Want Lower Government Spending? Try a Republican Congress and a Democratic President

If you read my earlier post that looked at GDP growth relative to party control of Congress and the Presidency from last week, you will see that the statistics were fairly inconclusive. The economy tended to grow more strongly when a Democrat controlled the Presidency, but the correlation with divided or unified government was not significant.

This post, I thought I would look at the level of government spending relative to party control.

Let me lead in by saying a few things.

Firstly, many of the same limitations that I discussed in my earlier post apply to this analysis as well. It is impossible to control for evolving and varied ideologies of the parties over time and it is also difficult to control for the effects that economic and geopolitical conditions have on spending (wars cost money, recessions drive up the cost of the social safety net, etc.)

Secondly, I wanted to explain my choice of metric. I used change in government spending as a percentage of GDP. The choice to use change in spend rather than absolute spending levels is a judgement call, but one that I believe is most accurate. Government doesn't spin on a dime, so I believe change in spending is more indicative of the impact of political leaders than the absolute number.

Thirdly, I'm not trying to argue in this post whether higher or lower government spending is preferred. Was adding Medicare a good thing or a bad thing? How about the war in Iraq? Should we have added the Department of Homeland Security? These are all individual issues that we could debate at length. The point is, this analysis seeks only to establish correlations, not to conclude whether they are good or bad.

Conclusions by Party in Power:
Presidency
Average spending growth (as a percentage of GDP) for Democrats: +0.00%/year
Average spending growth (as a percentage of GDP) for Republicans: +0.16%/year

House
Average spending growth (as a percentage of GDP) for Democrats: +0.05%/year
Average spending growth (as a percentage of GDP) for Republicans: +0.22%/year

Senate
Average spending growth (as a percentage of GDP) for Democrats: +0.08%/year
Average spending growth (as a percentage of GDP) for Republicans: +0.17%/year

Viewed individually, in every body, Republicans in power leads to more spending than Democrats in power. You can also see (no surprise), that the trend overall is up across time.

But what about the interaction of unified versus divided government? Here is where the statistic become very clear:
Average spending growth (as a percentage of GDP) -- Democrat President, Congress All or Partially Republican: -0.47%/year
Average spending growth (as a percentage of GDP) -- Republican President, Congress All or Partially Democratic: +0.02%/year
Average spending growth (as a percentage of GDP) -- Unified Democratic Government: +0.18%/year
Average spending growth (as a percentage of GDP) -- Unified Republican Government: +0.65%/year

Average all divided governments: -0.07%/year
Average all unified governments: +0.34%/year

We see a massive effect here. Divided governments produce lower government spending, unified ones produce higher spending. The effect is significant and meaningful.

Conclusions:
* Democratic Presidents, in general, increase spending at a far lower rate than Republican Presidents
* Regardless of who is President, spending is significantly lower with at least partial control of Congress by the other party
* Of all scenarios, a Republican Congress and a Democratic President produces the lowest spending result.
* The highest spending scenario, by far, is a unified Republican government.
* Interestingly enough, only 16% of the total change in spending is explained by these effects. This speaks to the continued impact of macroeconomics and evolving philosophies.

It's fascinating, because a lot of this flies in the face of conventional wisdom about party governing philosophies.

If you are a fan of lower government spending, you should be encouraged, since we will almost certainly see a next two years of a Democratic President and a congress that is at least partially Republican congress.

I may pick this topic up to do similar analysis on things like taxes and deficit. But between now and Tuesday, this space will be solely dedicated to looking at the mid-term elections.

If you like this site, tell your friends.