Our Economy has historically performed better under Democrat presidents...

In the recent series of articles I have been reading, The United States of Inequality, the author, Tim Noah, pointed out that greater wealth creation of all economic classes has been achieved under Democratic administrations than those of Republicans. It was a bit counter-intuitive to everything I expected, so it started a bit of an exploration on my part.

I wondered what policies affected wealth creation, what was going on between 1948 and 2005?


This has resulted in econ-nerd central in my kitchen and self-laminated charts pasted all over my counter tops. Red and blue, and line graphs galore, really.. you should be ashamed you even know me. Seriously.

I charted Senate, House and Presidential party control from 1945 to 2010. Did you know that the democrats had control of the house from 1949 all the way to 1994? ( So that was why 1994 was such a big deal!) Up until 1994, both house and senate were largely controlled by Democrats, except for a blip from 1947 to 1948 under Truman and the senate in 1953-54 and 1981-86.


I think I assumed that the party platforms have always been similar to those of todays ruling parties, but apparently things have changed a bit over time. I assumed that Dems have always been huge spenders, and Reps tax cutting free-market types they claim to be today, but this was and is not true! As I should have known, it's not about the party, its about the policy!!!

A few surprises I have found so far in this far-from-complete search for the truth:

• Truman (D)- In the 1940s, a young Senator Harry Truman toured the nation looking for wasteful and fraudulent spending - powered by the tips and leads from patriotic citizens who wanted to do the right thing. Together, Senator Truman and the American public shined a spotlight on waste and brought an unprecedented level of accountability to federal spending.
• JFK (D)- was a tax cutter!!! “It is a paradoxical truth that tax rates are too high today and tax revenues are too low, and the soundest way to raise the revenues in the long run is to cut the rates now… The purpose of cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy (italics mine) which can bring a budget surplus.” Kennedy understood how an expanding economy benefits everyone, poor and rich, stating, “A rising tide lifts all boats.”
• Ronald Reagan (R)- big spender!!! "Republican President Ronald Reagan grew federal government spending to the highest level it had reached since World War II. He also 'saved Social Security' by raising payroll taxes.
  
• Nixon (R)- wage and price controls!! "In 1971, Republican President Richard Nixon instituted wage and price controls. That made a group of free-market supporters so angry that they decided to form the Libertarian Party"
• George H.W. Bush (R)- raised taxes!! (I knew about that one!)
  
• Bob Dole (R)- Subsidies!!! "Republican presidential candidate Bob Dole was a huge supporter of taxpayer subsidies for corn and ethanol."
• Ron Paul is probably the only Republican congressman willing to point out the huge cost of America's foreign wars and empire building. Other Republicans pretend that spending trillions on the military just doesn't count as big government. "With Social Security, Medicare, and military spending making up the vast majority of federal spending, you can't cut significantly without cutting those. But Republicans refuse to touch them. (hat tip link- The Whited Sepulchre)
  
  

So, what policies have resulted in the most wealth creation? I am sure I will never know the full truth, due to rooms and rooms full of regulatory paper work passed over the years, on top of the thousands of pages of legislation, but to the best of my ability I am working toward a general understanding.

So far, the free market is the best contender for success, but with a high possibility of over-leveraging as people begin to take good-times for granted (resulting in the crashes of 1929 and 2008!!) So, how do we reign in over leveraging? Moves have recently been taken to raise the cash reserve requirements of banks (necessarily resulting in less credit-availability), which is a move in the right direction, and a return to 20% down payment requirements for mortgages. A few smart regulations like these can go a long way toward protecting our society from over-leveraging (.. but the thousands of pages of regulations packed into today's bills do more harm than good!!!) Lessez-faire combined with intelligent regulation. That is my verdict so far... more to come!

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Articles

Less Taxes, More Revenue:

In recent American history three presidents, Republicans Ronald Reagan and George W. Bush—and Democrat icon John Fitzgerald Kennedy—all lowered taxes in response to economic recessions. In all three cases, more money flowed into federal coffers than expected, and all three recessions ended.

The High-Income Rate Reductions
The neglected Stepchild of the Bush Tax Cuts

Due to past mistakes, the outlook for the high-income rate reductions is bleak. If any of the reductions are to be salvaged, it is necessary to begin making the economic-growth case and abandon the misdirected arguments previously offered.

NYT: Defying Others, Germany Finds Economic Success

Germany has sparred with its European partners over how to respond to the financial crisis, argued with the United States over the benefits of stimulus versus austerity, and defiantly pursued its own vision of how to keep its economy strong.
Statistics released Friday buttress Germany’s view that it had the formula right all along.

The Parent Model

During the first half of this year, German and American political leaders engaged in an epic debate. American leaders argued that the economic crisis was so bad, governments should borrow billions to stimulate growth. German leaders argued that a little short-term stimulus was sensible, but anything more was near-sighted. What was needed was not more debt, but measures to balance budgets and restore confidence.