The New York Times on Obama’s Economics (sorta)

The New York Times today has two opposing articles with views on what we can expect economically from Obama.

Is History Siding With Obama’s Economic Plan?

This article is based around two astounding facts comparing years under Democratic and Republican presidents. One is that the economy grows faster under Democrats. Surprisingly faster.

Data for the whole period from 1948 to 2007, during which Republicans occupied the White House for 34 years and Democrats for 26, show average annual growth of real gross national product of 1.64 percent per capita under Republican presidents versus 2.78 percent under Democrats.

That 1.14-point difference, if maintained for eight years, would yield 9.33 percent more income per person, which is a lot more than almost anyone can expect from a tax cut.

This is a fascinating fact. The biggest problem is that it doesn’t seem to make any sense. The president doesn’t have many ways to impact the economy. Why would this large difference exist? And yet it does.

Two is that income inequality grows under Republican regimes and lessens under Democratic ones. This seems fairly straightforward. Democrats tax the rich and raise the minimum rage, the Republicans do the opposite. Are the two connected? I believe so, but this is not established at all, and there is no reason to think that if the effect exists it would be immediate.

…if history is a guide, an Obama victory in November would lead to faster economic growth with less inequality, while a McCain victory would lead to slower economic growth with more inequality. Which part of the Obama menu don’t you like?

Because the first point (higher growth under Democrats) doesn’t have any mechanism behind it, you can’t assume it would hold true with an Obama presidency. In fact, it completely ignores Obama. It simply says that because Obama is a Democrat we will see the results we historically have seen with Democrats. This is tempting and suggestive, but in the end and unfounded conclusion. However, the second point (about income inequality) is a fair assumption to make, so on balance it does suggest that Obama will be better for the economy.

Obama’s Questionable Stimulus Plan

I lose respect for Ben Stein with every article of his I read.

But I am a bit worried that his knowledge of economics may not be as extensive as his legal background.

Ben Stein is an ex-law professor with no formal economic background. Glass houses and rocks, ya know? The article is a good explanation of why stimulus checks are a bad idea, economically speaking. After all they are simply borrowing from the future to try and goose todays economy. The net impact is to drive us deeper in debt. I fully agree.

But. Ben Stein is against Obama because Obama is borrowing against the future. That is the same thing as increasing the deficit. If you look at the announced spending plans of the candidates, McCain is borrowing much more. Something like $500 Billion to $350 Billion. (I am unable to find great cites, but this is universally regarded as true. Here’s a weak one. Here’s one that projects $5 Trillion to $3.5 Trillion over the next decade.)

In other words, Ben Stein is an idiot. If you don’t like deficit spending, you should vote for Obama, his bad stimulus plan ($50 Billion) is overwhelmed by his better deficit spending plan.

2 thoughts on “The New York Times on Obama’s Economics (sorta)”

  1. O, you should check out this link and this one, which has a bit more depth and explanation to it. I don’t know why all this happens, but it’s really indisputable that it does.

    I agree with your point about clearly expressed and enforced rules of the marketplace. I’m also partial to the idea that fairness promotes economic growth. (To a point of course.)

  2. One problem with the analysis of GNP under D vs R is that the time at the beginning of a presidential term is more reflective of the economic policies of the prior administration, due to the fact that it takes a while to pass legislation, and then those changes won’t take effect for several months, at the earliest. I wonder if the analysis was done by defining the “economic term” of each president as extending from 1 year (arbitrary) after he takes office until 1 year after he leaves, if the results would be the same.
    Also, what’s more important, who controls the White House or Congress?
    Still, if the conclusions are valid, one possible reason is that the underlying assumption behind Republican economic policy– less government interference in business (in the form of regulation, taxation, etc) yields better results– is not true, or true to a certain point. Many recent financial scandals– S+L in the 80s, credit bust now– have taken place under Republican control. I would argue that if business isn’t regulated enough, it tends to behave irresponsibly, taking excessive risk and/or taking advantage of consumers. In the end, this leads to worse performance.

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