Why Do Business Leaders Prefer Republicans?

L. David Roper (roperld@vt.edu)

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Why Do Business Leaders Prefer Republicans? It is obvious that most business leaders prefer having Republicans in power rather than Democrats. Why is that the case? Is it because that the economy performs better when Republicans are in power than it does when Democrats are in power? Or is it because Republican control makes it possible for business leaders to accumulate more personal wealth than does Democratic control?

I will briefly examine the performance of the federal economy relative to Republican or Democratic control of the federal government. It will be seen that most economic indicators were better, on the average, during periods of Democratic control of the federal governments since the Franklin Roosevelt administration than they were during periods of Republican control. Details about these analyses can be found at http://arts.bev.net/roperldavid/politics/economy.htm, which gives references for the data used.

First consider the expansion and contraction periods of business cycles. (These data are available at http://www.nber.org/cycles.html.) Since the Franklin Roosevelt administration there were 28 years of Democratic and 28 years of Republican administrations. During those tenures the Democrats had an average of 11-months-long expansion periods for all 28 years, while the Republicans had an average of 10-months-long expansion periods for 27 of the 28 years. More revealing are the results for the contraction periods. The Democrats had an average of 5-months-long contraction periods for only 6 of their 28 years, while the Republicans had an average of 6-months-long contraction periods for 14 of their 28 years. Thus, the Democratic administrations performed marginally better in prolonging business-cycle expansions and much better in slowing business-cycle contractions than did the Republican administrations.

An economic indicator of great importance is the Gross Domestic Product (GDP) per capita. For administrations since the Franklin Roosevelt administration there is, on average, little difference between Democratic and Republican administrations with regard to the change per year in GDP per capita. The Carter administration has the best record, followed by Nixon and Reagan.

Democratic administrations have a better record for full employment than do Republicans. Democratic administrations had an 18% correlation with low unemployment compared to Republican administrations for the administrations since Franklin Roosevelt's. Clinton has the best record, followed by Kennedy/Johnson, Reagan and Carter.

Republican administrations have a much worse record for increasing the federal debt/GDP ratio than do the Democratic administrations since the Franklin Roosevelt administration. There is a 38% correlation for increasing the federal debt for Republicans compared to Democrats. The worst records are for Bush and Reagan; no other administration has a positive average over its years in office. The Reagan-Bush years had huge increases, with 2.3% average increases per year for Reagan and 3.4% average increases for Bush. That's what happens when taxes are slashed for the wealthy and spending is not correspondingly decreased; George W. Bush is pushing for the same effect now.

A perfectly stable economy would have a steady consumer price index (CPI). A highly increasing CPI is inflation and a highly decreasing CPI is depression. When one studies the CPI for administrations since Franklin Roosevelt, there is essentially no correlation difference between the Democratic and Republican administrations. The worst records are for Carter, followed by Nixon, Truman and Reagan/Bush.

Certainly a valid indicator of economic health is the average yearly change for workers in inflation-adjusted earnings in private industry. I found such data only for administrations from Johnson to the present. Democratic administrations had a 16% correlation with such an increase over Republican administrations. The best records are for Johnson, followed by Clinton and Nixon. All other administrations had negative changes, with Carter's being the largest negative. I believe that this indicator is one of the most important ones, because well-paid workers are going to have higher productivity, other things being equal.

There are, of course, other measures of economic health. However, I believe that the ones discussed above are sufficiently indicative of economic health. It is seen that for them the Democratic administrations had better or equal records to the Republican administrations.

Undoubtedly, some will argue that a presidential administration should not be given all the credit or blame for its economic performance because of lead and lag times for changes in economic indicators. Over a long period of time (56 years in this study) such lead and lag times should balance out for two parties that equally shared control (28 years for each party). Also, changes can be made to happen very quickly. For example, the Clinton administration emphasized the health of the economy and quickly turned around the horrible federal debt situation of the Reagan/Bush administration. I believe that the current downward trend of the economy is partly because of the expectation that George W. Bush would be the next President months before he was selected and because of his final selection; it was obvious that Bush knew very little about what keeps an economy healthy.

Why is it that Democratic presidential administrations have a better economic record than Republicans over the last 56 years? Here is my reasoning for it:

• When Republicans get power they tend to emphasize helping the rich rather than the middle class or the poor. They cut taxes for the rich, provide subsidies for the rich and increase spending for military purposes. As much as they might like to, they cannot lower greatly the governmental expenditures for helping the middle class and the poor, because they then would not be able to stay in power in a pseudo-democracy such as the United States. Thus, deficits increase, which leaves less funds for investment in the economy and the economy suffers. Also, the obvious lack of interest in the welfare of the workers who produce the goods lowers the morale and causes productivity increase to slow down. When the economy gets bad enough the Democrats are voted into power.
• When Democrats get power they tend to increase taxes for the rich and cut military spending, which allows deficits to decrease, and perhaps even surpluses to occur, and therefore leaves more money to invest in the economy and the economy grows. They emphasize the welfare of the workers who produce the goods and productivity increases faster.
• After the economy is rolling along well, more citizens tend to think they are going to be wealthy and they want the tax cuts for the rich that the Republicans always promise. So Republicans get elected again and the cycle begins with Republican power again.

So, back to our initial question: Why Do Business Leaders Prefer Republicans? From the above discussion it cannot be because the economy performs better under Republican administrations. So the conclusion seems unavoidable that it is because Republican control makes it possible for business leaders to accumulate more personal wealth than does Democratic control. Many of George W. Bush's actions since he was selected as President are in that direction.