Midterm Electionomics: Why do in-between years seem to favor Dems?

National Review Online ^ | June 4, 2002 | Robert Stein

[xsysmgr]

Midterm elections are almost always tough on the party in the White House. A key reason these elections have been hard on Republicans is the economy.

The U.S. has had recessions and rising unemployment in four of the last five midterm election years in which a Republican was in the White House: 1970, 1974, 1982, and 1990. Although the economy was not in a recession in 1986 it was the weakest election year during the 1980s expansion.

The Democrats, by contrast, have had a consistently favorable economic environment. Their midterm years — 1962, 1966, 1978, 1994, and 1998 — all had strong economic growth and declining unemployment.

What's going on here? Why does the midterm economy always seems to favor Democrats and disfavor Republicans?

First let's take the good years. In 1962 the economy was in the early stages of the expansion that followed the 1960 recession, so no surprise there. In 1966, the economy was coming off the Kennedy tax cuts. Again, no surprise that the economy was strong. (Too bad Tom Daschle & Co. ignore this history lesson.) In 1978 the Democrats were the unintended beneficiaries of Republican Fed Chairman Arthur Burns having kept monetary policy too loose. Ultimately loose money caused stagflation — double-digit inflation plus economic stagnation — but in 1978 we only had the inflation, not the stagnation.

In 1993 the Fed postponed rate hikes as a reward to President Clinton for his deficit-reduction plan. Loose money in 1993 boosted the economy in 1994. In 1998, the U.S. had strong growth for the same reasons the economy was strong throughout the late 1990s: low effective tax rates on capital gains, welfare reform, freer trade, confidence in long-term price stability, and technological innovation.

Now let's look at the Republican years. The 1970 recession was the lagged effect of President Johnson's Vietnam tax surcharge and the Fed tightening monetary policy starting right after the 1968 election through 1969. The Fed chairman at the time was William McChesney Martin, originally appointed by President Truman.

In 1974 the GOP was hoist on its own petard. Having been stung by the recession bug in 1960, President Nixon was determined not to let it happen again. By scrapping the dollar's link to gold in 1971 the Fed was able to keep monetary policy very loose going into the 1972 election. After the election, the Fed had to drain the excess liquidity, or at least try. Short-term rates were increased to unprecedented heights. Meanwhile, inflation pushed workers into higher marginal tax brackets and increased the effective tax rate on capital gains. A recession started in late 1973 and lasted through early 1975.

In 1982, as in 1970, Republicans were hurt by tight money from a Democratic Fed chairman. However, President Reagan wanted Paul Volcker to fight inflation. Tighter money in 1981 helped set the stage for long-term economic growth. It's harder to forgive the Fed for the slow growth in 1986. The Fed was too tight in late 1984 and 1985, mistaking sustainable supply-side growth for an unsustainable surge in demand.

In 1990, the economy was weak due to the lagged effects of tighter money back in 1988-89. The stock market crash in 1987 postponed needed rate hikes. By the time the Fed was able to start tightening in 1988, inflation was even more of a problem and required even more tightening. In addition, higher bank-capital standards temporarily contributed to a private-sector credit crunch. Nor should we forget a surge in welfare spending and regulations under Bush I.

Overall, the Democrats have not done anything nefarious to artificially boost growth in their midterm election years. True, Democratic Fed chairmen have had little sympathy for GOP midterm election years. But that's not the only reason Republican midterm years have been weak.

The good news is that this year breaks the anti-GOP streak. Chairman Greenspan is a Republican and despite last year's recession, the economy should do well this year. Compared to their last five midterms, the GOP has little to complain about when it comes to the economy.

— Robert Stein is chief economist on the Republican staff of the Senate Budget Committee. The views expressed here are his own, not necessarily those of the committee or any of its members.

[winin2000]

Bush Sr has hated Greenspan since 1992, when he blamed Greenspan for raising rates in 1992 and harming the economy during his reelection bid.

Not quite. Bush specifically boasted of current low interest rates in his '92 convention speech.

I think the rub was his waiting to long to lower them, as the the rate cuts continued well into '93, and didn't start rising until after Clinton's tax hike.

[sixmil]

Bush senior's problem was the economy, stupid.

Bush junior's will be the economy, borders, and nat'l security, stupid.

It isn't fair, but a guy that wants to spend more, legalize illegals, and tells us 'no guarantees' on security doesn't really deserve a republican congress.

[bloggerjohn]

Well, this sucks. Some liberal was telling me Republicans are bad for business and I told him he was full of it. Now the National Review makes his case. Thank God he's too close minded to ever read it ;')