Current presidential administration and today's economics.

Great Debates
21

And textbook economics, in my case, along with some back-of-the-envelope calculations.

Sure. But the bottom line involves comparing what the President did with what the President could have done, and the associated effects.

For example, with capacity utilization at around 75%, today’s policy makers could pursue higher short-term budget deficits and lower short interest rates without inflationary consequences.

A $100 billion block grant to the states is an example of a policy that is both large (1% of GDP) and plausibly temporary (Congress can stop the grants once the recovery catches on).

Assuming a multiplier of 2.0 gives a stimulus of 2% of GDP, which is roughly the difference between recession and recovery. Furthermore, I am even ignoring the accelerator effect. (Definitions available by request or in any introductory economics textbook).

Background info on annual real GDP growth:



Year	Real GDP Growth
1980	-0.2%	Pres ave
Nov 1980: Reagan Elected
1981	2.5%	
1982	-2.0%	
1983	4.3%	
1984	7.3%	
1985	3.8%	
1986	3.4%	
1987	3.4%	
1988	4.2%	3.4%
Nov 1988: Bush Sr Elected
1989	3.5%	
1990	1.8%	
1991	-0.5%	
1992	3.0%	2.0%
Nov 1992: Clinton Elected
1993	2.7%	
1994	4.0%	
1995	2.7%	
1996	3.6%	
1997	4.4%	
1998	4.3%	
1999	4.1%	
2000	3.8%	3.7%
Dec 2000: Bush Jr wins Supreme Court case following contested election
2001	0.3%	
2002	2.4%	1.4%

I wouldn’t make too much of the multi-year averages. Much of Reagan’s growth performance occurred during an economic recovery: fast growth often occurs when capacity utilization is lower. Clinton’s 1997-2000 performance is more impressive, as it was supported by productivity growth. Nonetheless, it was also advanced by technological change (only partly supported by Clinton through the “Information Superhighway” initiative) and an investment boom (only partly supported by Clinton via budget surpluses that boosted national savings).

Overall, one can evaluate Presidential economic policy by considering whether (short run) aggregate demand policy was appropriate to the existing state of the economy and whether the longer-run policy was demonstrably pro-growth.

( Demonstrably = backed by empirical evidence, as opposed to napkin sketches and wishful thinking for example.)

22

-----Maeglin says, “Problem with macroeconomics is that the faucets are always changing. You don’t know how long a hot or cold water adjustment will take to stabilize, and just when you begin to figure it out, the lag changes. The desired temperature changes all the time. And when you make the changes, some scream that it’s too hot while others lament the cold.”

The moron in the shower story, as told by Milton Friedman (IIRC). There’s something to that. However, the last time the Fed erred on the side of too much inflation occurred during the 1970s. The last time the Fed may have erred on the side of too much restraint was the 1991 recession. (I would argue that the 2001+ recession was caused by collapsing investment expenditure by firms.)

The economy began to overheat in the mid-1990s, but Greenspan was able to cool off the inflation without driving the economy into recession. So I would say that the Fed is adjusting the knobs with somewhat more finesse. Whether the Fed will be able to do so under more challenging fiscal conditions remains to be seen, of course.

Nice point regarding the EITC.

23

-----The economy did well because of the technological growth of the 90’s, fueled by the investing of the baby boomers, who were nearing retirement age.

-------Now that those same baby boomers are pulling money out of the market, or moving it to bonds or other non-stock securities, the market is bearish.

Debaser The “stock market” is not the same as “the economy”. For example, many capitalist countries finance much of their investments via the banking system, rather than by equity.

Furthermore, one could argue that earnings growth prospects and interest rates cause stock prices, rather than the other way around.

Admittedly, part of the investment boom in, say, fiber optics, may have been driven by high stock market valuations. I would assert that bad information played a role there as well, however. Then there’s the “wealth effect”: higher wealth prompts higher consumption. But that is thought to be empirically modest*, with regards to equities (though larger with regards to housing prices).

  • though perhaps becoming more significant.
24

RJung:

“a President is elected during a period of economic prosperity, then pushes through a budget that quadruples government spending while slashing taxes by 70%, it’s going to have a pretty big impact on things.”

I guess I’m “naive” enough to think that a President has NEVER come even close to quadruling gov’t spending or cutting taxes by 70%. Look at the size of tax cuts relative to the overall economy and you will see why Presidents have had little effect on the economy.

Hey, I think fed budgets are obscenely large, but they got that way over a fairly long period of time under many different presidents.

25

-----John Mace: Look at the size of tax cuts relative to the overall economy and you will see why Presidents have had little effect on the economy.

Um, I did above. Again, a $100 billion plan can make the difference between recession and recovery, provided it is direct spending or it is given to those with a high marginal propensity to consume.

So much for cyclics. Over the longer run, lowering national savings by $185 billion has a nontrivial impact on investment, as I noted earlier (about 10% of one boom-year). And that is only W’s latest tax-cut plan: his earlier one (which passed) was of a roughly similar magnitude.

But, hey, why look at the data when you can stick to generalities?

26

---- Hey, I think fed budgets are obscenely large, but they got that way over a fairly long period of time under many different presidents.

I have a different assessment. I would like to present Federal Outlays as a share of GDP, in a format similar to the one above:

…Federal Outlays as a share of GDP (and yearly change)…
Carter Presidency
1977…20.8…
1978…20.7…-0.1
1979…20.1…-0.6
1980…21.6…1.5
Nov 1980: Reagan Elected
1981…22.2…0.6
1982…23.1…0.9
1983…23.5…0.4
1984…22.2…-1.3
1985…22.9…0.7
1986…22.5…-0.4
1987…21.6…-0.9
1988…21.2…-0.4
Nov 1988: Bush Sr Elected
1989…21.2…0.0
1990…21.8…0.6
1991…22.3…0.5
1992…22.2…-0.1
Nov 1992: Clinton Elected
1993…21.5…-0.7
1994…21.1…-0.4
1995…20.7…-0.4
1996…20.3…-0.4
1997…19.6…-0.7
1998…19.1…-0.5
1999…18.7…-0.4
2000…18.4…-0.3
Dec 2000: Bush Sr chosen by Supreme Court after contested election
2001…18.4…0.0
2002est…19.8…1.4
Source: http://www.census.gov/prod/www/statistical-abstract-02.html (sec 9 pdf file)

Data can be surprising. Note that the change in government outlays was fairly large under W, although some of that is traceable to recession, home security and of course a generous farm bill. Note also that government outlays generally rose during the Reagan-Bush era and fell continuously -by design- during the Clinton era. (Sorry for picking on you John, but hey, you can’t fight ignorance without breaking a few eggs. Or something like that. :wink: )

Anyway, I don’t think 18 percent of the economy is “obscenely large” (for example). For those who do, I recommend that they should brace themselves for the upcoming and inevitable retirement of the baby boomers.

27

And unless I’m missing something, rates did not (except above $100K income level, but decreased at lower levels). So if you are going to claim that Clinton raised taxes, I’m asking you to provide a cite (to fight my ignorance). Sorry if that wasn’t clear.

flowbark, thanks for actually providing the objective data. My prefacing remark about opinions, speculation, and subjective analysis was directed at other participants in this thread, and I should have made an explicit exception to your posts (which you did back up with data).

You have now provided even more data, and I appreciate it. It at least allows for some objective discussions.

While GDP growth is an interesting measure for economic performance, I also appreciate you posting the data for federal outlays as a percent of real GDP, as that relates to the “size” of the federal government. Interesting to me that Democrats appear to have a better record at delivering a smaller federal government than Republicans, but have the opposite reputation (and yes, I recognize the many other factors that prevents any apples to apples comparisons, but nonetheless, the trends remain, even if you go back to Ike).

If you wouldn’t mind, it would also be interesting to look at federal debt as a percent of GDP. That provides some measure of a President’s fiscal prudence. Granted, again, that many other factors come into play. But it is also quite clear that the Reagan boom was financed, and the Clinton boom paid for itself (even if you include the bubble burst!).

IMHO, the OP laid out a bunch of BS, without any support. There is a persistent tendency to believe that Democrats, and Clinton in particular, screwed up the economy. The facts just don’t seem to bear it out.

28

Yeah, budget deficits as a share of GDP are also instructive. They appear to me to favor democrats for the past 20 years. (Debt, btw, is a little tricky since it represents cumulative deficits and economic growth.).

Recently, the emerging Republican orthodoxy seems to be that budget deficits don’t matter. I sure hope this is a temporary phenomena. (That said, the extent to which long-term budget deficits matter is slightly tricky. I believe they do, given upcoming demographic shifts over the next 30 years and our country’s low savings rate. But that’s another story.)

Ok, I got the debt data: deficits as a share of GDP would be somewhat trickier to dig up.
Total Nominal Federal Budget Deficit, Debt as a share of GDP and, change in Debt share

…nominal…annual
date…surplus(deficit)…debt/gdp…change
1960…0.3…56%…
1965…-1.4…46.9…
1970…-2.8…37.6…
1975…-53.2…34.7…
Carter elected: 1976
1977…-53.7…35.8…
1978…-59.2…35…-0.8
1979…-40.7…33.1…-1.9
1980…-73.8…33.3…0.2
Reagan elected: 1980
1981…-79…32.5…-0.8
1982…-128…35.2…2.7
1983…-207.8…39.9…4.7
1984…-185.4…40.8…0.9
1985…-212.3…43.9…3.1
1986…-221.2…48.2…4.3
1987…-149.8…50.5…2.3
1988…-155.2…51.9…1.4
Bush Sr Elected: 1988
1989…-152.5…53.1…1.2
1990…-221.2…55.9…2.8
1991…-269.4…60.7…4.8
1992…-290.4…64.4…3.7
Clinton Elected: 1992
1993…-255.1…66.3…1.9
1994…-203.3…66.9…0.6
1995…-164…67.2…0.3
1996…-107.5…67.3…0.1
1997…-22…65.6…-1.7
1998…69.2…63.2…-2.4
1999…125.5…61.4…-1.8
2000…236.4…57.8…-3.6
Bush Jr. Sworn in following contested election, early 2001
2001…127.1…56.8…-1
2002,est…-106.2…59.2…2.4
Debt, as a share of GDP, generally fell from 1960 to 1980, under both Republican and Democratic administrations. With the rise of the New Right under Reagan, however, higher deficits led to a growing debt burden. That trend was first slowed, then reversed during the Clinton administration. W appears to be basing his policies on Reagan (higher deficits) rather than Nixon (or Eisenhower?).

Now, to be fair, I point my fellow posters to the thread http://boards.straightdope.com/sdmb/showthread.php?s=&threadid=136104&highlight=Casual+empiricism , where Apos gave a more conservative perspective on fiscal policy.

As for the OP: I’d say it laid out a bunch of whining, without any support. That’s a little milder than BS: at least yme expressed his opinions with a certain level of modesty. yme: You should really work on the substantiation, dude: we’re here to fight ignorance, after all.

29

AZCowboy: I have spreadsheets going back to 1999, when I started to get serious about tracking my own liabilities during the year. That shows the 31% bracket kicking in at 104,050 of taxable income, and the 36% bracket, which is the one added by Clinton, kicking in at 158,550, so you are correct that the rates went up only for those making well over 100k a year.
Which is still a tax hike on the macroeconomic level, which was my point. Correct me if I’m wrong, but there weren’t any policy decisions, other than the expansion of the EITC, that would have affected the amount of tax paid by those making less than 100k. Any drop in those effective rates would have been because of the automatic adjustment for inflation that takes place every year.
The effect of the hike can be seen in the following figures:




Year	Receipts	Increase	GDP	Increase	Ratio
1992	1091.3	---	6318.9	---	---
1993	1154.4	1.06	6642.3	1.05	1.2
1994	1258.6	1.09	7054.3	1.06	1.5
1995	1351.8	1.07	7400.5	1.05	1.4
1996	1453.1	1.07	7813.2	1.06	1.17

Note how rapidly receipts rose in 1994, and how this was 50% higher than the rate of increase in GDP. Ditto for 1995. For these years, this is a good comparison to make because the stock market had not yet begun its meteoric rise, so capital gains were not yet inflating receipts. The rise in receipts can only be explained by the tax hike. For the economy as a whole, taxes rose much faster than the economy did, which is a tax hike on the economy, and this would have slowed the rate of expansion, all other things being equal.

30

Hmm…on the columns with rates of increase take 1 away to get the percent. Forgot to do that in my formulas.

31

It’s equally silly to blame Bush for the economy as it is to blame Clinton for it.

Massive tax cuts (or increases) is about the only thing that would have any hope of affecting the economy of the US in any measurable way. And even then, IMHO, it has about the effect of a 10 year old building a larger sandcastle against the rising tide.

The economy did well because of the technological growth of the 90’s, fueled by the investing of the baby boomers, who were nearing retirement age.

Now that those same baby boomers are nearing retirement age they are pulling money out of the market, or moving it to bonds or other non-stock securities. As a result, the market is bearish.

Enron, 911, the election, and the war uncertainty aren’t helping matters much. However, if all of these events happened during the middle of the roaring 90’s the market would have quickly recovered. Overall, it’s a numbers game. The more people are putting into the market, the higher stocks will rise. If more people are pulling out of the market, then bears will riegn. No president could have prevented or causes this to happen. Just as new schools had to be built for the baby boomers, and then closed this surge in the population has effected many things in it’s path. The markets are no exception.

32

Oops.

Sorry for the two days apart double post. My compter has been sitting idle all this time and when I came back I hit refresh and posted twice. The page was hung up and I didn’t think the first one was posted. My bad.

33

I never said they were. But, the two are linked? The performance of one affects the other. It’s probably possible in theory for the economy to be in recession and the stock market to be bullish, but I don’t think this can ever happen in reality.

34

Sure it can, especially now. If listed companies do a great deal of business overseas and large domestic industries tank, the prices for securities can be high but the economy can be in the tubes. This would be exacerbated if the biggest investors were foreign as well. This is reminiscent of Japan in the 1980’s. Japanese businesses invested enormous sums in the United States, the stock market was booming, yet huge economic sectors between the coasts were left to hang.

35

pantom, thanks for including data, but understand that such a increase in federal receipts can be explained by something other than the increase of tax rates for the same income levels.

and from the same link (and note that “recent” in this link is a reference from 1998)

So what about the tax table rates themselves. Here are the differences between the 1992 tax rate tables and the 1993 tax rate tables from Form 1040:



$36,000-36,050     $5,433     $5,404     $ 29 Less 

$46,000-46,050     $8,233     $8,090     $143 Less 

$56,000-56,050     $11,033   $10,890     $143 Less 

$66,000-66,050     $13,833   $13,690     $143 Less 

$76,000-76,050     $16,633   $16,490     $143 Less 

$86,000-86,050     $19,433   $19,290     $143 Less 

$99,950-100,000    $23,743   $23,521     $222 Less

In addition to the expansion of the EITC, Clinton also increased the standard deductions and increased exemptions.

So, the majority of Americans, within the same income level, paid at a lower tax rate under Clinton than they did under Bush I. Only the richest Americans suffered with higher taxes.

Now, for whomever wishes to claim that the meteoric economic growth of the 1990s was fueled by “technology”, please explain what has fundamentally changed with technology that would now have reversed this trend.

36

So that’s it then? Clinton was singlehandedly responsible for the boom times of the 90’s? I’m just going to say that as an economics major I am far from convinced by the case that has been made so far. Yet I feel outclassed by the degree of evidence and analysis that has brought to bear here so far :(. (back to the books I guess)

My (relatively unfounded it seems) .02 would be that the direct effect Presidents have on the economy through fiscal policy is often over-stated. They may be in a good position to effect fiscal policy initiatives but all of that still has to make it through congress and be subject to implementation lags. In any event much of the government spending is non-discretionary so Presidents can hardly take credit for all of it. I’m sure there is more to such a rebuttal, I’ll be sorely dissapointed if AZCowboy is allowed to get away with this statement…

:wink:

37

Azael

The truth is, I believe, that we will never know. There is no consensus on how much fiscal spending in general actually affects the business cycle, less so how much the president affects such spending. Doesn’t mean we shouldn’t attempt to lay out criteria anyway.

But the president tends to have his fingers in every major legislative pie. When congress passes or rejects even a dinky appropriations bill, an active president has probably twisted more than his fair share of arms.

I don’t believe this is very difficult to rebut.

The technological change intrinsic to the 90s was “one-off,” as it were. The most important statistic to analyze with respect to growth is not so much GDP as productivity. Technological innovation is an input-side change, and by definition positively affects the GDP. More inputs, more outputs.

However, the real “miracle” of the 90s was the sudden increase in efficiency. What we are seeing now is simply diminishing marginal productivity. The one-off technological change is unsustainable since it is not accompanied by a large increase in efficiency. There’s only so much you can dump into input before the benefit levels off. This should come as no surprise to anyone, really.

38

Azael, in reviewing this thread, you will not find anywhere that I have suggested that the sitting POTUS is responsible for economic performance. I did not posit such an assertion, the OP did.

What I attempted to do is to show that IF the POTUS were responsible, the facts line up behind the Democrats, including Clinton, and not behind the Republicans.

IOW, if I accept the premise, the arguments still don’t support it.

And I would still like someone to explain where the slowdown in technology has occurred. As far as I am aware, the improvements in technology and IT productivity continue. Certainly, the Internet bubble burst disproportionately impacted technology equities, but I don’t see the connection between those market dynamics and the technology itself.

39

[quote]
And I would still like someone to explain where the slowdown in technology has occurred. As far as I am aware, the improvements in technology and IT productivity continue.[/quote[

I believe I just did.

40

Sorry, Maeglin, I missed your post.

Do you have anything objective you can point to that supports your theory?

All indications I have seen show that the rate of technological change continues uninterrupted, and productivity gains, while taking a bump in 2001, have returned to late-90s levels.