Markets Do Better Under Democrats!

In an article posted on Yahoo Finance (9/5) by economist Jeremy Siegel, data point to the fact that stock markets have done better when Democrats were president. This may be shocking to Republicans, who strongly believe their party is better for markets, but histoical returns paint a different picture. Average annual returns for Democrats were about 11%, compared to just over 8% for Republicans. What caused this reversal in the generally held belief that Republicans are better for the economy?

One of the most important lessons from stats class is that correlation does not mean causation. This means that stocks going up may have absolutely nothing to do with which party controls the White House.

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.

On the other end of the spectrum, the late 90's experienced a revolution in internet and network-based business. Stock market valuations went nuts with the revolution. Companies that had never earned a dime in profit were being valued higher than well established icons of industry. Democratic president Bill Clinton came to office during this euphoric time period. He did not invent the internet, but he benefited from its explosive growth in the economy and markets. History may record outlandish market gains as occuring during Clinton's administration, but it would be difficult to say he had anything to do with that. Similarly to our other example, if a Republican had entered office at the time the internet would have still had its tremendous impact on the world and markets.

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.

Article Source: http://www.articlegoldmine.com

Robert Viglione is a writer, investment fund manager, and real property broker. He is also the founder of The Freedom Factory, a popular web forum for the evaluation of subjects covering political and economic freedom - two concepts which cannot be decoupled.

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