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Democrats preside over stronger economies

Froma Harrop on

Are you worried that the economy grew by only 1.9% in the recent quarter? That's a pretty weak performance. But it would seem downright dismal if you believed Donald Trump's assertion during the 2016 campaign that 1.9% growth during one of Barack Obama's quarters signaled an economy "in deep trouble."

Economists are now forecasting 1.8% gross domestic product growth in the fourth quarter. Things are most definitely slowing down.

Clearly, Trump will not whip the economy into the 4% annual growth he bragged about during the campaign. Never mind 6%. And despite the economy's so-so October performance, Trump ended the month tweeting, "The Greatest Economy in American History!" But we're used to that.

Trump-believers might also swallow the baloney that Democrats are all socialists eager to smite capitalism. Real capitalists closely monitoring their stock portfolios would disagree.

If you're a real capitalist, chances are good that you miss Obama. During Obama's eight years, the S&P 500 rose almost 176%.

Researchers at the University of Chicago's business school concluded that historically, stock investments do better under Democratic presidents than Republican presidents -- a lot better.

 

From 1927 to 2015, the average excess return on stocks was 10.7% a year under Democrats compared with minus 0.2% under Republicans, according to Lubos Pastor and Pietro Veronesi. (Excess returns are a metric that helps investors compare stocks' performance with those achieved by other kinds of investments.)

"The return gap is not explained by what presidents do," Pastor and Veronesi wrote, "but rather by when they get elected." Democrats tend to get elected when expected future returns are high. Republicans win when expected returns are low.

But the question naturally follows: Why are expectations for strong stock performance higher when Democrats ascend to the Oval Office? One plausible reason is that their Republican predecessors often leave behind a screwed-up economy with stock prices already depressed.

Presidents don't have total control over an economy. There are lots of influences -- new technology, energy prices, demographic changes -- that can boost or drag economic performance.

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