Presidents and Economic Growth

There’s an old and recurring claim that Democrat presidents produce greater economic growth than Republican ones. I addressed and debunked such a claim nine years ago, saying this (in part):

Given the long, downward trend in the real rate of GDP growth, it is statistical nonsense to pin the growth rate in any given year to a particular year of a particular president’s term. It is evident that GDP growth has been influenced mainly by the cumulative, anti-growth effects of government regulation. And GDP growth, in any given year, has been an almost-random variation on a downward theme.

How random? This random:

Derived from Bureau of Economic Analysis, “Current dollar and ‘real’ GDP,” as of April 28, 2017.

The one-year lag (which is usual in such analyses) allows for the delayed effects (if any) of a president’s economic policies. The usual suspects are claiming, laughably, that the tepid growth rate in the first calendar quarter of 2017 is somehow Trump’s fault.

Anyway, here’s the real story:

This is an updated version of a graph in “The Rahn Curve Revisited.,” from which the following equation is taken:

Yg = 0.0275 – 0.347F + 0.0769A – 0.000327R – 0.135P , where

Yg = real rate of GDP growth in a 10-year span (annualized)

F = fraction of GDP spent by governments at all levels during the preceding 10 years

A = the constant-dollar value of private nonresidential assets (business assets) as a fraction of GDP, averaged over the preceding 10 years

R = average number of Federal Register pages, in thousands, for the preceding 10-year period

P = growth in the CPI-U during the preceding 10 years (annualized).

Random, short-run fluctuations in GDP growth have almost nothing to do with the policies of a particular president (see the first graph). But there’s nothing random about the steady growth of government spending, the steadier growth of the regulatory burden, and the combined investment-killing and inflationary effects of both (see the second graph).

The long-run trend in GDP growth reflects the cumulative effects of policies carried out by the “deep state” — the apparatus that churns on with little change in direction from president to president: the special interests represented in the many committees of Congress, the Social Security Administration (which also encompasses Medicare and Medicaid), and the entire alphabet soup of federal regulatory agencies. Most of those entities became committed, long ago, to the growth of government spending and regulation. It will take more than a slogan to drain the swamp.

John H. Arnold characterizes war as “long periods of boredom punctuated by short moments of excitement.” I would say that the economy of the United States has been on a long slide into stagnation punctuated by brief periods of misplaced optimism.