Jim Mcteague discusses the surprising correlation that Democratic Presidents have had with outperforming economy and stock markets versus Republican Presidents.

He points out that Real GDP growth between 1949 and 2011 was 4.43% under Democratic presidents, while the average growth rate has been 2.43% under Republicans.

As we are so fond of reminding the innumerate masses, however, correlation does not equal causation:

Gripe as you may about President Obama and the economy, he’s been good for stocks. And if history is a guide, he’ll be just as good if re-elected. Dozens of research papers have concluded that the stock market performs noticeably better during Democratic administrations than it does during Republican ones. No one can explain exactly why this is so . . .

Market professionals have multiple theories about a president’s impact on stocks. Asset manager Barry Ritholtz, author of the highly regarded blog “The Big Picture,” says it’s a combination of luck along with a president’s response to economic circumstances.

“That is what separates the great economies from the middling ones. Look at the circumstances that met FDR, Clinton and Reagan,” he says. They all had big challenges, and met them with appropriate responses.

“Ronald Reagan had the luck to come into office in year 14 of a 16-year bear market; he also had as Fed Chief Paul Volcker, who forced a wrenching recession early in his term. But Reagan’s response to those circumstances—significant tax cuts and federal spending followed by gradual tax increases—helped add up to a booming economy,” say Ritholtz.

The whole article is worth a read.

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Previously:
Presidential Blame & Credit (November 22nd, 2011)

Source:
Democratic Market Magic
JIM MCTAGUE
Barron’s DECEMBER 3, 2011  
http://online.barrons.com/article/SB50001424052748704101304577038140162880680.html

Category: Mathematics, Politics, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

16 Responses to “The Market Magic of Democrats vs GOP Presidents”

  1. spencer says:

    One of the more interesting points of this nature is that in modern times every Democratic administration left office with the unemployment rate lower than when they took office. In contrast, every Republican administration but Reagan left office with a higher unemployment rate than they inherited.

  2. JimRino says:

    So Reagan’s REAL Economic policy was: Tax Cuts during a Recession,
    and Revenue Increases during good economic conditions.

    Who would have thought, the Definition of Keynesian Economics.

  3. JimRino says:

    Could it be that the Republican model of government, hierarchical, based upon who funds their candidates is a bad model? This year it’s the crackpot Koch’s. And just like Bobby Fischer, they may be great at extracting coal, but, incompetent in every other area.

    Verse the Democratic model,
    where the people actually have a voice in government,
    and if we push hard enough we get to take the nation in the proper direction.

  4. DeDude says:

    The GOP ideology of “give more to the rich and businesses, then all will become fine and dandy” just doesn’t work in the real world. The democratic basic idea of giving survival funds to the poor, particularly in hard times works a lot better. Supply is the cart and demand is the horse that pulls the economy forward. So you have to support demand to get things moving – either private or government demand has to be supported when the private sector fails to move along at close to full capacity. This is fifth grade math if you know the formula for GDP. However, if your ideology ban you from doing the Robin Hood thing then you just end up shooting yourself in the foot.

    The main reason Reagan could grow the economy was his 4-fold increase in the national debt. Although he eventually increased taxes, his government spending was on the military, which is one of the most wasteful and least growth enhancing forms of government spending. His tax increases were also tilted the wrong way, hitting the consumer class rather than a bloated investor class.

  5. RW says:

    The hypothesis that made most sense to me was that Democratic policy (or more accurately liberal policy) generally has a positive effect on the velocity of money because it tends to favor, or at least not disadvantage, citizens such as workers and the poor who have a greater propensity and/or need to spend what they earn.

    Republican policies generally have a negative impact on velocity of money for the opposite reason.

    The issue of lucky timing aside that’s about as close as I can get to an actual cause and effect relationship between administrative policy and the economy.

  6. wunsacon says:

    I don’t understand applauding Reagan (the ultimate lower-taxes+more-spending “free luncher”, financial deregulation contributing to S&L crisis) or Clinton (CFMA, tax-free capital gains on housing, financial deregulation contributing greatly to 1920′s/30′s-style boom/bust).

  7. Bill Wilson says:

    I think people are more likely to elect a liberal when the economy is down, because liberals favor policies that make up for excess capacity. When the economy is down, the stock market is down and in a good position to rally. The exception would be Reagan, but the big problem then was inflation. Inflation is a problem caused by the government creating too much money.

  8. theexpertisin says:

    Reagan had the correct view: Starve the beast.

    He had pseudo accomplices in the Democratic-controlled Congress, who spent like drunken sailors (my apologies to drunken sailors) after they had agreed to cut spending along with the 1986 tax reform package, did exactly the opposite.

    The Dems did the same thing under Bush I.

    Fool us once, shame on you. Fool us twice, shame on us.

    Fool us perpetually, lights out.

  9. MacroEconomist says:

    I have zero faith in America so long as Reagan is held up as symbolism of economic prowess and virtue. Zero, zilch.

    Every single problem we face today has its genesis from the bullshit so-called conservative ideology spawned in the 1980′s — every one of them. Those lessons were ignored and even still continue to be ignored.

    The only person who halfway had it right was Clinton. But with this electorate, who votes in a community organizer or who salivate over the most retarded Republican nominee, there isn’t much to look forward to.

  10. MikeW_CA says:

    No one can explain exactly why this is so. I can’t either, but perhaps a reason is that Democrats tend to get elected after Republicans have trashed the economy, and left it in a position with a lot of upside potential, and little additional downside.

  11. econimonium says:

    You can’t really see it, but I just gave MacroEconomist a standing ovation. Honestly, he’s the one who let the loonies loose in the Republican party. Before that, they were just a bunch of stuffy old moneybags like my grandfather. Now they’ve turned into the freak show at the circus. I won’t even get into the whole “trickle down” fraud, or how he didn’t “starve the beast” and actually ended up raising taxes. Never mind the whole HIV thing and letting thousands of people die because it was the gays until he found out that kids could get it too.

    And I’m actually a Republican. I keep waiting for the party to return but, instead, they’ve all become Democrats. Perhaps I should finally say goodbye to this insane asylum too. When people are fawning over some idiot like Cain, and even giving Bachmann the time of day, you know there’s no hope.

  12. Joe Friday says:

    theexpertisin,

    Reagan had the correct view: Starve the beast.

    Oh, that worked SO well.

    Massive federal deficits & debt, rising unemployment, rising Poverty, declining real wages, increased income inequality with more concentration of wealth & income at the top, and a declining Standard of Living.

    He had pseudo accomplices in the Democratic-controlled Congress, who spent like drunken sailors

    False.

    In ALL eight years of Reagan’s two terms, the Congress passed federal budgets that were SMALLER than the ones that the Reagan administration had proposed.

    The Dems did the same thing under Bush I.

    Agreed.

  13. DeDude says:

    Oh Joe, you are always so nasty – destroying peoples good narratives with facts.

  14. MidlifeNocrisis says:

    Explain to me how “starve the beast” works when the beast can create it’s own “food”. LOL. The government (treasury + fed) is the sole source of US currency.

  15. victor says:

    The Big Picture, says it’s a combination of luck along with a president’s response to economic circumstances”. Conclusion: The results (4.43% vs. 2.43%) cannot be called statistically significant.