Do Democrats and Republicans Really Control the Economy?

By Charmaine Conliffe | PVAL News

Every election brings the same familiar argument: Which political party is better for the economy? Democrats point to job creation, economic growth, public investment, and rising wages. Republicans often emphasize tax cuts, business investment, deregulation, and growth. Both parties argue that their policies create a stronger economy. But voters should also ask a larger question: Do Democrats and Republicans really control the economy? The short answer is no, not by themselves.

Presidents and Congress can influence the economy, but they work within a much larger system. The Federal Reserve, businesses, consumers, financial markets, international trade, technological change, and unexpected events all help shape economic conditions. Presidential history makes that point clear.

Bill Clinton and the 1990s Economic Boom

One of the strongest examples of economic prosperity during a Democratic presidency occurred under President Bill Clinton. Clinton entered office in January 1993, during an expansion that had already begun. According to the National Bureau of Economic Research (NBER), the U.S. expansion began in March 1991 and continued until March 2001. In other words, the expansion started before Clinton became president and continued after he left office. Even so, the 1990s became one of the most prosperous periods in modern American economic history.

During Clinton’s presidency, unemployment declined, economic output increased, and the federal government moved from budget deficits to surpluses. The late 1990s also experienced rapid technological development, particularly in computers, telecommunications, and the emerging internet economy. So, can Clinton receive credit for the economic performance of the 1990s?

Yes, a degree. His administration made important policy decisions, including the 1993 tax legislation and budget policies that contributed to changes in federal revenues and spending.

But saying Clinton created the entire boom would oversimplify the story. The expansion had already started. The Federal Reserve was setting monetary policy. Businesses were investing heavily in technology. Productivity was rising, consumers were spending, and the global economy was changing. The Clinton years offer an important lesson: A president can influence the economy without fully controlling it.

George W. Bush and the Early 2000s

When George W. Bush became president in January 2001, the long 1990s expansion was ending. The NBER dates the recession from March 2001 to November 2001. The downturn reflected several forces, including the collapse of the dot-com investment boom and a decline in business investment. The September 11, 2001, terrorist attacks also had major economic consequences. So, it would be too simplistic to say: “Republicans caused the 2001 recession.” The economic downturn was already beginning around the time Bush took office. Likewise, Bush’s administration cannot be credited for every improvement that followed the recession. His administration implemented major tax cuts, and the economy eventually expanded again. But housing and financial markets later developed serious problems that culminated in the Great Recession of 2007–2009. Again, the story is more complicated than assigning everything to one president.

Barack Obama and the Recovery from the Great Recession

When Barack Obama entered office in January 2009, the United States was in the middle of the Great Recession. The NBER dates that recession from December 2007 to June 2009. Obama inherited an economy under severe financial stress, and during his presidency the economy gradually recovered. Employment increased substantially over the course of the recovery, and unemployment fell. Still, figuring out exactly how much credit belongs to the president is complicated.

The federal government implemented major policies during the crisis and recovery. At the same time, the Federal Reserve used extraordinary monetary-policy tools, including very low interest rates and large-scale asset purchases. The recovery was shaped by fiscal policy, monetary policy, and millions of decisions made by businesses and consumers. Obama did not create the recession, but his administration did govern during the recovery. That distinction matters.

Donald Trump Before the Pandemic

Donald Trump entered office in January 2017 during an ongoing economic expansion. The NBER dates the expansion that began after the Great Recession as running from June 2009 until February 2020. During the first three years of Trump’s presidency, unemployment fell to historically low levels and the economy continued expanding.

His administration enacted the Tax Cuts and Jobs Act of 2017, which changed federal tax policy. The administration also pursued deregulation and changes in trade policy. But once again, Trump inherited an economy that had already been expanding for years. The expansion did not begin when Trump entered the White House.

The COVID-19 Recession

Then a global pandemic changed the economy. The NBER identifies the COVID-19 recession as occurring from February 2020 to April 2020. The United States experienced an extraordinarily rapid economic contraction as businesses closed, travel collapsed, and millions of workers lost their jobs. The federal government responded with massive economic relief programs. The Federal Reserve also took extraordinary actions to support financial markets and the economy. The pandemic demonstrates that major events outside normal political cycles can overwhelm an economy regardless of which party occupies the White House.

Joe Biden and the Post-Pandemic Recovery

Joe Biden entered office in January 2021 as the economy was recovering from the pandemic recession. Employment recovered significantly, and economic output rebounded. However, the recovery was accompanied by a major increase in inflation.

The inflation surge had multiple causes, including pandemic-related supply disruptions, strong consumer demand, labor-market conditions, energy prices, and other pressures. The Biden administration also enacted major legislation affecting infrastructure, manufacturing, energy, and other areas of the economy.

At the same time, the Federal Reserve raised interest rates aggressively beginning in 2022 in an effort to reduce inflation. Once again, the economy was being shaped by multiple forces at the same time.

So Which Party Is Better for the Economy?

Economists Alan Blinder and Mark Watson examined postwar U.S. economic performance and found a substantial difference in economic growth between Democratic and Republican presidential administrations in their sample. But their research also found that the difference could not be explained simply by one party having consistently better fiscal or monetary policy. They considered factors such as oil shocks, productivity growth, international conditions, and other influences. That distinction is extremely important. Economic performance during a president’s term is not necessarily the same thing as economic performance caused by that president.

Correlation Is Not the Same as Causation

Consider the Clinton example. The economy performed extremely well during Clinton’s presidency. That is a fact. But the expansion began before Clinton took office. Therefore, saying: “Clinton caused the entire economic boom” goes further than the evidence allows. The same principle applies to Republican presidents.

If an economy performs well during a Republican administration, that does not necessarily mean Republican policies alone produced the growth. And if the economy performs poorly during a Republican administration, that does not necessarily mean Republican policies alone caused the downturn. The same standard should be applied to Democrats.

What Should Voters Consider?

Instead of focusing only on which party occupied the White House, voters should examine a broader set of economic indicators:

• GDP: What happened to GDP during the administration?
• Employment: How many jobs were created or lost?
• Unemployment: Did the unemployment rate increase or decrease?
• Inflation: Did prices rise rapidly or remain relatively stable?
• Wages: Did workers’ earnings increase after accounting for inflation?
• Federal debt and deficits: Did government deficits increase or decrease?
• Business investment: Were businesses expanding and investing?
• Interest rates: What was the Federal Reserve doing?
• Economic conditions inherited: What condition was the economy in when the president took office?
• Major events: Were there wars, pandemics, financial crises, supply disruptions, or other events affecting the economy?

Looking at all of these factors gives voters a much more complete picture.

The President Matters, but the President Is Not the Economy

It would be wrong to say presidents do not matter. They do. Presidents influence economic policy by nominating officials, negotiating legislation, setting priorities, signing or vetoing bills, and shaping the broader direction of the federal government. But they still work within a much larger economic system.

Congress writes legislation. The Federal Reserve conducts monetary policy. Businesses make investment decisions. Consumers decide whether to spend or save. International markets affect American companies, and global events can dramatically change economic conditions.

The Bottom Line

So, do Democrats and Republicans really control the economy?

Neither party controls it completely. The historical record shows that some presidents governed during periods of remarkable prosperity, while others governed during recessions or crises. But timing matters. Clinton governed during a historic expansion, but that expansion began before he took office.

Bush governed during both a recession and a later expansion. Obama inherited the Great Recession and governed through a lengthy recovery. Trump inherited an ongoing expansion before the COVID-19 pandemic produced an extraordinary economic contraction.

Biden inherited a pandemic recovery and faced an inflation surge followed by aggressive monetary tightening. Each president influenced economic policy, but none controlled every factor affecting the economy.

The PVAL News Takeaway

Perhaps the most important lesson is this: Do not judge the economy by party label alone. Look at the conditions a president inherited, the policies that were enacted, the actions of Congress and the Federal Reserve, and the major events that occurred during that administration. Political parties can influence the economy, but they do not own it. Understanding that difference can help voters move beyond slogans and toward a more informed discussion about America’s economic future.

Sources:

National Bureau of Economic Research (NBER).

Business Cycle Dating. NBER’s chronology of U.S. expansions and recessions.

Blinder, Alan S., & Watson, Mark W. Presidents and the U.S. Economy: An Econometric Exploration. NBER Working Paper No. 20324.

Federal Reserve Board. Monetary Policy. Information on the Federal Reserve’s role in promoting maximum employment and stable prices.

Federal Reserve Board. Fiscal Policy: What is the difference between monetary policy and fiscal policy? Explanation of the different roles of the Federal Reserve, Congress, and the administration.

U.S. Bureau of Economic Analysis (BEA). Gross Domestic Product. Official information about GDP and U.S. economic activity.

U.S. Bureau of Labor Statistics (BLS). Labor Force Statistics from the Current Population Survey. Official employment and unemployment data.