Republicans v. Democrats, Round 3: Jobs

This is the third and final article in a series of three that examine the relative economic performance of Republican and Democratic administrations since the end of the Second Industrial Age.  If you haven’t already done so, read the first and second articles, which compare federal debt and stock-market performance since the proximate end of the Second Industrial Age.  Spoiler alert: the underdog Democrats defeated the overdog Republicans in both instances, and neither outcome was a close call.

In this piece, we attempt to determine which party has been the better “job creator” over the last four decades.  As in the last two comparisons, there are a number of metrics that can be used to measure relative job creation, but the simplest, most widely understood, and least obscured by a growing economy is the unemployment rate.

The incoming and outgoing unemployment rates by administration were as follows:

President                  Party          In Office     Incoming Rate  Exit Rate    Change

Jimmy Carter            Dem.         1977-1981            8.5%             8.0%          -0.5%

Ronald Reagan         Rep.          1981-1989             8.0%             5.6%           -2.4%

Bush the First           Rep.          1989-1993             5.6%             7.8%          +2.2%

Bill Clinton                Dem.        1993-2001              7.8%             4.1%          +2.9%

Bush the Second      Rep.          2001-2009             4.1%              8.6%         +4.5%

Barack Obama         Dem.         2009-2017             8.6%              4.9%          -3.7%

On average, the unemployment rate increased from 5.9% to 7.3% during the last three Republican administrations.  On average, the unemployment rate decreased from 8.3% to 5.7% during the last three Democratic administrations.

Another way to gauge the difference: the unemployment rate increased by an average of 24% during the average Republican administration; it decreased by an average of 32% during the average Democratic administration.

That’s a difference of tens of millions of jobs over the last forty years.

Full disclosure:  From February 2017 to February 2018, US unemployment decreased from 4.9% to 4.4%.  The trend line suggests, however, that the unemployment rate will be materially higher by February of 2021, or maybe The Donald is channeling Ronald Reagan.  We’ll know in a few more years.

Notes:

(1)  The unemployment data are from Bureau of Labor Statistics.

(2)  The comparison assumes that each incoming president was responsible for the economy from the first February after his inauguration until the first February after his successor’s inauguration, which is why incoming and exit figures are identical.

 

Trickle Down: The Lost Alternative

At one time or another, most of us have heard the phrase “trickle-down economics.”  It is, in the conservative mind, the best way to stimulate the economy, thus it was the basis for the 2018 tax reform bill authored by Congress and signed into law by the president.  But, before we on The Other Side of Obvious can accept that “trickle-down” works admirably well, we are compelled to examine how it works, if for no other reason than we aspire to be sentient.

In an economic context, “trickle down” means that tax incentives aimed at the wealthiest of the economy will work their way down to the middle and lower classes.  However, a tax break for a wealthy man, or more rarely a woman, is discretionary.  He can spend it on an American-made business jet or a Norwegian yacht.  She can invest the money in an asphalt plant in Pittsburgh or a cement factory in Vietnam.  He can buy a thousand acres of farmland in Nebraska or in Surinam.  She can invest in an American hedge fund, or Eurobonds, or bitcoin.

Moreover, the wealthy need never be in a hurry because, well, they’re wealthy.  Hence the phrase “trickle down,” which, to review, means that a lot of money is given to the wealthy in the form of tax breaks, and then it trickles down to the middle and lower classes, except for the parts that are invested overseas or put aside for a rainy day, possibly in the Caymans.

It would seem from a cursory examination of trickle-down economics that there’s room for improvement, if only in theory.  So let’s imagine for a moment that instead of giving another tax break to the wealthy, Congress voted to cut taxes for the middle class and to increase subsidies like food stamps and Medicaid for the economically disadvantaged.  Unlike the rich, the lower classes don’t have any money to save, and the middle classes don’t bother (with few exceptions).  Instead, they spend it on essentials like heat, healthcare, video games, and pop tarts, and they can’t afford to wait.

In other words, the money enters the economy quickly, and then it gushes up the economic food chain: from the retail stores to the companies that own the retail stores, to the hedge funds that own most of the stock in retail store companies, and on to the men and women who invest in hedge funds.  In the end the wealthy get it anyway, but at least the middle and lower classes had it for a while––and pop-tart sales skyrocketed.

Sadly, the phrase “gush up” sounds too much like vomit.  It never caught on, which explains why the rich get all the tax breaks.