What Party is better at Managing the American Economy?
This question is not only answerable, the difference is rather stark.
IT IS almost axiomatic. It is such a foundational rule of the economic and political universe that, like gravity, the seeming truth of it outweighs any analysis. It is an assumption held by nearly every American, our discourse accepting this proposition not as belief, but proven, the Pythagorean theorem of American political-economic thought:
Republican administrations are better at managing the economy than Democratic administrations.
And when most people think and discuss the above, they tend towards discussions of the economic prowess in Republican Presidential administrations: Reagan! Eisenhower! Pre-COVID Trump! The list of post-war Republicans who are renowned for economic prosperity resonates far more than the party of… Carter. Or Obama.
Again, it’s obvious. Republicans are better at managing the economy than Democrats.
Right?
Well… I don’t want to spoil the story, but this is a newsletter dedicated to fighting the increase of Denialism in our society by means of debunking the conventional wisdom held by middle-class conservatives. Like I used to be.
The Yardstick
What is meant by the very vague “better at” phrase above? And “the economy”? (We’ll get to ‘managing’ later)? What does one measure to determine if one is “better” at “managing the economy”?
The most common measure you read about in terms of ‘overall economic growth’ is GDP (Gross Domestic Product), the ‘monetary value of all goods and services produced by a country in a given period’. And that’s fine, but is merely producing more stuff… is that really a solid basis for measuring economic health? If we are producing more stuff by destroying our capital stock in the process (ie, ‘we’re exceeding bullet production by tearing up our railroad lines!’), our GDP may increase… but so what?
And so… GDP, as a measure of national wealth, means nothing. It’s not a good yardstick because it doesn’t tell us the financial impact of earning that GDP.
There are better yardsticks, however.
My grandparents were obsessed by the concept of net worth, the simple adding up of all your assets and then subtracting all of your debts. “A man making $30,000/year and spending $35,000 is worse off than a man making $20,000 and spending $15,000”, my grandfather would say. And he was absolutely correct – now, when we talk about the worth of billionaires, we don’t talk about their income or free cash flow. No. We talk about their wealth, their net worth.
Net Worth = Assets – Liabilities.
Net worth is how the financial wealth of people, organizations, and countries is measured. Not income, not production, not GDP, not even the population & longevity figures beloved by historians, no:
Net Worth.
You take the three sectors of the US economy (Consumer, Corporate, Government (all levels)), add up all the stuff they own… stocks, housing, buildings, financial assets, cars… then subtract all the debt… Federal debt, credit card debt, auto loans outstanding, municipal bonds, etc… and you now have our yardstick, National Net Worth.
And guess what, ladies and gentlemen? The Federal Reserve has done us the favor of doing all this math for us since 1945, starting annually, and then, from 1948-onward, quarterly. And thank God – I sure didn’t want to do it!
So, for purposes of this article, we are measuring changes in National Net Worth, a figure published by the Federal Reserve in the quarterly Z1 report, Financial Accounts of the United States, focusing on table B1, Derivation of US Net Wealth, line 1, All Sectors, US Wealth. The edition used is updated to Q2 2021, released September 23rd, 2021. National Net Worth started being tracked in 1945, and this article, too, focuses on the same post-WW2 period. And, of course, the Federal Reserve retains all rights to the data and may revise it at any time.
Managing the Economy
Now here comes the sticky part – what do I mean by ‘managing’? When does a Presidential administration ‘manage’ the economy? How much impact does a President have anyway, and how immediate is it? FDR appeared to have a massive impact, early. Bush 2, not so much. One could argue that a President can take credit/blame from day 1, others argue that their efforts can’t be felt until their first budget goes into effect (usually October 1st of their first year), others ask that we wait a few years, even others consider the question unanswerable.
Given this isn’t my Ph.D. thesis, I am going to keep this simple and accept the very real fact that a President can have a true, immediate jolt on the economy if they choose to do so, ala FDR and Reagan’s pre-first budget moves (closing banks, taking on public unions). Therefore, in the following , I give a President credit for movement in National Net Worth from the beginning of the quarter in which they take office, until the end of the quarter in which they end. I do make the following adjustments:
1. The 20 days in January in the first year of a new President is given to the incoming President. In other words, Kennedy gets credit for all of January, 1961, not just January 20th-January 31st 1961, with Eisenhower getting credit for 1-1-61/1-19-61.
2. 1945 is considered the ‘base’ year and is not given to Truman (giving him 7 years (1946-1952), not 7.5)
3. In 1963, I gave JFK credit for the entire year, including Q4.
The Process
The process was pretty simple. I downloaded the CSV containing the current Z1, a standard CSV file with the rows being the individual quarters and the columns being the various detail levels in the report. Fortunately for us, the column we are looking for happens to be Column B:
Opened it up, isolating specific quarters for changes in Presidential administrations, and then adjusting the figures for inflation, I created the following summary table:
(All inflation adjustments were made at https://www.bls.gov/data/inflation_calculator.htm.)
I then calculated the Compounded Annual Growth Rate using http://www.moneychimp.com/calculator/discount_rate_calculator.htm for each Presidential Administration. And, after numbering the Presidents from 1-17 based on their ability to grow wealth for the United States of America as a whole, here are the Presidential rankings as measured by annualized compound rate of return as shown by the Federal Reserve’s Derivation of US Wealth table mentioned above:
Looking at the top line, LBJ – from Jan 1964 to Dec 1968, 5 years – grew national net worth from $21 trillion (adjusted for inflation, baseline July 2021) to $28 trillion, a $6.9 trillion increase. Resulting in an annualized compounded rate of return of 5.78%, this makes LBJ the best President at growing wealth since the end of WW2. If you gave LBJ $100, at the end of the year he would return $105.78.
Conversely, Bush 2: 8 years, adjusted growth of a mere $2.3 trillion in an economy 3x the size of LBJ’s, annualized growth rate of 0.39%. Note that this is slightly more than one third of one percent, so if you gave Bush $100, he would give you $100.39 at the end of the year.
(I do not want to go into detail about the individual Presidents, but I would be horribly remiss if I did not point out the curious case of Donald Trump, who saw this insane vacillation of National Net Worth (NNW) in the last five quarters of his Presidency, during the COVID crisis:
Starting Jan 2020, NNW is $105 trillion. COVID hits – NNW drops $10 trillion almost immediately, but one would expect that: Stocks were down, oil went negative that one day, massive layoffs, people started to die in appreciable numbers, it was wild. However, by the end of June 2020, the US had almost made up for the loss… and then ended up $10 trillion richer during the COVID crisis, during over a million COVID and excess-mortality deaths, during 16,000,000 lost jobs, during a time of depressed economic activity, during a time when America needed stimulus checks.
Did the country really feel $20 trillion richer in December 2020 than it did in March of that year?
May be a subject for a future article. For now, I digress.)
Summary
With the detailed data above, we can now see if the original statement… Republican administrations are better at managing the economy than Democrat administrations… is true.
In 35.5 years of Democratic administrations, NNW grew by $69.5 trillion, resulting in an annualized growth rate of 5.83%.
In 40 years of Republican administrations, NNW grew by $47.7 trillion, resulting in an annualized growth rate of 4.32%
The difference between the two is statistically vast: 1.51%. This difference may not sound like a lot, but:
If you gave the Democrats $100, at the end of 35.5 years of 5.83% growth per year, they will hand you back $726.62. At the end of 40, you would get $964. And, if you went a full 75.5 years… $7,009.06
If you gave the Republicans $100, at the end of 35.5 years of 4.32% growth per year, they will give you back $439.41, at 40 years you receive $542.88, and if you went a full 75.5 years… $2,385.44.
By using the very basic, conservative measure of National Net Worth, we are able to stick to Adam Smith’s dictum that what is prudent in the most Private of Families can scarce be considered Folly in the affairs of Great Kingdoms. Net Worth is a fundamental measure of the financial health of people and nations, as both grandfathers and economists agree, and by using this measure, it is obvious that the conventional wisdom is not only wrong, but wrong by a staggering amount – Democratic administrations are better at growing national wealth by 1.5% a year over their Republican counterparts.
And why is this? Why this vast discrepancy? Why is it the Democrats which do a better job of growing national wealth?
It’s simple, really: Policies which favor plutocrats… and the Republicans, since 1869, have always been the party of the American plutocracy… do not benefit America as a whole.
And they never have.
Next up, I’m going to tackle the period between 1869 and 1945. Can’t do National Net Worth – nobody was measuring it – so just like a historian who transitions to population growth data in order to determine if some medieval country was doing well in the 13th century, I’ll have to figure out new yardsticks for this effort.
Bravo!
Kyle Rittenhouse is innocent you little faggot.