After noting that Democrats and Republicans have different economic policies

They are actually quite similar. Spend, spend, and spend. The only difference is where they spend and how much they tax or borrow.

Most economists will also tell you that Presidents don't even control fiscal policy.

Perhaps not directly, but they appoint those that do (e.g. Ben Bernanke).

Presidents along with the legislative branch do have an effect on the value of the dollar, which does have an effect on the health of the economy. Executive and legislative branches contribute with budgets, spending, and fed appointees who make monitory policy.

Consider this:
A presidential appointee to the federal reserve, Ben Bernanke, decides to lower interest rates to "stave off inflation." When the fed reduces interest rates this reduces the value of the dollar. Why? Because U.S. Treasury bonds have a lower yield when interest rates are low. Lenders (largely foreign) are then less willing to buy Treasury Bonds at these lower rates because their return is lower. Plus the $10+ Trillion in federal debt makes them even less comfortable to buy (lend) more.

When foreign countries are not buying Treasury Bonds (lending) the fed must get money from somewhere for the spending. So they essentially have more money "created" or put into the system. The more money in the system the more the value of the dollar falls.

As the dollar falls the price of imported goods increases (we import a sh** load of stuff). When things cost more people buy less and their devalued dollar buys even less imported goods (i.e. inflation). There you have it, a worse economy is the result. Presidents, their fed appointees, and legislators have a big role in this current mess.

Data for the whole period from 1948 to 2007, during which Republicans occupied… and Democrats…show average annual growth of real gross national product…

Gross National Product (GNP) is one way of measuring the health of an economy but is less accurate now with nations increasing their production in other nations (i.e. "overseas"). A more popular measure these days is Gross Domestic Product (GDP). But even GDP is not an accurate measure of the health of an economy.

Economist Frank Shostak:

The GDP framework cannot tell us whether final goods and services that were produced during a particular period of time are a reflection of real wealth expansion, or a reflection of capital consumption. For instance, if a government embarks on the building of a pyramid, which adds absolutely nothing to the well-being of individuals, the GDP framework will regard this as economic growth. In reality, however, the building of the pyramid will divert real funding from wealth-generating activities, thereby stifling the production of wealth.

Here's a musing/question for you "right wingers":
As a reflection on GDP are U.S. wars similar to building pyramids?

Or for "the lefties":
As a reflection on GDP would social programs be similar to building pyramids?

Data for the whole period from 1948 to 2007, during which Republicans occupied the White House for 34 years and Democrats for 26, show average annual growth of real gross national product of 1.64 percent per capita under Republican presidents versus 2.78 percent under Democrats.

[Blinder]

For instance, if you lag the per capita GDP results by two years — not a bad guess of how long it takes policy to show up in output — the difference between Democratic and Republican presidencies vanishes (both are 2.2%). And if we look at it terms of government control — that is, party control of both the presidency and both houses of congress — then the Democrats do worse than the Republicans (2.0% versus 2.1%). But wait! Divided government, when no party controls both the presidency and the congress, does even better: 2.3%!

[Don Luskin again]

Please re-learn policy implementation lag, Mr. Blinder.

Orlando, was this an actual study that was done? Or did you do a quick & dirty analysis? Either way, I'd be very interested in reading about it.

I also like Dave's comment that economists should just avoid aligning themselves with political parties. For one thing, people's brains shut off once a party or candidate is mentioned in the middle of an argument.

This actually shaped up to be a very interesting thread. Thanks to everyone who's posted.

Orlando, was this an actual study that was done? Or did you do a quick & dirty analysis? Either way, I'd be very interested in reading about it.

I also like Dave's comment that economists should just avoid aligning themselves with political parties. For one thing, people's brains shut off once a party or candidate is mentioned in the middle of an argument.

This actually shaped up to be a very interesting thread. Thanks to everyone who's posted.

Are we to assume, as it would seem, that economic outcomes are due solely to the party affiliation of the president? What about what the presidents actually do (Kennedy cut taxes, Bush I raised them)? Doens't congress figure into this at all? And are the results supposed to be instantaneous — is a president responsible for economic outcomes from the very moment he is inaugurated?

[Don Luskin]

Al, you get an F.

As well, the analysis begins in 1948, so the large drop in GDP after WWII is not included in Truman's presidency, but the corresponding drops in GDP at the end of the Korean and Vietnam Wars are included, which conveniently come under Republican presidents.

In addition, Presidents Nixon and Ford could hardly be called believers in free-market economics. "We are all Keynesians now" -Nixon. Two Democrats, Johnson and Clinton signed into law major supply-side tax cuts.

Instead of comparing growth rates of presidents by party, you should compare them based on their economic policies.

Or it could be that the sample size of Democratic presidents is too small for much of a confidence interval. Does Blinder give us any econometric reason to believe this is not the case?

The market did crash in September 2001… but the circumstances actually helped the President to re-election.

While the Bush II administration is charged with this poor market performance, its not as if it was his fault. Had the Clinton administration done some things differently airline stocks might not have gotten crushed. Had the Fed raised rates in a more aggressive manner in the late 1990s, the run up (and resulting fall) might have been less dramatic.

There is always a means to assign a causal relation between two events: imagination. That is all it takes, the ability to imagine that one event causes another and then hypothesise as such. The resulting theory will be a universal proposition, implying a relation between two events with no possible exceptions.

Such a theory is unverifiable, ruling over an infinite domain, but it is not necessarily unfalsifiable. What is not relevent is the small dataset or Blinder's prior knowledge, neither of which has anything to do with the theory's truth or falsity, which presumably ought to be our main concern.

There are, no doubt, many variables involved here, and Blinder's treatment of the topic is notably 'simplistic'. But what is important is not that some other variable might contradict Blinder's theory, but whether it actually does. In other words, it is not a negative mark against a theory that it might be mistaken

Unfortunately, the root of our disagreement can likely be traced to deep metaphysical presuppositions. I would love to discuss them with you, but that is a very tall order and this is the wrong place.

The problem outlined above is one of extrapolation and interpolation. With such a small dataset, and so many other potential contributing factors, Blinder just don't know enough to come to the conclusion.

I'll go further and state that predictive modeling is not enough to carry causation. The theory of Epicycles made for great predictions about planetary observation, yet was useless in establishing causality.

Your call to search for falsifications is off the mark as well – the dataset is too small. It would be more productive to find other likely factors that show an even stronger degree of correlation.

Most people who are accused of committing this fallacy are, in fact, proposing a correlation without exceptions i.e. a universal hypothesis. If they are guilty of anything then it is usually verification bias, since it is easy to find finding "verifications" for almost any hypothesis. Those who are interested in learning, and without any ulterior motives, would do better to search for falsifications.