As each new day brings word of another Wall Street bailout even more colossal than the last, one question presents itself with ever-increasing force: why does the US economy perform so badly under Republican presidents?
The facts are hard to dispute; indeed, the historical record is now so stark that diehard Republicans are probably starting to wonder if there is a curse. Over the period for which modern statistics are readily available, Democrats have outperformed Republicans by almost every traditional measure of economic performance (per capita GDP growth, unemployment, inflation, budget deficits).
Democrats have even managed to beat the Republicans on their own turf. Thanks to the profligacy of the current administration of US President George W. Bush (and the prudence of the administration of former US president Bill Clinton), average Federal spending as a proportion of GDP under Republican presidents now exceeds that under Democrats during the measured period.
The pattern of Republican deficiency holds up when the span of historical analysis is extended by using stock returns to measure economic performance. On average, since the inception of the Standard and Poor’s composite stock index in 1926, the reward for putting your money in the market has been about 16 percentage points lower per presidential term under Republicans than under Democrats. Republican underperformance remains a stubborn fact even when the Great Depression and World War II are left out of the analysis (in the fond hope that they will prove to have been unique experiences).
With the current presidential term lurching to such a calamitous close that the incumbent is probably worried about being remembered as George Herbert Hoover Walker Bush, the correlation between presidential party and economic outcome demands some kind of explanation.
The answer can’t be found in the specific policy proposals of Republicans or Democrats, which have evolved so much over the years that they defy generalization. Nor are there clearly identifiable differences in doctrine that should translate into a reasonable expectation of better economic performance under one party than the other.
Perhaps the best explanation has to do with attitudes, not ideology. Maybe capitalism works better when skeptics restrain its excesses than when true believers are writing, interpreting, judging and executing the rules of the game. The Democrats are surely the more skeptical of the US’ two parties.
Some evidence can be found in those features of the US economy that we believe others should emulate. There is now an overwhelming consensus that open, transparent and accountable mechanisms of shareholder control are essential for the efficient functioning of public corporations. Virtue is defined by good accounting rules.
But it is instructive to recall that many of those rules that are now universally admired were fiercely resisted when first proposed. The options backdating scandal that recently caught Apple chairman Steve Jobs is a microcosm of innovation, prosecution and reform; now that a rule has been written to prohibit backdating, this particular scam will not happen again. Thus do accounting rules approach perfection.
What do we learn from this example? It’s hard to say. Maybe that capitalism works better when it is being held accountable to some external standard than when left to its own devices.
As the twentieth century recedes in the rear-view mirror, it increasingly seems that, for better or worse, our era’s defining manifesto has been Milton Friedman’s book Capitalism and Freedom. But that book’s potency originally derived from its fierce independence from contemporary orthodoxies. Friedman’s voice was a skeptical breath of fresh air at a time when the reigning viewpoint was a kind of smug pseudo-socialism that did not recognize the astounding power of markets to accomplish desirable aims.
Today, however, the reigning Republican orthodoxy is a kind of smug pseudo-Friedmanism that believes that markets left to themselves can do no wrong. Perhaps it is time for another breath of fresh air.
The book for the new epoch has yet to be written, but I have a proposed title: Capitalism and Skepticism. Skepticism might not be as bracing as freedom, but it’s something we could have used a bit more of in the past few years.
Christopher Carroll is a professor of economics at Johns Hopkins University.
COPYRIGHT: PROJECT SYNDICATE
Saudi Arabian largesse is flooding Egypt’s cultural scene, but the reception is mixed. Some welcome new “cooperation” between two regional powerhouses, while others fear a hostile takeover by Riyadh. In Cairo, historically the cultural capital of the Arab world, Egyptian Minister of Culture Nevine al-Kilany recently hosted Saudi Arabian General Entertainment Authority chairman Turki al-Sheikh. The deep-pocketed al-Sheikh has emerged as a Medici-like patron for Egypt’s cultural elite, courted by Cairo’s top talent to produce a slew of forthcoming films. A new three-way agreement between al-Sheikh, Kilany and United Media Services — a multi-media conglomerate linked to state intelligence that owns much of
The US and other countries should take concrete steps to confront the threats from Beijing to avoid war, US Representative Mario Diaz-Balart said in an interview with Voice of America on March 13. The US should use “every diplomatic economic tool at our disposal to treat China as what it is... to avoid war,” Diaz-Balart said. Giving an example of what the US could do, he said that it has to be more aggressive in its military sales to Taiwan. Actions by cross-party US lawmakers in the past few years such as meeting with Taiwanese officials in Washington and Taipei, and
The Republic of China (ROC) on Taiwan has no official diplomatic allies in the EU. With the exception of the Vatican, it has no official allies in Europe at all. This does not prevent the ROC — Taiwan — from having close relations with EU member states and other European countries. The exact nature of the relationship does bear revisiting, if only to clarify what is a very complicated and sensitive idea, the details of which leave considerable room for misunderstanding, misrepresentation and disagreement. Only this week, President Tsai Ing-wen (蔡英文) received members of the European Parliament’s Delegation for Relations
Denmark’s “one China” policy more and more resembles Beijing’s “one China” principle. At least, this is how things appear. In recent interactions with the Danish state, such as applying for residency permits, a Taiwanese’s nationality would be listed as “China.” That designation occurs for a Taiwanese student coming to Denmark or a Danish citizen arriving in Denmark with, for example, their Taiwanese partner. Details of this were published on Sunday in an article in the Danish daily Berlingske written by Alexander Sjoberg and Tobias Reinwald. The pretext for this new practice is that Denmark does not recognize Taiwan as a state under