August 25, 2014
Robert Samuelson discusses a new analysis from Princeton University economists Alan Blinder and Mark Watson that finds the economy has generally grown more rapidly under Democratic presidents than Republican presidents. Samuelson notes that Blinder and Watson can explain much of the difference on factors like the OPEC price shocks, wars, and trends in productivity, but there is still a portion that remains unexplained.
Samuelson then comments:
“Actually, the explanation is staring them in the face.
“The parties have philosophical differences that affect the economy. To simplify slightly: Democrats focus more on jobs; Republicans more on inflation.”
Clearly there are differences in attitudes towards the willingness to promote jobs as opposed to concerns about inflation. However, the party breakdowns are perhaps not as clear as Samuelson suggests. After all, it was Richard Nixon who imposed price controls in 1971 as an alternative to contractionary fiscal and monetary policy that would have slowed growth and eliminated jobs. And Jimmy Carter was the person who appointed legendary inflation hawk Paul Volcker as head of the Federal Reserve Board. More recently, it was Republican Alan Greenspan (originally appointed by Ronald Reagan, although reappointed by Bush I, Clinton, and Bush II) who argued with Clinton appointees Janet Yellen and Lawrence Meyers that there was no reason to raise interest rates in 1995-1997 and that the economy could be allowed to continue to grow and create jobs.
Anyhow, Samuelson’s point is right. There are differences between the priorities that are placed on jobs and employment versus the risk of higher inflation. This is a fundamental policy decision. It is unfortunate that most of the public is unaware of the decisions the Fed makes on this trade-off. As a result the voices that tend to dominate the debate come from the financial sector, which pushes the Fed to focus on the risk of inflation. Unnecessarily high unemployment has little consequence for bank profits, even if it means millions of people needlessly out work and tens of millions lacking the bargaining power to demand higher wages.
Note:
Allan Lane correctly takes me to task for seeming to accept Samuelson claim that the differences between the parties are “philosophical.” That was not the part I was agreeing with. There are differences with Democrats tending to be more responsive to concerns from unions and workers more generally about jobs. On the other hand, Republicans are more likely to be listening to their backers in the financial industry. So there are differences, but they don’t necessarily come from philosophies.
Also, as noted above, the differences are not always clear cut. The Democrats also count on support from Wall Street.
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