In a recent editorial, The New York Times’ David Leonhardt opined that the economy performs better under Democratic presidents than under Republicans. Leonhart misses a lot of economic history, choosing instead to criticize Republican presidents, who, he writes, “often clung to theories that they want to believe — like the supposedly magical power of tax cuts and deregulation.”
Leonhardt’s central thesis is that the supposed reason the economy has performed better under Democratic presidents is that “Democrats have been more willing to heed economic and historical lessons about what policies actually strengthen the economy.” History doesn’t necessarily reflect that view.
Leonhardt focuses on the presidency of Franklin Roosevelt as one example of a Democratic president who supposedly strengthened the economy. Roosevelt adopted the ideas of economist John Maynard Keynes, who believed that governments could “prime the pump” to boost aggregate demand.
Leonhardt also takes a jab at Roosevelt’s predecessor, Herbert Hoover, by writing that “Hoover [was] passive in the face of the Depression.”
Perhaps one of the greatest myths of this particular period in American history is that Hoover was an adherent of laissez-faire capitalism. Ironically, it was Roosevelt’s running mate in 1932, John Nance Garner, who attacked Hoover for “leading the country down the path of socialism” because of the growth of government on his watch. Rexford Tugwell, a member of Roosevelt’s “Brain Trust,” once wrote, “The New Deal owed much to what [Hoover] had begun.”
Let’s also remember that the recovery during the New Deal was rocky. When Roosevelt took office, the unemployment rate was 24.9 percent. It gradually declined before the United States experienced another recession in 1937 and 1938. The unemployment rate jumped back up to 19 percent. Two economists, Harold Cole and Lee Ohanian, have concluded that the New Deal prolonged the Great Depression by seven years.
Although Leonhardt’s data show that President Dwight Eisenhower and President Harry Truman outperformed the most recent Republican presidents, what isn’t mentioned is that the economy went through a period of boom and bust cycles at a time when the highest statutory income tax rate exceeded 90 percent.
Historian Brian Domitrovic explained, “[T]he United States suffered four recessions. There was one in 1949, 1953, 1957, 1960 — four recessions in 11 years. The rate of structural unemployment kept going up, all the way up to 8 percent in the severe recession of 1957-58.”
The slow economic growth under his predecessors was a reason that President John F. Kennedy pushed for significant tax cuts. Yes, Kennedy was a supply sider, a fact that the media doesn’t talk about much.
In his final State of the Union address, Kennedy said, “[I]t is increasingly clear...that our obsolete tax system exerts too heavy a drag on private purchasing power, profits, and employment. Designed to check inflation in earlier years, it now checks growth instead.”
Leonhardt also points to President Obama’s time in office as an example of being “much bolder” during an economic crisis. The recovery from the financial crisis was incredibly slow. In June 2007, before the financial crisis took hold, the unemployment rate was 4.4 percent.
Before taking office, Obama and his economic advisors said that we needed a massive economic stimulus package to keep unemployment below 8 percent. Congress passed that bill under the nascent Obama administration in February 2009 on top of the Bush-led Wall Street bailout in October 2008.
Still, the unemployment rate peaked in October 2009 at 10 percent. Although the recession officially ended in the second quarter of 2009, the unemployment rate would remain at 9 percent or higher until October 2011 and would not reach its pre-recession level until May 2017.
Economic growth was unusually stagnant under President Obama’s watch, never rising above 2.9 percent. To put this in perspective, economic growth under President Reagan in 1983, the year after the 1982 recession, was 7.9 percent.
The economy had resumed sustained growth until COVID-19 hit the United States, as governors across the country partially shut down their states’ economies. But before the shutdowns, America saw an unemployment rate not seen since the late 1960s. Republican-led tax cuts and deregulation were certainly major contributors to the atmosphere that allowed businesses to hire and grow. Unfortunately, we also had a misguided trade war that hurt growth.
To be sure, Leonhardt does make a valid point that “Republican presidents have run up larger deficits than Democrats,” but his criticism of deficits under Republicans primarily blames tax cuts rather than massive spending increases pushed through by Congress. Remember, Congress has the power of the purse and Democrats controlled it for decades up until 1995.
Leonhardt also says nothing about how divided government has historically checked spending. This was especially true in President Clinton’s second term when a Republican Congress balanced the budget for four consecutive years and got a capital gains tax cut. Similarly, after Republicans won control of the House in 2010, they worked out a deal with President Obama to reduce spending through the Budget Control Act.
Leonhardt’s editorial will undoubtedly be used by President Biden’s White House and congressional Democrats to make a partisan point, but so much is overlooked because it doesn’t fit the narrative the media and Democrats want to push.