According to the statistics it seems so! In an article written by economist Jeremy Siegel, it appears that over the last 120 year period stock markets have risen 10.85% under Democratic presidencies, compared to 8.25% under Republican administrations. This trend has only accelerated in the last 60 years, with Democrat returns averaging 15.26% per year versus 9.01% Republican returns. What is it about Democratic presidencies that drive markets nuts?
Probably not much. A fundamental axiom of statistics is that correlation does not equal causation. Just because stocks have generally gone up more during Democratic regimes does not mean those administrations had anything to do with the good times. For instance, the sky could have been blue more days during Democratic reign, but it would be hard to argue the Dems had anything to do with that.
More specifically, consider the following two instances and decide for yourself: In 1928 Herbert Hoover (Republican) took office during the height of a speculative stock market bubble. The following year the bubble shatters and we have the great crash of ’29. Did Hoover have anything to do with that? Not likely since he came to power at the peak of a frenzied speculative bubble.
Next, consider whether or not Bill Clinton had anything to do with the internet revolution that sparked one of the largest speculative stock bubbles in our time? Did his coming to power (instead of a Republican) have any influence in development and commercialization of the internet? Did he have any personal hand in crafting the democratization of finance that led to a revolution in global capital flows? It’s 99.9% certain that if someone else came to power at that time these events would have occurred nonetheless.
The stock market goes up and down for a number of reasons, but if you try betting on presidential cycles you will likely lose out in the long run. It makes just as much sense as betting on lunar cycles (which it’s sad to say some people do!) and their effects on stocks. Executive policy has an impact on the economy over time, but that relationship to markets is ambiguous and can likely only be evaluated on an individual basis, not categorically as Republican or Democrat. Regardless of party affiliation, it is an axiom of economics that free markets produce greater abundance than centrally-run economies.
Everyday the news points in a single direction: the growing size of government and its role in the economy. With every new bailout, every new trillion dollar printing press party by the Federal Reserve, and every new regulatory edict by the President or Congress, our society moves closer to a political economy. Free trade, free enterprise, Capitalism…these are words of a forgotten age. Regardless of your political persuasions, we must all face the reality that confronts us. Now is the time to learn how policy drives markets, so that you can protect your portfolio, insulate it from the whims of the Bureaucratic Machine, and maybe even make a profit along the way. To learn how the New Order will affect your portfolio and how you can protect yourself, read Obamanomics: A Guide to Investing Over the Next Administration.
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If Al Gore had become president, the skies would be bluer. How’s that for correlation?
A few years ago I did a simple piece of correlation research and I discovered that every recession or depression in the US economy since the founding of the republican party occurred began under a republican administration. Now, in some cases the worst of it was not manifest until a democrat got in (FDR had the presidency for more of the great depression than Hoover did). There seems to be a strong correlation, although there is no way to do a formal experiment (not quite sure how to create a control economy…). It seems likely to me that democratic policies regarding a social safety net are the actual reason for this (and there is some evidence to support this). This is not communism, simply a mixed social democracy with relative market freedom.
Again, I must stress the difference between correlation and causation. Without a fundamental premise behind why one should expect economies and markets to decline following periods of Republican rule it is just as logical to say that such events occur because of solar flares or other astrological events.
It is difficult to deny the benefits of liberal economies in which people, capital, and ideas can freely exchange. With just the last five hundred years as an example we can see some recurring themes…the more liberal an economy (when I say “liberal” I mean free) the greater the degree of prosperity.
From the rise and fall of Rome, to the stark differnences in prosperity between North and South Korea, Hong Kong and mainland China (for the last 50 yrs, not just recently where the mainland ushered in greater economic freedoms, which in itself speaks to my point), America versus the Soviet Union, 17th century England versus King Louis IX’s despotic reign of France, etc…the list goes on, but the undeniable trend is that freedom/libery usher prosperity.
I would say that the key policy difference is level of taxation, but there is also a strong tendency of republican governments to increase spending. So, basically republicans tend to tax less and spend more, meaning more debt. They also tend to cut taxes at the top end of the economic scale disproportionately when compared to the bottom. This actually results in a concentration of wealth, not the trickle down theory that became so prevalent under Reagan. It is actually a predictable outcome of the policies championed by the republican party. The thing that free market capitalists don’t seem to want to take into effect (other than the obvious reality of hard limits to growth due to lack of resources) is that a number of people with a bit more money does more for the economy than one person with a lot more money. You see, the people with a lot of money increase liquidity to the market, but a lot of folks with a bit more money means that the companies that are traded on the market actually earn more money because more people buy their product… they then hire more people. It is far more sustainable and not nearly so vulnerable to speculative bubbles. Also, there are many freedoms in this world, the best societies seem to be the ones that balance them… the ones that concentrate on corporate freedoms to earn money have never proven themselves to be better than ones that focus on the freedom of normal people to earn a decent wage and be able to feed themselves.
I am similarly opposed to promoting corporating interests or skewing the tax code to favor one class over another. Everyone should be equal under the eyes of the law and no company should derive preferential treatment.
Despite what is perceived to be continuous Republican championing of higher income earners, these people still pay the majority of US taxes. Only 40% of Americans pay taxes, supporting the other 60% who either pay nothing or receive subsidies. This is also progressively skewed, with top tiers paying disproportionaly higher rates and nominal amounts. To say that the rich aren’t paying enough is ridiculous…they pay too much. Everyone must pay taxes or the country is doomed.
Rob, the thing that was pointed out to me once is this: if you earn 20,000 a year and the government takes 50%, you have to try and live for a year on 10,000. If you earn 2,000,000 and the government takes 50% you have 1,000,000 a year to live on. Now, which do you think is easier?
It makes me uncomfortable discussing justification for why it’s OK to take more from some. American law was never meant to favor one group over another, that’s just an unfortunate perversion arising from inadequate constraint of scope of authority. Whether it’s corporate interests or low-income interests, I find it hard to justify favoring one group over another.
Yes, 50% taken from someone with $20K annual income is wrong, but it’s similarly wrong to do so for higher-income earners. Just because someone has more doens’t make it right to take it from them.
See, to me that’s part of the social contract. Humanity, for all of its flaws, basically has achieved its current state based on co-operation. That co-operation means that you sacrifice some personal gain to the community at large. The more you have, the more personal gain you are able to spare. Please note, this does not mean that everyone should earn exactly the same and that there is no motive for profit. Earning a million still makes you way better off than someone who earns a few hundred grand.
This is a profound philosophical difference though. The belief that the good of society is more important than the good of one person when it comes to resource allocation is simply a fundamental belief. If you don’t accept it then you will always argue for what Mises refers to as natural rights (of course, there is absolutely nothing natural about them… but that is a point for another day) and I, disagreeing with your base premise, will always argue the other way. Since there is simply no objective way to settle that, we will never come to agreement unless one of us fundamentally shifts our core belief system.
Traverse,
Very eloquently stated. That’s exactly what this always boils down to. I find the notion of a forced social contract to be barbaric, but yes, as you said, it’s more natural than a state of liberal freedom. Humans are social creatures that naturally congregate in groups. I find myself realizing more everyday that most people prefer a socialized state to the free alternative…that’s truly only suited for perhaps a minority of the population.
Ready for the real irony?
I was homeless for a while, due to my circumstances I was unable to receive any government aid. I made my own way from there…
As a person, I tend to look after myself, usually chafing at every bit of red tape. I am able to survive in the wilderness with minimal supplies in a wide variety of environments, have been heavily trained in self defense and value independence in almost every way.
In other words, in most ways (in terms of my actual life) I am the poster boy for rugged individualism vs. the nanny state. However, given my background I have seen far too many people who can’t take care of themselves, and I put too much value in the things that private industry has proven that it sucks at to not want it to exist.
While I applaud your personal individualism I still take exception to the notion that just because we may personally feel averse to certain outputs of private industry we should have any say in how others employ their resources. Private industry only exists because a sufficient number of individuals value the output. None of us, either individually or in groups, should have the power to regulate how others exist, so long as they do so in a peaceful manner.
But that is also true of government, at least in a liberal democracy. As to regulating how others exist… that is unfortunately not the exclusive provenance of government in modern society. Corporations actually have more control over how I live my life than government does. I view the protections of government as being a larger force for freedom in my life than, say, the bank I deal with. The bank wants to do business in such a way that it has a very large say in what I can and can’t do with the home I mortaged from them. Government puts limits on that power and puts mechanism’s in place that mean even though I am a middle of the road earner I can have a house (it is due to a government agency that a 10% down payment was adequate… without the government agency the bank would require a 25% down payment. The US tried to go a semi-private route with that… it has proven to be problematic)
Dems are better forthe stock market? IT’S A BOGUS STATISTIC!
The statistic fails to take into account inflation. If you take that into account the Democrats are worse and the Republicans are better. See:
http://travismonitor.blogspot.com/2008/10/presidential-stock-market-returns.html
“I discovered that every recession or depression in the US economy since the founding of the republican party occurred began under a republican administration.”
You missed the recessions in 1919, 1937-1938, 1952, 1980, and the beginning of the bubble bursting in 2000.
“They also tend to cut taxes at the top end of the economic scale disproportionately when compared to the bottom. ” False. Both the Reagan and Bush tax cuts reduced taxes disproportionately on the low end. We now have a system where the top 20% are paying almost all income taxes.
Interesting article by John Gilliam, writing for USAA. He asserts that Dems aren’t as bad as Repubs fear (on economics, anyway).
All I can say is let’s not forget that correlation does not equal causation.
The sky could have been blue more times under dems than repubs, but one had nothing to do with the other.
I personally think dems + unions + trial lawyers have crippled this country and will run it into the ground. Repubs don’t help much, either.
I disagree with the premise of this article. Who says that rampant and unbridled growth is necessarily “better” for the stock market? It seems to me that, in the late 1920′s and the mid-2000′s, the stock market was at unsustainable levels, which were brought about by unsustainable growth. The “crashes” that occurred in 1929 and 2008-2009 have more to do with correcting the market and bringing it back to a more sensible, sustainable level than anything else. I would argue that a healthy stock market would be based on balance, with only minimal fluctuations from a given, sustainable level. The concept that “growth is always good” seems a little off the mark, especially considering what we’re going through right now.
@Zach Swartz – No way do I consider “growth at all costs” good. That’s precisely what I oppose. This article merely pointed to the correlation between Democratic presidencies and markets. I even stated that correlation does not equate to causation, and posit that Democrats just happened to be lucky for the brief sample period…Bill Clinton presided over a tech revolution, but there is no way you can claim he had anything to do with that.
So really, I agree with you…
Knowing what we know now, obviously not!
@Howard – My portfolio agrees with you!