October 12, 2008

A BUYING OPPORTUNITY:

Are Democrats better for the U.S. economy? (CHRISTOPHER CARROLL, 10/13/08, Japan Times)

Over the period for which modern statistics are readily available, Democrats have outperformed Republicans by almost every traditional measure of economic performance (per capita GDP growth, unemployment, inflation, budget deficits).

Democrats have managed to beat the Republicans on their own turf. Thanks to the profligacy of the Bush administration (and the prudence of the Clinton administration), average federal spending as a proportion of GDP under Republican presidents now exceeds that under Democrats during the measured period.

The pattern of Republican deficiency holds up when the span of historical analysis is extended by using stock returns to measure economic performance. On average, since the inception of the Standard and Poor's composite stock index in 1926, the reward for putting your money in the market has been about 16 percentage points lower per presidential term under Republicans than under Democrats. Republican underperformance remains a stubborn fact even when the Great Depression and World War II are left out of the analysis (in the fond hope that they will prove to have been unique experiences). [...]

Perhaps the best explanation has to do with attitudes, not ideology. Maybe capitalism works better when skeptics restrain its excesses than when true believers are writing, interpreting, judging, and executing the rules of the game. The Democrats are surely the more skeptical of America's two parties.

Some evidence can be found in those features of the American economy that we believe others should emulate. There is now an overwhelming consensus that open, transparent and accountable mechanisms of shareholder control are essential for the efficient functioning of public corporations. Virtue is defined by good accounting rules.

But it is instructive to recall that many of those now universally admired rules were fiercely resisted when first proposed. The "options backdating" scandal that recently caught Apple's chairman, Steve Jobs, is a microcosm of innovation, prosecution and reform. Now that a rule has been written to prohibit backdating, this particular scam will not happen again. Thus do accounting rules approach perfection.

What do we learn from this example? It's hard to say. Maybe that capitalism works better when it is being held accountable to some external standard than when left to its own devices.

Posted by Orrin Judd at October 12, 2008 5:15 PM
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