Democratic Presidents Are Better For The Stock Market And Economy Than Republicans One Study Shows
- Contrary to popular belief, the stock market and economy have performed better under Democratic presidents than it has under Republican presidents, according to data going back to 1946.
- Liberum, a UK-based investment bank, pointed to historical stock market returns and annual GDP growth to make the case that a Republican president’s drive to cut taxes and reduce government spending often leads to lower economic expansion and stock market returns than when a Democratic president is in office.
- Since 1947, the S&P 500 has posted a total annual return of 10.8% under Democratic presidents, versus 5.6% under Republican presidents.
- And if you exclude the Great Recession and COVID-19 pandemic, both of which happened under a Republican president, the data still points to stronger returns for Democratic presidents versus Republican presidents.
- Visit Business Insider’s homepage for more stories.
It’s a widely held view that Republican presidents are better for the economy and stock market than Democratic presidents, because of their drive to cut taxes and reduce government spending. But the data says otherwise.
According to an August 21 note from Liberum, a UK-based investment bank, historical stock market returns and gross domestic product data points to a stronger economic expansion under Democratic presidents than under Republican presidents.
Bush Was The Last President To Inherit A Budget Surplus And Started Running A Deficit Obama Cut It Though Trump Ran Bigger Ones As A Result Of His Tax Cuts And The Federal Response To The Pandemic
The federal deficit is the gap between tax revenue and federal spending. During periods of growth, the deficit tends to shrink because government spending on safety net benefits lessens.
Bush inherited a budget surplus of $128 billion for fiscal year 2001. It was the last time the US had money left over. The wars in Iraq and Afghanistan, as well as a series of tax cuts, erased it and increased the deficit.
Obama ran large deficits to end the Great Recession, passing an $830 billion stimulus package in 2009. He later cut the deficit over half by the time he left office.
Similar to Obama and Bush, Trump has also relied on deficit spending. It widened by $1.5 trillion with the passage of the 2017 GOP tax cuts, contrary to the administration’s claims that the law would pay for itself.
The pandemic, however, prompted $3 trillion in federal spending many economists say was needed to address the public health and economic crises.
Does The Economy Do Better Under Democrats Or Republicans
In the rough and tumble of presidential campaigns — rougher this year than ever before — facts are sometimes lost in the debate. But one fact that voters should keep in mind — one that is incontrovertible — is that the U.S. economy performs better under Democratic presidents than Republican ones.
Conservatives have long claimed that they are better stewards of the economy. Most recently, presumptive Republican nominee Donald Trump promised to be “the greatest jobs president that God ever created.” They have repeated these claims so relentlessly and with such confidence that millions of Americans believe them to be true. The record shows otherwise.
Research from Princeton University economists Alan Blinder and Mark Watson finds that, since World War II, the economy has performed substantially better by virtually every measure when Democrats have been in the White House. GDP growth, job creation and industrial production have all been stronger during Democratic administrations than during Republican ones.
As the Ranking Member of the Joint Economic Committee, I asked my staff to review the Blinder and Watson findings. They were able to update and build on the economists’ analysis and found that on average since World War II, real GDP has grown about 1.6 times faster and private-sector jobs have grown nearly 2.5 times faster under Democrats than Republicans.
Let’s let the real debate over the economy begin.
Which Presidents Have Delivered The Best Stock Returns So Far Democrats Are Dominating
According to Siegel, author of the 1994 investment classic Stocks For The Long Run, Wall Streets obsession with politics is mostly misplaced: Bull markets and bear markets come and go, and its more to do with business cycles than presidents. In some ways the current environment has characteristics of the existential threat faced by George W. Bush post-2001 , the civil unrest that plagued the Johnson and Nixon administrations and Ronald Reagans trade war with Japan in the 1980s.
In an effort to more closely examine the relationship between the actions of a president and the direction of stocks, Forbes has analyzed their stock market performances, including dividends, dating back to Harry Truman. Using data from the National Bureau of Economic Research , weve also noted for each president the number of expansions and recessions that began during their tenures. In some cases like the presidency of Bill Clinton, who was in office during one of the most impressive periods of economic prosperity in history, you won’t see an expansion listed. Thats because credit is awarded to the president who was in office during its inception, which in this case was George H.W. Bush. We also included the ratio of gross federal debt to GDP for the final year of each presidency.
Presidential portraits courtesy of the National Archives and Records Administration
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Whos Better For The Economy: Democrats Or Republicans
Who does a better job at managing the American economy: Democrats or Republicans?
Whose policies help the country and whose policies hurt it? Who should get credit when things are going well and who should take the blame when the economy slips?
But before we use the EPI to answer the question, we have to figure out how to measure the problem. It is impossible to break down every piece of legislation to see how it affected the performance of the overall economy. We can examine a few key policies, but that doesnt really answer whether one political party does a better job altogether; it only sheds light on that particular piece of legislationone small piece of a very big puzzle.
So how do we measure the effectiveness of one partys politics?
Do Dems Run The Economy Better Nope
Its a Democratic campaign consultants dream: a study from two respected academic economists concluding that, since the late 1940s, the economy has consistently performed better under Democratic presidents than under Republican ones. The gap is huge. From 1949 to 2013 a period when the White House was roughly split between parties the economy grew at an average annual rate of 3.33 percent, but growth under Democratic presidents averaged 4.35 percent and under Republicans, 2.54 percent. Jobs, stocks and living standards all advanced faster under Democrats.
Not surprisingly, one of the reports authors is a well-known Democratic economist, Alan Blinder, a former vice chairman of the Federal Reserve now at Princeton University; the other author, Mark Watson, also at Princeton, is a highly regarded scholar of economic statistics who describes himself as nonpartisan. More interesting, Blinder and Watson dont credit the Democratic advantage to superior policies.
Democrats would no doubt like to attribute the large growth gap to macroeconomic policy choices, but the data do not support such a claim, they write. Most economists, they note, doubt presidents can control the economy.
So if presidents didnt do it, who or what did? Blinder and Watson march through economic studies. Their conclusion: About half of the Democrats advantage reflected good luck favorable outside events or trends. Three dominate.
Conservatives Love To Tout Their Economic Bona Fides But The Data Reveal A Far Different Story
As the 2016 election cycle heats up, the key question at stake for most Americans is economic growth and jobs. The debate, then, will center around what to do with the fragile recovery that overwhelmingly benefits the rich; the stagnation of middle class incomes; and unemployment — which, particularly for young people of color, remains dispiritingly high.
The right likes to argue that these conditions mark a clear failure of progressive policies, and in particular of the Obama administration. In the process, they reject policies that have, however imperfect, unequivocally strengthened the economy over the past seven years, such as the stimulus packages that came in response to the economic crisis.
Meanwhile, while conservatives often claim that their policies are good for the middle class, systematic studies by economists, political scientists and sociologists suggest these claims are overblown.
At the heart of the question is economic growth: Which party is better at delivering it?
While economic growth alone is not sufficient for middle class and working class income growth, it is certainly necessary. The most systematic investigation of how parties affect economic growth was performed by economists Alan Blinder and Mark Watson. Their results are unequivocal:
The chart below suggests this effect is driven by both market conditioning and redistribution .
So Democrats Are Worse
We look at the differences in economic scores between Democrats and Republicans and judge it to be a draw. The Democrats score may reflect that they had to manage the economy under difficult circumstances, including the Great Depression and the Great Recession. Then again, Republicans enjoyed a booming economy during the Roaring Twenties and the late 90s. If we could control for those shocks, we might find the two parties positions switched. Moreover, our approach cannot establish causality . All we can view is the correlation .However, we could use a regression analysis to look for time connections between one party coming to power and the subsequent performance of the economy. This approach would actually allow us to look for empirical causality. We wanted to isolate economic policies from exogenous shocks, so that we were truly comparing apples to apples. Democrats would not be docked for the Great Depression and WWII, while the Republicans would not get a boost from globalization, etc.
To do this, we subtracted the smoothed trend from the EPI scores. Then, we conducted a regression of the EPI deviation from its trend against the IPP.
This way, there could be no disputing whether the economy was up or down because of factors beyond the respective partys control.
Our regression analysis found no statistically significant causality. Which is fine and happens often.
Diversify Into Real Estate
Stock market performance has been strong over time. The same can be said for real estate. Given interest rates have come way down, the value of rental income and cash flow have gone way up. Therefore, Im personally buying multifamily properties and rental properties for capital appreciation and income. Stocks also tend to be more volatile than real estate.
One of the best ways to invest in real estate is through real estate crowdfunding. My favorite two real estate crowdfunding platforms are:
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eREITs. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields. They also have potentially higher growth due to job growth and demographic trends.
Ive personally invested $810,000 in real estate crowdfunding since 2016 to diversify my investments. Its nice to earn income 100% passively as I spend more time taking care of my children.
Filed Under: Investments
I spent 13 years working at Goldman Sachs and Credit Suisse. In 1999, I earned my BA from William & Mary and in 2006, I received my MBA from UC Berkeley.
The Index Of Political Power
It stands to reason that the more policy-making positions one party holds, the more policies that party will implement. If one party controls a majority of Congress, for example, then more of that partys policies will likely get passed than the other partys. Therefore, we could measure how many positions each party held, and then use that as a proxy to assume that more of that partys ideas were being enacted.
Obviously, such a measure should include the legislative bodies of the House of Representatives and the Senate. Since the president signs or vetoes legislation into law, that position should be included, too. Even though the Supreme Court can overturn a law, we should not include the judicial body. Many of its decisions are related to social policies rather than economic ones; its impact on the economy, as far as this Index is concerned, is negligible.
However, there is another area outside of legislative control that we should include in this proxy measure: the monetary policy. As we explained earlier, the countrys monetary stance is a critical component of the economys performance. But Congress does not control monetary policythe Federal Reserve does. By tradition, the Fed follows the decisions of its chairman. In effect, the nations monetary policy is determined by one individual. Logically, then, we should include the political party of this position, too.
our Index of Political Power
Recessions And The White House
The statement by Occupy Democrats runs from the Ronald Reagan presidency, which began in January 1981, to the present.
But by using the phrase “has overseen” in connection with a recession, the statement is less than precise as to whether it refers to a recession that began during a president’s term or whether he has had to deal with a recession in his time in office.
Likewise, applying the phrase “has overseen” to a strong recovery by the Democrats leaves it unclear as to whether the statement means a president started the recovery or inherited an ongoing recovery, as President Donald Trump did from President Barack Obama.
The interpretation of the phrase “has overseen” complicates the process of fact-checking it. Obama inherited a recession from Bush II that began in December 2007 and ended in June 2009, according to NBER, the longest economic downturn since World War II.
Under that Reagan-to-Trump timeline, the Republican presidencies had four recessions start in their terms: one each under Reagan and George H. W. Bush, and two under George W. Bush. By contrast, Democrats Bill Clinton and Barack Obama had zero.
With the economic downturn created by the coronavirus pandemic, a recession is likely to be declared after the latest GDP data is released, sometime in July. We may be in one now, but it has not been deemed official.
Wages Grew Steadily Under Bush And Slowed Under Obama They Started Picking Up Again Under Trump But The Pandemic’s Impact Skewed This Year’s Data
Wage growth is usually a good indicator of how much the economy is benefiting average workers. But the chart above illustrates the shortfalls of relying too much on a single metric given the devastation that the pandemic has caused.
Wage gains were steady for most of the Bush administration, ranging between 2% and 4% each year. Then it took a hit during the Great Recession, and wage growth was anemic for much of the Obama presidency.
The initial years of the Trump presidency coincided with a rise in wages as the economy expanded and employers competed to hire workers. They grew above 3% starting in 2018.
Millions of low-wage workers were sidelined in the early months of the pandemic, while many higher-wage white collar workers were able to continue working remotely.
It artificially dragged up the average wage for those still able to work, according to an analysis from the Federal Reserve Bank of San Francisco. It’s expected to drop as more hourly workers regain their jobs.
Want A Better Economy Elect A Democratic President
I enjoyed David Leonhardts opinion piece in the New YorkTimes today including graphic evidence that the econmomy performed better under Democratic presidents for the last century.
A president has only limited control over the economy. And yet there has been a stark pattern in the United States for nearly a century. The economy has grown significantly faster under Democratic presidents than Republican ones.
Its true about almost any major indicator: gross domestic product, employment, incomes, productivity, even stock prices. Its true if you examine only the precise period when a president is in office, or instead assume that a presidents policies affect the economy only after a lag and dont start his economic clock until months after he takes office. The gap holds almost regardless of how you define success, two economics professors at Princeton, Alan Blinder and Mark Watson, write. They describe it as startlingly large.
Accompanying graphics tell the story, with a couple shown here.
My dad, a yellow-dog Democrat stockbroker in southern Louisiana, preached this to me until his dying day. His evidence was only anecdotal, of course, but very tangible.
The Historical Precedent For Job Gains Is Mixed
The economy didn’t substantially add jobs early on in Bush’s presidency. But it started picking up until the 2008 financial crisis.
The Obama administration moved to stem those job losses early on in his term, and the economy stabilized in 2010. With the recovery underway, employers added jobs, coming out to an average of 224,000 gains per month in Obama’s last three years.
Job growth during the Trump presidency had mostly matched its pace under Obama before 2020. In the first three years up to February, the economy added 182,000 jobs monthly on average.
But pandemic-related job losses left a crater in the economy. Many experts say it will take several years for the labor market to recover from the blow.
Everyone Does Better When The Presidents A Democrat
The numbers dont lie. The question is why every Democrat isnt talking about this all the time.
Photo Illustration by Lyne Lucien/The Daily Beast/Getty
Our two political parties have certain identities that are seared into our collective public brain. Democrats: the party of workers, of civil rights, of compassion and fairness, and of higher taxes and more regulation. Republicans: party of the rich, big business , the free market, and lower taxes and less regulation.
And because the GOP is the party of big business, it is universally assumed that Republicans are better at handling the economy. Polls typically find that people trust Democrats more on all the things that government does, which stands to reason, but trust Republicans more on handling the economy. Just last week I saw a poll in which respondents rated Biden as better equipped than Trump to handle race relations, the virus response, and two or three other things; but on the economy, Trump bested Biden 51-46.
Its hard wired, and its wrong. Dead wrong.
Simon Rosenberg heads , a liberal think tank and advocacy organization. He has spent years advising Democrats, presidents included, on how to talk about economic matters. Not long ago, he put together a little PowerPoint deck. It is fascinating. You need to know about it. The entire country needs to know about it.
The deck consists of about 15 slides, but Ill walk you through just six so you get the idea. Lets start with job creation under each president:
Financial Planning Under President Joe Biden
With Joe Biden as president, financial planning comes full circle. I retired under President Obama and I plan to retire again under Joe Biden.
Because the Democrats have control of both houses and the presidency, more taxes will be passed. There will also be more spending to help all citizens. As a result, I plan to take things down a notch once I get vaccinated or once taxes go up, whichever comes first.
Im tired of the hustle during the pandemic. Instead, I want to spend my money and live it up more. I think everybody is.
Luckily for investors, stocks and real estate have performed well during the pandemic. Therefore, we have an even larger cushion to live our lives as freely as possible.
Biden Versus Trump Some Speculate That The Future Of The Republic Hinges On The Outcome Of The Next Election But For Smart Investors It Doesn’t Really Matter Who Wins
Conventional wisdom says that those liberal Dems are generally bad for the economy and the stock market because of their big government tendencies, while fiscally conservative Republicans are good. This widely accepted belief is actually fake news if you look at data going back to the end of World War II.
Stock markets do perform better under Democrats than under Republicans. Thats a well-known fact, but it does not imply cause and effect, says Jeremy Siegel, the Russell E. Palmer Professor of Finance at the Wharton School of the University of Pennsylvania. From 1952 through June 2020, annualized real stock market returns under Democrats have been 10.6% compared with 4.8% for Republicans.
With the 2020 election less than four months away, some investors are fretting about the pros and cons of a Trump vs. Biden presidency. A Democratic sweep would almost certainly mean a rollback of Trumps massive corporate tax cut , but additional economic stimulus and stability on the China trade front would be a big positive.
Clinton: Economy Better Under Democrats
Hillary Clinton says the U.S. economy does better with a Democrat in the White House, citing research by two Princeton economists. But the authors of that report do not credit Democratic fiscal policies for the economic growth.
In fact, the authors say our empirical analysis does not attribute any of the partisan growth gap to fiscal or monetary policy.
Clinton, Oct. 13: I have a five-point economic plan, because this inequality challenge we face, we have faced it at other points. Its absolutely right. It hasnt been this bad since the 1920s. But if you look at the Republicans versus the Democrats when it comes to economic policy, there is no comparison. The economy does better when you have a Democrat in the White House and thats why we need to have a Democrat in the White House in January 2017.
Clinton expounded on that talking point the following day during a speech in Las Vegas.
When we asked for backup, the Clinton campaign pointed us to academic research by two Princeton economists titled, Presidents and the U.S. Economy: An Econometric Exploration. The authors, Alan S. Blinder and Mark W. Watson, concluded after researching an array of economic statistics that the economy has performed much better when a Democrat is president than when a Republican is.
Why Does The Us Economy Perform Better Under Democrats Than Republicans
Since Carter, no Democratic President has had a recession begin on their watch. At the same time, no Republican President including the single term Presidents has gotten through their time in the White House without a recession.
Despite the widely held belief that Republicans are better at managing the economy than Democrats, the history of the United States economy tells a different story. In nearly every metric one might use to measure performance, Democratic presidents have presided over greater economic growth.
Strikingly, this is not even by a slight margin. According to a paper published in 2013 by Princeton economists Alan Blinder and Mark Watson, the performance gap is startlingly large so much so that it strains credulity, given how little influence over the economy most economists assign to the President of the United States.
The pair suggests that this is not due to time sensitive matters or partisan fiscal or monetary policy. Instead, they attribute this gap in large part to benign oil shocks, superior TFP performance, and more optimistic consumer expectations.
In short, they chalk it up to one part luck, another part self-fulfilling prophecy whereby consumers anticipate the economy will flourish under a Democratic leader and then drive the economy upward and a third part thats, well, a mystery.
Still, they say that it is highly unlikely that the D-R growth gap was just luck.