Are professional economists truly objective when forecasting GDP? Maybe not.
New study reveals top economists’ partisanship may affect Gross Domestic Product growth predictions
Are professional economists truly objective when forecasting economic projections? New research from Wake Forest University suggests otherwise, revealing a subtle yet powerful influence of political affiliation on predictions of Gross Domestic Product (GDP) growth.
Economist Aeimit Lakdawala, an associate professor and expert in monetary policy, found that political bias can systematically influence economic forecasts, shaping public understanding and policy debates even among highly trained professionals outside government.
The working paper, “Partisan Bias in Professional Macroeconomic Forecasts,” co-authored with Benjamin Kay, principal economist at the Federal Reserve Board, and Jane Ryngaert, professor of Macroeconomics at Notre Dame, indicates that when Republicans control the White House, Republican-affiliated forecasters predict significantly higher GDP growth than their Democratic colleagues—about 0.3-0.4 percentage points more. The gap is significant, representing roughly 10-15% of average GDP growth. But when Democrats are in power, both groups make similar predictions.
“The evidence suggests Republican economists genuinely believe tax cuts boost growth more than Democratic economists do. This partisan optimism means the accuracy of GDP forecasts can be compromised by political leanings, which implies that the economic numbers we hear may not be as objective as we assume,” said Lakdawala.
About the research
Existing research has shown that when households are asked how they feel about the economy, their answers are very closely tied to whether the party in power aligns with their own political affiliation. For this study, researchers wanted to see if something similar exists for professional forecasters.
The research required developing innovative methods to identify forecasters’ political affiliations. Using a unique data set of professional, private-sector forecasters from the Wall Street Journal Economic Forecasting Survey from 1986 to 2023, researchers meticulously linked individuals to their political affiliations via campaign donations, voter registration and employment history. This comprehensive data set was crucial for demonstrating political bias among well-trained professionals outside the public sector and for identifying the underlying reasons for the GDP-specific bias.
The results showed that Republican-leaning forecasters’ predictions are less accurate under Republican presidents, directly indicating that their partisan optimism compromises their predictive performance. The bias is observed almost exclusively in GDP growth forecasts, not in projections for inflation, unemployment or interest rates. This occurs because GDP data is harder to forecast than other economic variables, and this uncertainty leads forecasters to place more weight on their pre-existing political beliefs when forming GDP projections, namely that tax cuts increase economic growth.
“Our findings suggest that even among highly-trained professionals in the private sector, political leanings can subtly influence economic projections, particularly for complex metrics like GDP where data is inherently noisier,” said Lakdawala. “Understanding this bias is crucial for consuming economic forecasts critically and for fostering more objective public discourse.”
Professor Lakdawala is available for interviews to discuss the research findings, their implications for how economic news is consumed, and what this means for financial markets and policy.
Recent News
