Current Governments and Concurrent Economic Performance

I estimated real GDP growth by presidential administration, spanning from Reagan's first term to the first quarter of Trump's second term, using the FRED database series NGDPRSAXDCUSQ, which measures real GDP. For those interested in the mathematical details, I calculated the geometric annual growth rate between the last quarter the administration was in office and the quarter it took office.

Growth was highest during Clinton’s second administration (4.1%), followed by Reagan’s second administration (3.6%). Ignoring the one quarter of data for the second Trump administration (-0.3%), growth was lowest during George W. Bush’s second administration (1.0%), followed by Trump’s first administration (1.7%). Many administrations fell between the two best and the two worst.

Voters have a natural tendency to associate their favorite elected official with positive economic performance, and real GDP growth is undoubtedly a key statistic. Our politicians nourish this tendency by taking credit for good economic news and, of course, blaming political opponents for bad economic news. It takes time for the government to implement fiscal policy, and even more time for it to have an impact on economic activity. A policy can have both short-term benefits and long-term costs, or vice versa.

Politicians ignore another essential feature of our market economy. Markets generate their momentum, which might cause a downturn or a boom, but the tendency is towards full employment. Good policy may augment growth and mitigate market downturns, while bad policy has the opposite effect; however, policy is generally overwhelmed by market forces.

Economists don’t take the political bait. Nearly all believe that current policy is not the cause of current economic outcomes. Do voters bite when economists don’t? The European IGM Economic Experts Panel was asked to respond to the statement, “Voters overestimate the effect that current governments have on their economies’ concurrent economic performance.” Sixty-four percent of the respondents strongly agreed or agreed, whereas only 4 percent strongly disagreed or disagreed. Six percent were uncertain, while 4% held no opinion, and the remaining 22 percent did not answer the question. An alternative to evaluating performance by examining macroeconomic statistics is to assess the likely impact of policies. There is little new under the sun. A policy enacted today has been tried elsewhere, and economists have measured its impact. Reviewing their conclusions is an effective way to evaluate an administration's performance.