Political parties and economic growth: more from Campbell, Bartels, Hibbs, and Gelman

A few months ago, we reported that Jim Campbell argues that Larry Bartels’s “Unequal Democracy” findings are not robust.

Here’s the quick summary, which (I think) both Bartels and Campbell would agree with:

– On average, the economy did a lot better under Democratic than Republican presidents in the first two years of the term.

– On average, the economy did slightly better under Republican than Democratic presidents in years 3 and 4.

These two facts are consistent with the Hibbs/Bartels story (Democrats tend to start off by expanding the economy and pay the price later, while Republicans are more likely to start off with some fiscal or monetary discipline) and also consistent with Campbell’s story (Democratic presidents tend to come into office when the economy is doing OK, and Republicans are typically only elected when there are problems).

But the two stories have different implications regarding the finding of Hibbs, Rosenstone, and others that economic performance in the last years of a presidential term predicts election outcomes. Under the Bartels story, voters are myopically chasing short-term trends, whereas in Campbell’s version, voters are correctly picking up on the second derivative (that is, the trend in the change of the GNP from beginning to end of the term).

Consider everyone’s favorite example: Reagan’s first term, when the economy collapsed and then boomed. The voters (including Larry Bartels!) returned Reagan by a landslide in 1984: were they suckers for following a short-term trend or were they savvy judges of the second derivative?

After posting the above, I solicited comments from Campbell, Bartels, and Doug Hibbs. Here’s what I got.

First Campbell:

I think that the key to the difference between Bartels’ interpretation and mine is in the lagged effects of the economy. Personally, I cannot believe that the economy at time 1 is unrelated to the economy at time 2. It is just plain implausible. Does everything start from scratch when the year turns? That would be bizarre. Yet, using the one year lag either in GNP (note 37 in Bartels) or in income growth in particular percentiles (table 2.5 in Bartels), Bartels finds no significant positive effect of the economy in year 1 affecting the economy in year 2. Either we are to believe the implausible or we are to believe that the lag times are incorrect. I explored the later. I think that theory and common sense would strongly suggest that there should be a lagged effect, but would be agnostic over the particular length of the lag. Is it three months or six months or nine months? That is an empirical matter. I explored a one quarter lag in the economy and a half year lag in the economy. Using either lag, the presidential difference evaporates– for growth, for unemployment, and for income inequality. Are the economic lags perfect? No, but they are positive and significant as reason would suggest and this was not the case in Bartels’ analysis.

Moreover, since quarterly data are available for GNP growth, I explored shortening the presidential responsibility lag and using a one quarter lag in the economy. The presidential party difference again was not statistically significant.

I think that two points are beyond contention (Hibbs or no Hibbs)-(1.) that the economy has a significant and positive lagged effect on the economic conditions that follow and (2.) that the economies inherited by each new Republican president since 1948 went into recession within months of the new president taking office (and that this was not the case for new Democratic presidents). Combine the two and it seems inescapable that the party differences in economic records were the result of inherited economic conditions and not differences in the success of the parties’ macroeconomic policies. . . .

There are strong reasons to expect prior economic conditions to affect later economic conditions. Indeed, a model without significant lagged effects of the economy is highly suspect. Bartels implicitly concurred with this since he tested for lagged economic and income effects, only not of the right duration.

Second, in response to the possibility that the prior economy is an outcome of party differences (of some unknown cause since this is a black box in the original study), the correlation of the presidential party is not strongly correlated with the lagged economy (correlations of about .25 with the 3rd or 4th quarter lags). Additionally, just as an initial examination of the possibility you suggest, there are no significant party differences in the lagged 4th quarter growth when controlling for 3rd quarter growth.

Now I could keep pushing back for a party difference in lagged economic effects, but the major points remain that (1) there are lagged effects of economic conditions on later economic conditions (and that these were not taken into account adequately in the original Unequal Democracy analysis), and that (2) the economies were going into recession within months of each of the four new Republican presidents taking office since 1948 and that this was not the case in any of the transitions for new Democratic presidents. Four for four versus zero for four.

Since everybody seems to agree that party differences are largely located in the second year of presidential terms, it would seem that we should give greater credence to hard evidence linking the second year differences to inherited recessions in the first year than to what are essentially speculations about differences in the success of party policies in honeymoon years. The basis for the speculation seemed to be that other explanations (including inherited economies) had been ruled out and so policy differences, though unexplored, must be the answer. My article indicates not only should the inherited economy explanation not have been ruled out, but that there is strong direct evidence supporting the inherited economy explanation (unlike the policy difference explanation).

Bartels responded that even a robust finding will go away if you slice the time dimension finely enough, so he didn’t find Campbell’s quarterly lag to be meaningful. Bartels also pointed to a paper with Chris Achen that suggests that the answer is No to my question of whether election-year growth is diagnostic diagnostic of future growth (the “second derivative”). Achen and Bartels write:

The best current defense of democracy is the theory of retrospective voting. Citizens may not know much about the issues, the argument goes, but they can tell good from bad outcomes, and that allows them to remove incompetent or corrupt incumbents. . . . We find, however, that the voters cannot manage the task of competent retrospection.They forget all about most previous experience with the incumbents and vote solely on how they feel about the most recent months. Knowing that, governments pander to the voters near election time, showering them with one-time benefits atypical of their performance in office. Governments are retained or removed, then, not because they drift away from the voters ideologically or because they have performed poorly on average during their term, but most often because of last-minute pork or unexpected misfortunes unrelated to their performance in office . . .

I’m not quite sure how to interpret this: in this case, the most important theater of battle in 2012 will be the struggle between Obama trying to give out goodies to the voters, and congressional Republicans trying to stop him. Even so, wouldn’t the overall level of economic performance be relevant here?

And here are Hibbs’s comments (not on the Achen and Bartels paper but on the Campbell/Bartels dispute discussed above):

A basic problem is that the testing setups used by both Campbell and Bartels assume that partisan effects will yield permanent effects on output growth (as opposed to per capital real income levels) and never ending partisan-induced changes in income distribution—both of which are highly implausible. My view is that Bartels’ main contribution is to enrich substantially qualitative understanding of the political contexts of partisan effects on growth and distribution. (However his argument that one important reason that Republicans win presidential elections is that all voters respond to real income growth experienced by the top percentiles of the size distribution, rather than to own experience or average real income growth, is preposterous in my opinion—and it doesn’t hold up statistically once you get rid of the ad-hoc trend term in Bartels’ aggregate voting equation – but this is a topic for another day.) The quantitative setups Bartels used, which Campbell basically adopts in his papers, are in my opinion misguided for the reasons just mentioned and set out at greater length in my [Hibbs’s] review of an earlier version of Campbell’s paper. Finally let me say that I regard Campbell (whom I have never met—haven’t met Bartels either) as a serious scholar and I learned a lot from his earlier quantitative work on House seat-voting outcomes.

Concerning your [Gelman’s] proposal, “One way to get leverage on this would be to study elections for governor and state economies. Lots of complications there, but maybe enough data to distinguish between the reacting-to-recent-trends and reacting-to-the-second-derivative stories,” I [Hibbs] think there was a paper or two along these lines published back in the 1970s or early 1980s but I can’t remember the authors or place of publication. i have my doubts about the logic of the approach because governors just don’t have the tools to exert strong effect on state economic fluctuations (monetary, fiscal, national regulatory, etc) and voters would rationally perceive that, but who knows?

Finally, my summary:

I have not met Campbell or Hibbs (and have only met Bartels once, I think) but I respect all of them. When writing our paper about the 1988 presidential election campaign, King and I leaned heavily on a paper Campbell had written forecasting state-by-state election outcomes.

My take on much of the Bartels stuff is that, even if there are issues with causality and specification, if he is presenting patterns that have occurred (for whatever reason), it makes sense to think about how voters would react to these patterns. Regarding the claim that senators respond to the policy preferences of the rich: in my mind this connects to the red-state-blue-state idea that the key political differences between the states are among the upper middle class. This is where there is variation that is correlated with state opinion. To the extent that senators are responding to state ideology, I think it would show up as a correlation with the attitudes of upper-income voters.

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