Repeat after me: “Correlation does not imply causation”.
I haven’t slogged through the report, but offhand I can think of these complicating factors:
The wrong measure is term-to-term. Once a President gets elected, it takes at least a year or two for whatever policies he implements to trickle down into the economy. So how about we offset the meausurement by two years after an election, and see how it looks?
Perhaps Democrats take good economies and screw them up. Then the people kick the bums out and elect Republicans to fix things. Once things start looking good again, the electorate gets complacent and votes in another Democrat who promises to spend money on them.
Republicans get elected, and cut spending. This causes a short-term economic contraction. Then Democrats get elected, and get to reap the benefits when the economy comes back stronger than ever due to its new economic health.
It’s CHANCE. 13 presidents is a pretty small sample size. I assume they show a 95% confidence interval or something or a p value of < .05 That doesn’t change the fact that it could still be chance, OR it could simply be an incomplete set of data. I’ve done enough statistical analysis to know that it’s easy to come up with a statistically valid-looking correlation if you pick the right subset of data.
Studies like this are not very useful without a ‘meta analysis’ to remove confounding factors. For example, George Bush has had to preside over several huge hits to the economy that were not of his making. Reagan inherited huge structural problems (high interest rates, high inflation, and a highly graduated tax structure that was no indexed to inflation), which would have had to be corrected no matter who was in office.
So if we continue to have a crappy economy after, say, January 2003, it is all George W. Bushes fault? It’s about time some of the conservatives around here admitted that.
Yeah, that Reagan/Bush economy was so good, it took Clinton eight years to screw it up.
Any contraction is caused by the Republican addiction to tax cuts even when there are huge deficits.
Yeah, that’s it, anything bad that happens during Republican administrations is just bad luck.
Seriously, Sam Stone, do you ever say these theories out loud before you hit “submit”? I should think you would be embarassed to read them afterwards.
Or a much simpler explanation - the hysteresis in the economy is about four years. That means all the Republicans did good, and all the Democrats did bad.
See how easy it is to play the ‘jigger the numbers until you make a political point’ game?
It’s interesting to note all the folks offering good, sound, statistical, logical reasons for why the report does/does not validate their political preconceptions.
Along those lines, let me present my theory – the wealthy individuals who drive economic policy for the Repubs – we’re atlaking about the very top, people like the Bushes – tend to be enormous wealthy, so wealthy they can ride out economic downturns. When the stock market drops, it’s not a disaster for them, in fact, they have the option of holding onto their blue chip shares and figuring they’ll ride out the downturn, too, and they have the option of buying stocks ont he cheap when the economy starts to get cranked up again.
The Repub fiscal elite don’t CARE about stock market downturns, in fact, they kinda like them. It’s not surprising that they should be more prone to experience economic conditions that don’t bother them very much in the first place.
Okay, here’s a serious answer. There is a limited amount you can learn by taking a sample set of 13 presidencies and applying statistical analysis to them. If you want to be all scientific about it and show that Republican policies lead to economic chaos, you need to take each presidency, show what they did wrong, and come up with a plausible hypothesis for why things worked out the way they are. Otherwise, I’m just going to accuse you of data mining for a pre-determined conclusion.
Here’s just one problem with this methodology: Republicans 50 years ago bear little resemblance to Republicans today. Monetary policy was nonexistant, the world was a different place, and the policies were MUCH different. So trying to normalize them all into one generic ‘Republican’ category is doomed to failure. Same goes for Democrats. Kennedy would be a Republican today if he were in office.
My point about lag between an election and any possible influence of Republican or Democrat policies is also valid. If the economy was bad in 2002, how can any reasonable person claim that that was George Bush’s fault? Sure, he was president, but none of his policies had been enacted.
Another factor: Not all Republicans are alike, and not all Democrats are alike. Nixon was a Republican who believe in wage and price controls. That wasn’t very ‘Republican’ of him. On the other hand, Clinton’s record was more ‘Republican’ than George Bush I’s was. By a long shot. Spending growth was slower, taxes were raised less, and Clinton was a free trader (as opposed to Bush I, who was a ‘fair trader’ - another word for protectionist).
All in all, studies like this are pretty meaningless.
And, while we are talking about inheritance, we might note that Clinton inherited a government hamstrung by large budget deficits and a large debt. And, GW was lucky enough to inherit government with surplusses and a much reduced debt as a percent of GDP!
Sam, let’s not go from the silly to the absurb here!! You do know that, while we have elections every 4 years, we don’t have changes in the President or the party that often. Since, 1927, the changes in party have occurred in 1932, 1952, 1960, 1968, 1976, 1980, 1992, and 2000. Sorry, the 4-years hysteresis theory won’t help! They 8-year hysteresis theory will cut it a bit better but not that much better.
You can’t use the rise in stock as a yardstick for anything relevant. Stocks rise and fall independently of the value of the company it represents. The reason the market fell is because it was grossly overpriced. At some point it had to come down. When people like Paul Volker sell off their portfolio, the dance is over.
IMO, these types of political comparisons to bull markets are used to imply a healthy economy. Bull markets have a lot of "lemmings’ in them. The price goes up because people buy them. People buy them because the price goes up. This will happen until people run off the edge of a financial cliff.
It’s also misleading to relate the economy to a President. It is the work of congress to create legislation. It is the job of the President to sign it into law. The limitation of influence goes to the President.
You could just as easily make a statement crediting Congress during the Clinton years for the rise in the stock market. It would have just as little meaning in relation to the value of stock.
I don’t think the choice of 1927 as a starting point was an attempt at data mining. The most likely reason it was chosen is because we simply don’t have good data on the performance of stocks prior to that time.
The NASDAQ composite peaked the week of March 6, 2000, when it closed at 5048. It dropped over 1800 points before the election, closing at 3231 on November 6, 2000 (cite). But it continued to shed an additional 2021 points until it bottomed out at 1210 the week of October 7, 2002 (cite). Clearly, the bubble burst in the spring of 2000, but the election of a Republican did nothing to restore the confidence of investors. Why not, if conservative economics are superior to those of liberals? Or did the market already know what this study confirms, that Republican economics are poison to the health of the economy?
[QUOTE]
*Originally posted by Sam Stone *
Repeat after me: “Correlation does not imply causation”.
[/quote
True, I am largely with Sam on this – and I guess everyone who’s actually thinking as opposed to knee-jerking right or left. Interesting study. Looks serious, but small sample, and the definition of Rep and Dem seem like dificult. things to hold constant.
However on one point: Let’s give credit that it takes people slogging through the basic analysis and raising the question to provoke further investigation. I would guess the fellows who did this felt they had something robust enough to throw out there for comment.
As your friendly neighborhood financial advisor let me tell you that the market would have continued to fall no matter who was elected. The market was simply over valued.
I find this study to be inherently flawed for many of the reasons listed above, but I would like to add one other. In my line of work I find my clients often obsess over which political point of view is most likely to help the stock market. I think we tend to forget that the stock market rises and on corporate profits and investor expectations.
The political party in charge has very little influence over corporate profits. Expectations are a bit trickier, but there are so many reasons other than the Presidential administration that people may feel optimistic or pessimistic about the future of the stock market. In the end I’m not sure that politics is much of a predictive factor in the health of the stock market.
Those who give Clinton credit for a strong market during his administration are likely misplacing their praise as much as those who blame Bush for the past few years.
You may want to alert a mod and have that post removed (they can take this one, too.)
If you hold a series 7, 63, 65 and are a Registered Representative, you are forbidden by law from identifying yourself as such on a message board, as it may be construed to constitute a solicitation in jurisdictions for which you are not licensed, and violates supervisory capacity.
It’s worth noting that people who risk their own money in the stock market don’t support the idea of a causitive relationship between political party and the stock market. Support comes from those seeking to publish journal articles. For those in academia, getting published is more important than being right. (Of course, ideally, one would have both.)
Another thought is that the relationship may go the other way, to a degree. Stock market declines under Republican Presidents in the late 1950’s and 1992 both contributed to the Dems being elected. The Dems were then in power when the recoveries occurred.