, but in what possible way does this explain Bartels' result, which is concerned with income INEQUALITY? And the results here take into account every year of presidents' administrations, not just the second.

Are we talking about real GDP and are we taking government spending into account here? Higher govt spending alone could account for these differences.

Besides being a ridiculously simplistic analysis of this issue it's just plain wrong. If you read Bartel's paper, he is actually concerned with growth in real wages (though the GDP issue is interesting in its own right), which follows exactly the opposite trend this PBC theory predicts.

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