Thursday, April 3, 2008

From the Department of Awful Statistics

This graph has been making the rounds of the left-of-center blogosphere the last few days. It purports to show that all elements of American society do better under Democratic Presidents than under Republican Presidents. The clear implication is that the economic intervention of Democrats is a more successful policy than the free market orientation of Republicans.

While I don't care one iota about whether Republicans or Democrats are generally better, I do care about free markets. So I want to comment on some major problems with drawing conclusions from this graph.

1. There is a significant small sample problem. The statistics relied upon are only from 1948-2005. Since it is attempting to compare Republican Presidents vs. Democrat Presidents, there are in effect only 6 data points covering 32 years for the Republicans, and only 5 data points covering 24 years for the Democrats.
2. Eight years (25%) of the Republican data points were covered by Nixon/Ford. Nixon's (and Ford's) economic and domestic policies were largely anathema to anything resembling a free market. Indeed, Nixon committed the single most unspeakable economic act possible from a free market perspective: he instituted wage and price freezes. For three years. As anyone with an understanding of free market economics could predict, this action completely devastated an already ailing economy. As a result, the Nixon/Ford years are the worst economic years included in this graph.
3. Eight years (33.3%) of the Democratic data points were covered by the Clinton Administration. Despite Bill Clinton's many flaws, his Presidency is generally regarded as being historically favorable to free markets. Certainly we should remember that NAFTA was ratified under his watch, that it was he who declared the era of Big Government over (only to be ushered back in, ironically, by GWB), and that he had a particularly ornery Congress to deal with, which meant that neither Clinton nor Congress could get much done, economically speaking (this is usually a good thing for free markets). As a result of all this, the Clinton years were by far the best economic years included in the graph.
4. Another four years (16.7%) of the Democratic data points were covered by the Carter Administration. Whatever Carter's flaws on economic policy - and there were many - he was still better for the free market than the Nixon/Ford era. Certainly, he didn't institute wage and price controls, and importantly, he also deserves credit for beginning the process of deregulation.

The point is this: the data behind the graph wind up providing us with no information from which we can make generalizations about Republicans vs. Democrats or free markets vs. interventionism. There are too few data sets to compare, and the data sets that do exist are massively skewed due to two or three major anomalies where the President governed in a manner diametrically opposed to his Party's stereotypical economic position.

***UPDATE***I should have included a fifth point: Short of idiotic things like price controls, a President generally has pretty minimal power over the economy. Even to the extent he does have economic power there is a certain, undefined lag time between the policy making and the effects of the policy being felt. The data used appear to grant a one-year lag time, but the reality is that in some cases lag time could take several years. The fact is that the economy is generally too complex to be able to tie broad-based indicators like real income gain to a specific government policy or set of policies. (This being the reason why economic theory remains a relevant analytical tool).