The Myth of Republican Economic Managerial Superiority

            Two recent polls revealed that Americans favor Joe Biden over President Trump by roughly nine percent. Yet, these same polls report that voters favor the President by an equal margin when it comes to managing the nation’s economy. Why is that?

Exposing the Myth

             I suspect that there is a general belief that a business background better prepares a person for handling financial matters than a career in government service.  Even so, Joe Biden didn’t run six corporations into bankruptcy, costing his investors and bankers billions of dollars; and Joe Biden didn’t inherit a thriving national economy and turn it into a total mess by mishandling the coronavirus pandemic.  As I have previously written, Donald Trump was never a successful businessman, he only played one on his television show which he will tell you (over and over again) had very high ratings.

            Even if you don’t accept my assessment of the President’s business acumen, you have to understand that there is a big difference between running a business and managing a national economy, especially one that is interconnected with the economies of virtually every country on the earth.  Economists explain this as being the difference between microeconomics (managing a business) and macroeconomic (managing an economy).  The difference between the two can be easily seen when you view the issue of raising the minimum wage.  If you ask a business man whether raising the minimum wage will help create jobs and build the economy, his answer will be “No.” He will explain that if he has to pay his workers more, he will either automate his production and eliminate jobs or he will move his manufacturing abroad where his labor costs will be lower. Sounds logical. If you pose that same question to an economist, you will get a very different response. He will explain that over two-thirds of our nation’s economy is built on consumer spending. Therefore, the more money you put into the hands of consumers, the more they will spend; and that will grow the economy which, in turn, will create more demand for goods and services and lead to more jobs. While this may sound overly theoretical, it’s what got this nation out of the Great Depression and, more recently, out of the Great Recession of 2008-9.  My point is that the mindset for managing a business does not necessarily produce sound national economic policy.

            It’s not just that American voters believe that Donald Trump is better equipped than Joe Biden to manage the nation’s economy, they believe that Republicans, in general, are better than Democrats at managing the nation’s economy, a belief that also has no basis in fact.

            Since World War II there have been five U. S. Presidents (four Democrats and one Republican) who have led our nation while it underwent a substantial economic expansion: John Kennedy, Lyndon Johnson, Jimmy Carter, Ronald Reagan and Bill Clinton. During this same period, three Presidents (all Republicans) ended their terms in office in an economic collapse: George H.W. Bush, George W. Bush and Donald Trump.  During those same years, the U.S. economy on average grew at the rate of 4.4% while a Democrat was President and 2.5% while a Republican was President.  So you don’t have to take my word for it, I have set forth below a chart showing the nation’s average real Gross Domestic Product (or “GDP”) and the average annual percentage growth in GDP during the terms of each of the nation’s Presidents since World War II.

           You might be thinking that, if Democrats are better at managing the economy, how do you explain that President Obama produced the lowest amount of growth of any of the post-war President. The answer is that President Obama had to overcome two major problems. The first was that he took office when the nation’s economy was in the worst shape it had been in since Herbert Hoover turned over the nation to Franklin Roosevelt during the early days of the Great Depression.  Thus, Obama had to overcome a number of structural problems (like restoring the solvency of the nation’s financial institutions and resurrecting the millions of companies forced into bankruptcy) before he could move the economy forward. The second problem he faced was Mitch McConnell who had vowed to make him a one-term President.  As I will explain below, making the nation’s economy grow is less dependent on the President’s economic acumen and more dependent on the policies he (or, perhaps soon, she) implements; and that implementation will necessarily require the cooperation of the Congress, which wasn’t available to Obama.

 Perpetuating the Myth

            If Democrats are actually better at managing the nation’s economy, why do Americans still believe that Republicans do a better job?  The Republican Party has long been the party of big business, with corporate titans frequently serving in key positions in the cabinets of Republican Presidents. Correspondingly, corporate leaders tend to support the campaigns of Republican candidates.  In addition, individuals who have achieved (or simply inherited) great wealth similarly tend to support the Republican Party. Because wealthy individuals and corporate executives are generally credited with having business acumen, there is a strong tendency to believe that their support for Republicans is because they are better able to recognize and appreciate those same skills in political leaders. It reminds me of the song from Fiddler on the Roof in which Tevye observes “if you’re rich, people think you really know.”

              This view, however, looks at the causal relationship from the wrong direction. The wealthy don’t support the Republican Party because they think Republicans politicians are more skilled at managing the nation’s economy, they support the Republican Party because Republican politicians are more willing to run the nation’s economy for their benefit. Republican policies of cutting taxes and reducing government regulations are not designed to improve the nation’s economic growth, they are designed to enhance the prosperity of businesses and their owners.  Those same policies in many respects tend to work to the detriment of the average American.  Stated in a common vernacular, wealthy individuals tend to” vote their pocketbooks.”  This is a flaw in our political system which was aggravated by the Supreme Court’s decision in Citizens United v. Federal Election Commission in which it declared unconstitutional most political campaign finance restrictions.

            While it is readily apparent that Republican economic policies are skewed in favor of the wealthy, the Republican Party has become extraordinarily adept in perpetuating the belief that their policies also enhance the well-being of average Americans.  They use such sayings as “a rising tide lifts all boats” to imply that if the nation’s GDP rises, all Americans will share in the resulting prosperity. In reality, there is little correlation between increases in the nation’s GDP and the income of the average American. Over the past 50 years, the top quintile of American households have taken in 52% of all U.S. income, more than was earned by the remaining 80% of the nation’s households. Yes, all Americans benefitted from the nation’s expanding economy, but the benefits have been distributed so disproportionately that today the wealthiest 1% of American families now possess substantially more wealth than the bottom 90% of American families and during the past ten years only the top 10% of nation’s wealthiest households have experienced any increase in their wealth.

             Another favorite talking point of Republicans is that tax cuts drive the economy. In case you missed it, the official title of the 2017 tax law narrowly passed by the Republican controlled Congress was the “2017 Tax Cuts and Jobs Act.”  That Act, which drastically cut corporate taxes, was sold the the American people as being both “revenue neutral” (i.e., it would not cause an increase in the nation’s deficit) and that it would create jobs for Americans.  President Trump even went on to claim that the Act would raise the nation’s annual economic growth to 4%.  All three of these claims were false. The tax cuts were anything but revenue neutral and are currently adding hundreds of billions of dollars each year to our national debt.  In addition, as reflected in the above chart, GDP growth during President Trump’s first three years in office was only around 2.5% and job growth during those years was no greater than under the preceding three years of President Obama’s term in office.

            It’s not just that Republican claims about the miraculous benefits of tax cuts are false, they had been shown to be false on at least two prior occasions.  They were first made by President’s Reagan’s tax advisers to justify the tax cuts he put into effect during his first term and were so disastrous that taxes had to be raised during in his second term to slow the rapid increase in the nation’s fiscal deficit.  The same argument was made twenty years later by George W. Bush who inherited a substantial annual budgetary surplus when he took office. His tax cuts resulted in the largest increases in the federal deficit that had previously been recorded. Conversely, when President Clinton raised taxes, Republicans claimed that it would slow economic growth. As shown in the above chart, economic growth under President Clinton was higher than under any Republican President.  It’s not just that tax cuts result in higher budgetary deficits, they also tend to reduce the nation’s investments in infrastructure and basic research that facilitate future growth.

            Republicans also favor cutting regulations which they contend inhibit business growth. Such regulations deal with protecting public health and the environment (air pollution and water pollution), protecting the health and safety of workers (labor and OSHA regulations), protecting borrowers (consumer financial protection regulations) and protecting the soundness of the economy (banking and financial regulations). While it’s true that these regulations impose greater costs on business enterprises, they don’t necessarily curtail job creation. In fact, in many cases, they actually cause the creation of jobs to provide those protections. What Republicans don’t like about them is that they tend to decrease business profitability, effectively transferring wealth from business owners to everyone who would have had to shoulder the costs of protecting themselves from the dangers that those regulations were created to avoid.

            Republicans have been able to perpetuate these myths by mastering the art used for centuries by con men. To make their claims more believable they enlist the services of “respected” economists and they base their claims on half-truths, usually taken from microeconomics that have no application in managing a national economy. You are now probably thinking “Why would a respected economist lend his or her name to a deception of the American people?” The short answer is that they wouldn’t.  That’s why Republicans have created a symbiotic relationship with a cadre of economic charlatans to assist them.  They find individuals (not all of whom are actual economists) willing to espouse the Republican economic agenda and appoint them to important economic posts, thereby giving them the necessary credentials to make their endorsements seem plausible. The party gets “expert” support for its economic agenda and its “economic experts” get employment and enhanced credibility –a veritable win-win arrangement.

             I am not saying that all economists who lean toward the Republican Party’s policies are charlatans, only the ones the Party consistently trots out to sell its bogus economic policies like the “The Four Of-Course Men of the Apocalypse”: Arthur Laffer, Larry Kudlow, Stephen Moore and Kevin Hassett.  These four individuals seem willing to champion any economic plan proposed by their Party. To be sure, every economist makes an occasional false prediction because economics is still relatively young science and economic conditions are in a constant state of flux.  These four, however, have made a career out of making bad predictions. Robert Laffer is the creator of the notion that tax cuts for the rich are revenue neutral, a proposition denounced by George H.W. Bush as “voodoo economics” and which has been disproven at least three times in the last 40 years. Larry Kudlow not only made that same claim with respect to the 2017 tax law but also assured the nation in February of this year that the coronavirus was “contained.”  It apparently didn’t concern him that he has absolutely no expertise in epidemiology.  If that was the administration’s position, he was there to support it.  Stephen Moore has made so many wrong economic predictions that his column was “banned” from a Midwestern newspaper.  It was his advice that led to Kansas’ disastrous tax cutting experiment. Moore is so inept that Senate Republicans (who have confirmed seven of President Trump’s judicial nominees deemed unqualified by the American Bar Association) refused to even consider him when Trump nominated him to serve on the Federal Reserve Board.  Kevin Hassett first gained fame as the co-author of a book predicting the Dow Jones Industrial Average would soon reach 36,000.  The only problem was that this book was published in 1999 just before the dot-com bubble burst. He was also the economic adviser to John McCain’s 2008 Presidential Campaign when McCain famously pronounced that “The fundamentals of the economy were sound” two weeks before the collapse of Lehman Brothers and the nation’s banking system.  More recently, Hassett advised President Trump on economic policy amid the COVID-19 pandemic, creating a projection showing that the pandemic would subside in May which formed the rationale behind the President’s plan to reopen of the nation’s economy at the end of this past April before the nation’s public health experts deemed it safe to do so.

            In addition to marshaling the endorsements of “economic experts,” Republicans have become very clever in shaping their messages of deceit. To help sell their disproven tax policies they have created a scenario to explain how tax cuts will benefit average Americans.  It goes like this: their tax cuts will put money in the hands of the “job creators.” That, in turn, will lead to more jobs. This will mean a greater demand for workers that will lead to higher wages. This is the message of “trickle down” economics which has a sound of truth if companies actually used their tax savings to create more jobs. In reality, the availability of funds is not what causes companies to expand their operations.  In a land of economic reality, “If you build it, they will come” simply doesn’t work.  It’s increased demand for their goods and/or services, not the availability of capital, that causes businesses to expand their operations.

            This fact was proven once again in the aftermath of the passage of the 2017 Tax Cut and Jobs Act when roughly 70% of the tax savings reaped by corporations was used to pay dividends, buy back the company’s shares or simply added to the company’s cash reserves. Only a very small portion of the money diverted from the U.S. Treasury actually trickled down to the public at large. Thus, in the Republican lexicon “job creators” is simply a euphemism for their “major donors” and their donors’ most profitable investments are their contributions to the campaigns of Republican political candidates.

             So why do Americans keep falling for this tax-cut con? The answer is that the Republicans keep telling them what they want to hear; namely, that Republican policies will bring about an increase in their standard of living that they so desperately need. In short, they have been taken in by a lie they want to believe.  The Republican’s lies about their economic policies are even more effective if the preceding Democratic administration has not been able to significantly raise living standards. This is where Mitch McConnell’s plan to make Barack Obama a one-term President comes in. He and his Republican colleagues did everything in their power to obstruct President Obama’s efforts to bolster the nation’s economy by sounding the alarm that Obama’s plans would increase the nation’s deficit and that would increase interest rates and slow the economy. While this sounds plausible, it was a wholly bogus claim, but one strongly supported by their economic charlatans. Not only did Republicans oppose Obama’s economic stimulus proposals and efforts to save General Motors and Chrysler, they also balked repeatedly at increasing the national debt ceiling.  Did you notice those any of same objections, either by Republican members of Congress or their economic spokespersons, when Congress voted over $2.8 trillion to bail out the economy which President Trump sabotaged? I thought not.  You shouldn’t feel badly if you are among the majority of Americans who continue to believe in the economic managerial superiority of the Republican Party. They are really good at playing this con.

Democratic Economic Policies

             This brings us to our final issue: why do Democratic administrations have a better record at running the nation’s economy? The answer lies in the economic policies championed by Democrats.  To understand how to grow the nation’s economy, it’s important to understand what constitutes an addition to GDP. When you buy and item at a grocery store or department store, that adds to the nation’s GDP. Similarly, when you hire a plumber to fix a leaky water pipe or visit your doctor, that also increases the nation’s GDP.  In fact, the vast majority of your expenditures will result in an addition to the nation’s GDP. What doesn’t increase the nation’s GDP is when you purchase an item directly from a foreign manufacturer or simply sit on your money.

             What is particularly important to understand is what economists call the “multiplier effect” from your purchases. When you buy groceries, a significant percentage of the money you spend gets paid to the store’s employees in the form of their wages and some goes to the wholesaler who sold those groceries to your supermarket.  Most of the money which flows to the wholesaler will be used to pay the wages of its employees and some will get passed on to the farmers that produced the food items you purchased. Each individual who received a piece of the purchase price you paid can now use those monies to make their own purchases which also go to increase the nation’s GDP. Thus, the overall increase to GDP started by your purchase creates a chain of transactions, each of which adds to the nation’s GDP so that the actual increase in GDP caused by your purchase may end up boosting GDP by two or three times the amount of your purchase.  Not every transaction you might make has that same result. If you buy a car from your local Mercedes dealer, some of the money you spend will go to the employees at the dealership where you bought the car and will thereby cause a minor additional increase to GDP when they spend that money, but most of your purchase price might end up in Germany, truncating the multiplier effect. 

            Now look at what happens when the government cuts the taxes of a minimum-wage earner. You can almost be assured that every dollar that person doesn’t have to pay in taxes is going to be spent, paying his/her rent or buying the necessities of life from local vendors and service providers.  Thus, the entire amount of those tax savings is likely to be recirculated one or more times in the nation’s economy, further increasing the nation’s GDP.  A tax cut for a wealthy person is likely to have a much more diminished effect on GDP. A wealthy recipient of a tax cut might choose to use his tax savings to buy that Mercedes or even to take a cruise on a foreign ship with a crew composed of foreign nationals. In such cases, the resulting additions to the nation’s GDP will be minimal.

             Government spending follows a similar pattern. Money used to pay the salaries of police officers, teachers, firefighters and other government employees will likely be multiplied as that money recirculates through the economy. Money sent abroad in the form of foreign aid will not increase GDP and money spent to purchase equipment from an American manufacturer will add to the nation’s GDP, but the multiplier effect will be diminished if many of the components of that equipment are manufactured abroad.  One of the best ways to increase GDP is for the government to invest in the nation’s infrastructure.  This not only puts money in the pockets of those who work on construction projects, but also facilitates the generation of further business activity which makes use of that infrastructure.  In case you didn’t notice, there haven’t been any programs to enhance the nation’s infrastructure promoted by the Trump administration, because that might require the individuals comprising the Republican donor base to pay higher taxes to fund those projects.

            While it’s important that companies have access to capital to expand their businesses, as discussed above, simply throwing money at them will not help grow the economy unless that money can be put to good use. Moreover, since many of the corporate shareholders who indirectly benefited from the 2017 tax cuts were foreign nationals, much of the monies diverted from the U.S. Treasury as a result of those tax cuts would have had no impact on growing our nation’s economy.

            Democratic economic policies tend to focus on putting money directly into the hands of those most likely to spend it in the U.S. economy. These policies might include raising the minimum wage, providing healthcare to all, providing no-cost child care for working parents, providing free or subsidized college education and social security benefits.  Democrats also favor imposing higher taxes to make such programs available and a tax structure that does not tend to enable those at the top of the wealth ladder to increase their estates while preventing those at the bottom of the ladder for accumulating wealth. In large measure, that is what has been happening over the past forty years, courtesy of the tax legislation adopted by the Reagan, George W. Bush and Trump administrations. Thus, even though the nation’s economy has grown, as reported above, the overwhelming preponderance of that wealth has accumulated in the hands of the nation’s wealthiest 10% of the population.

             There is another feature of the Democratic economic policies that is worth mentioning. By redirecting more of the increases in the nation’s wealth to those on the lower end of the income scale and by making higher education more available to them, you increase their social and economic mobility, allowing them to become more productive and thereby further increasing the nation’s GDP.

Why Do Republicans Reject Democratic Economic Policies?

            At this point, you may be wondering why wealthy Republicans who profess to believe that “a rising tide lifts all boats”, do not support Democratic economic policies if they tend to have a more positive impact on economic growth. The problem isn’t that they don’t believe that Democratic economic policies are more beneficial or that all American benefit when the nation’s economy is growing faster.  It’s just that they have done the math and discovered that they are better off getting 90% of newly created wealth when the nation’s economy is growing at an annual rate of 2.5% than 20% of the newly-created wealth when the nation’s economy is growing at 4.4%. It’s just simple arithmetic.

             That, of course, doesn’t explain why the vast majority of Americans comprising the popular base of the Republican Party do not support Democratic economic policies. The explanation lies primarily in the Republican Party’s appeal to their prejudices. Whenever Democrats propose programs like “Medicare for All” or “Free College Tuition” the response of Republicans is that Democrats want to turn America into a “socialist” country like Russia, China or Cuba. This conjures up the image of police states in which citizens are thrown in prison or simply murdered for expressing thoughts deemed “subversive” to the government. They don’t bother to point out that such programs exist in some of our closest democratically run allies. Set forth below is a table of democratic countries that offer their citizens universal health care and free college tuition, comparing the combined life expectancies and median per capita incomes of their citizens.

            Among these countries, the United States ranks only fourth in median per capita income and dead last in combined life expectancies.  The lesson is that fear is a powerful motivator and often obscures the truth.

            You also need to appreciate that this nation is still suffering under its heritage of racial injustice; and that the Republican base is largely composed of dyed-in-the-wool conservatives who fear change and want to maintain the status quo.  They are repulsed by the idea that “those people” (and we know who “those people” are) and newcomers (spelled “i-m-m-i-g-r-a-n-t-s”) might surpass them in economic well-being and social status. They actually fear that Democratic policies might enable others to advance above them.  It reminds me of what a college friend from South Carolina had told me about how he and his friends from South Carolina felt about their state in the late 1950s. He summed it up in a single sentence: “Thank God for Mississippi or we’d be last.”  They were happy in knowing that they were not considered to be at the bottom of the heap.

            This also explains why Donald Trump’s anti-immigrant and anti-black rhetoric drives his supporters into an emotional frenzy. If Republican leaders are wondering how Donald Trump was able to hijack their party’s political base, it happened because he openly espoused the very principles that had guided their economic and social policies for the past 50 years.