Which Party Is Better for U.S. and Wisconsin Economies?

Does the choice of president influence the American economy? How about Wisconsin’s economy?  A couple of years ago, Urban Milwaukee published a Data Wonk article relating the American president’s political party to five measures of economic prosperity: the gross domestic product (GDP), job growth, the unemployment rate, stock prices, and poverty.

This article updates the first three of the five measures based on the latest available data. It also looks at whether there is a similar relationship between Wisconsin economic data and the party of the current president.

The results? Most measures show better economic results with Democratic than with Republic presidents. Ironically, polls tend to show that voters trust Republicans more than Democrats on the economy.

Gross Domestic Product

The Gross Domestic Product (GDP is defined as the value of all the goods and services produced in the United States. It is calculated by the U.S. Bureau of Economic Analysis on a quarterly basis. The values shown in the graph below start with the real GDP, which has been adjusted for inflation. The percentage change is calculated by subtracting the real GDP in a president’s first quarter in office from the real GDP of the first quarter of the following president. It is then annualized by dividing the result by the president’s number of years in office.

In the graph, annual growth during Democratic presidents is shown in blue; growth during Republican presidents is shown in red. Average growth with Democrats is 4.3%; with Republicans it is 2.5%.

Starting in 2005, the Bureau of Economic Analysis has calculated real GDPs for individual states, including Wisconsin. The average growth for the two Democratic presidents is 1.9% (including the first seven quarters of Joe Biden’s term. For the two Republicans, it is 0.2%.

Job Growth

The second economic measure I used is based on all nonfarm employment, which is issued monthly by the U.S. Bureau of Labor Statistics. Average annual growth during Democratic presidencies was 2.6%. For Republicans it was 1.7%.

In 1990, the bureau started issuing monthly employment data for Wisconsin and other states. The average job growth over the terms of the three Democratic presidents was 0.9%, compared to 0.3% for Republicans.

Unemployment

The U.S. Bureau of Labor Statistics issues monthly data on the unemployment rate. The chart below shows the difference in the rate at the beginning of each president’s term and the rate at the end.

This partisan difference is particularly striking when it comes to unemployment. Ronald Reagan was the only Republican who saw unemployment go down during his term in office. No Democrat saw an increase in the rate, although Jimmy Carter’s rate was unchanged.

Unlike with GDP and jobs, bars pointing downward are better, showing a decrease in the rate of unemployment. The average change in the unemployment rate with Democratic presidents was a decrease of 1.79 percentage points. Republicans on average saw an increase of 1.83 points.

Starting in 1976, the U.S. Bureau of Labor Statistics reported the unemployment rate for Wisconsin and other states. The graph below shows the result under these nine presidents. On average, the rate dropped 1.10 percentage points for Democrats compared to a small increase of 0.20 points for Republicans.

Summary

For the nation as a whole, the economy grew more, added more jobs, and reduced the unemployment rate when the president was a Democrat rather than a Republican, as the next graph shows.

Applying the same analysis to the Wisconsin economy, gives similar results: by all three measures but over a shorter time period, the Wisconsin economy grew more when the president was a Democrat than a Republican.

Over the past 75 years, the economy has grown more when the president is a Democrat than a Republican, as measured by the GDP. Consistent with this, employment has also grown more, and unemployment has shrunk more, with a Democratic president. The Wisconsin economy has shown a similar pattern, albeit under a shorter period.

This is counter to the widespread belief, reflected in poll results, that Republicans are better for the economy. They are, after all, the party of business. Perhaps this is all a coincidence. However, if so, it is a coincidence that has persisted long after it was first identified.

I would suggest that the pattern reflects a difference between how the two perceive the role of government. This is particularly evident during financial crises. Democrats are far more willing to use the public funds to stimulate a lagging economy.