A:

Sometimes they seem far apart, sometimes their philosophies seem rather similar. But historically, the Democratic and the Republican parties have demonstrated a fundamental difference in how they deal with economic issues (or don't).

Generally speaking, the Republican Party is considered business-friendly, as it favors limited government regulation of the economy. This includes restrictions that might seek to dimunize the pursuit of profits in favor of environmental concerns, labor union interests, healthcare benefits and retirement payouts. Given this more pro-business bias, Republicans tend to receive support from business owners and investment capitalists, as opposed to the labor component that constitutes workers and their interests.

Democrats are said to rely more heavily on government intervention to influence the economy's direction and keep the profit motive of businesses more at bay – subscribing to a belief that businesses are more focused on earning a return for shareholders and willing to cut corners in terms of protecting the overall social good. Higher regulation comes with increased costs, which Democrats believe in supporting through higher taxation. As a result, the party's approach is often described as "tax and spend."

During economic downturns, Democrats will, therefore, tend to believe that deficit spending is necessary to help stimulate the economy until private business prospects improve. They might also look to enhance and extend welfare programs to help citizens that have lost their jobs or are more in need due to more challenging economic conditions. Republicans would tend to rely less on government intervention, but might seek to alter the money supply. Lowering the Federal funds rate and the banking reserve ratios qualify as monetary policy levers they can pull.

The reality is that the lines between what are considered traditional Republican and Democratic approaches to regulating the economy are more blurred. The U.S. has run a budget deficit for nearly three decades, meaning it has spent more than it has taken in. This has increased the role of government in the economy and has meant that spending has continued in good times or bad, and under both parties' administrations.

Government politicians also have personal differences in how they manage the economy, of course. Still, knowing their party affiliation can still be a solid indicator in the approach they may take in influencing the economy.

RELATED FAQS
  1. Understanding the Effects of Fiscal Deficits on an Economy

    Understand what fiscal deficits are and understand the real impact of budget deficits on the economy. Learn why government ... Read Answer >>
  2. What are some advantages of a market economy over other types of economies?

    Learn what a market economy is, the main assumption behind a market economy and some important advantages it has over other ... Read Answer >>
  3. Can a government intervene in a market economy?

    Find out at what point a market economy receives so much government intervention that it can no longer be considered a market ... Read Answer >>
  4. What is the role of deficit spending in fiscal policy?

    Read about the role deficit spending can play in a government's fiscal policy, and learn why economists are torn about the ... Read Answer >>
  5. What are some examples of free market economies?

    In a free market economy, the law of supply and demand, rather than a central government, regulates production and labor. ... Read Answer >>
  6. What role does the government play in capitalism?

    Take a deeper look at the role of government in a capitalist economic system and about competing ideas about the proper amount ... Read Answer >>
Related Articles
  1. Taxes

    Parties For Taxes: Republicans Vs. Democrats

    Read about the political parties' differences in tax ideology, and how it can affect your paycheck.
  2. Insights

    The Top Republican Donors

    According to latest data from the Center for Responsive Politics, corporations and businesses are majority contributors to the party.
  3. Insights

    Top Democrat Donors

    The Center for Responsive Politics recently released a list of major donors to both parties since the 2002 election cycle.
  4. Investing

    Play Politics With ETFs ... for Real

    If these ETFs come to market, they could give investors direct lines politically inspired market moves.
  5. Taxes

    National Debt: Who Pays?

    There's a huge national debt being left behind for future generations, but what have past administrations done to lessen the blow?
  6. Taxes

    Prospects for Tax Reform

    Similarities to previous plans, both Republican and Democratic, would seem to give reform legislation a fair chance of success.
  7. Insights

    Democrats' $1 Trillion Spending Plan Will Benefit Builders

    Democrats want to spend big money on roads, bridges and broadband.
  8. Investing

    The Trump Bull Market Is Far Short of 'Tremendous'

    President Trump's bull market gains lag five other US presidents for their first 500 days.
  9. Insights

    The Pitfalls Of Financial Regulation

    Regulatory actions usually have lofty intentions that end up with unintended and negative consequences.
  10. Insights

    Successful Ways That Governments Reduce Debt

    Governments have many options when trying to reduce the national debt, and throughout history, some of them have actually worked.
RELATED TERMS
  1. Super Tuesday

    Super Tuesday refers to the date in the U.S. presidential primary ...
  2. Deficit Spending Unit

    A economic term used to describe how an economy or economic unit ...
  3. Centrally Planned Economy

    A centrally planned economy is an economic system in which decisions ...
  4. Limited Government

    Limited government is a political system in which legalized force ...
  5. Deficit Spending

    Deficit spending occurs whenever a government's expenditures ...
  6. Fiscal Policy

    The use of government spending and tax policies to influence ...
Trading Center