Article Advise

submitted: Sep 6th 2008 | by: RobViglione | Total views: 4 | Word Count: 421 | |

Judging by historical returns Democrats are much better for markets! In an article published by economist Jeremy Siegal on Yahoo Finance (9/5/08), the presidential administrations over the last 120 years were evaluated against stock market returns. On average, markets have risen 10.9% when the reigning presidents were Democrats, while only 8.3% when Repubicans were in charge. Conventional wisdom is that Republicans are stronger on the economy, while Democrats tend to be further to the Left ideologically. How is it, then, that Democrats dominate markets?

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.

Republican president Herbert Hoover came to office in 1928, at the peak of a speculative stock bubble. People were frantic about playing the markets, bidding up prices and falling prey to outright fraud in many instances. Herbert Hoover had nothing to do with the econonomic circumstances before he came to office, yet his administration witnessed one of the most severe stock crashes in history! If a Democrat happened to be in office at the time, that crash would have been on their record.

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.

About the Author

Robert Viglione is a writer, hedge fund manager, and real estate broker. He founded The Freedom Factory, a popular web forum for the evaluation of subjects related to political and economic freedom - two concepts which cannot be decoupled.

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