The picture above is the answer to a question apparently unknown to even the most astute. On June 19 in the NYT, Paul Krugman (subscription required) listed the economic growth during the last five presidencies.
- Clinton 3.7%
- Reagan 3.4%
- Obama 2.1%
- Bush I 2.0%
- Bush II 1.6%
His point is that Republican candidates are promoting old economic policies claiming they will lead to high growth, but there is little evidence of this. He also points out that Jeb Bush’s claim to have been the source of Florida’s 4.4% growth is specious. The growth was due to the massive housing bubble that devastated Florida and the rest of the country when popped.
While Krugman is honest in saying economists don’t know how to create economic growth, he seems bizarrely unfamiliar with how it does come about:
But once the economy is near full employment, further growth depends on raising output per worker. And while there are things that might help make that happen, the truth is that nobody knows how to conjure up rapid productivity gains.
How is this possible? Is it that despite having a Nobel Prize in economics, he is so caught up in the horse-race of politics he can’t bring himself to answer? Perhaps, he is simply too enamored with economics and thinks it should have all the answers? Most likely, he specifically included the phrase “nobody knows how to conjure” so he doesn’t have to get into how productivity gains happen. Ok, we don’t know how to “conjure” them, but we certainly know how they happen. He does everyone a disservice by brushing this part off.
The answer is the picture at the top of this post. Economic growth is driven by productivity, which is driven by technology, which is driven by scientific advancement. In 1980, The IBM-PC had not yet even been invented, let alone integrated in business. There were no cell phones, let alone smart phones. There was no internet. Faxes were in their infancy. Mostly, business executives dictated correspondence to secretaries who typed it up and sent it by mail.
If people in the media, and learned columnists who know better, would make this point regularly, maybe we would get presidential candidates arguing over who can increase the NSF budget the most, instead lying about which presidents caused the most economic growth. (They can help during times of recession through monetary and fiscal policy.)
The figure below shows the Gross Domestic Product for the US from the FRED Database of the Federal Reserve Board of St. Louis. You can see deviations due to bubbles and then the subsequent crashes. You can also see the clear independence of GDP as a function of which party controls the presidency.
Presidents do not increase productivity, nor create economic growth. Scientists and engineers do.