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History Lesson: Wall Street, Economy Do Better Under Democrats

September 16, 2008

As the meltdown on Wall Street continues, American voters would do well to regard John McCain and his Republican Party with suspicion when it comes to the resuscitating the economy. But McCain's acknowledged ignorance on economic issues, happy talk about strong "fundamentals," ties to lobbyists and disturbing involvement in the 1980's savings and loan disaster aren't the only reasons voters should flock to Barack Obama for solutions to the mushrooming financial crisis. As history has proven time and again, Wall Street and the economy overall simply do better under Democratic presidents.
To be sure, the prospect of John McCain at the helm of the American economy is a frightening one. On multiple occasions, McCain deemed the downturn "psychological," while proclaiming as recently as Monday's 500 point drop in the Dow that "the fundamentals of our economy are strong." Even Alan Greenspan, whose book McCain claimed in December 2007 offset that fact that "the issue of economics is not something I've understood as well as I should," blasted McCain's $3.3 trillion budget-busting tax plan, "I'm not in favor of financing tax cuts with borrowed money."
Then there is the question, in the words of the New York Life ad, of "the company you keep." From campaign chairman Rick Davis and transition chief William Timmons on down, the McCain campaign is dominated by Wall Street lobbyists. John McCain's economic adviser and UBS vice-chairman Phil Gramm (the same Phil Gramm who mocked Americans as a "nation of whiners") this week saw his firm face another $5 billion in write-downs. And by regurgitating virtually the same policy prescriptions as George W. Bush on tax cuts, health care, Social Security privatization, John McCain is offering Americans more of the same snake oil that produced the current economic calamity.
Then there are the eerie parallels between today's market meltdown and the savings and loan implosion of the late 1980's and 1990's. That fiasco of deregulation ultimately cost American taxpayers as much as $300 billion. Some $2.6 billion of that was attributed to the collapse of Lincoln Financial, run by McCain sugar daddy Charles Keating. While John McCain survived the Keating Five scandal (barely), Washington's multi-billion bailouts and cash infusions this week are grim reminders of why McCain can't be trusted to regulate his friends or run the economy.
But there is a much more basic reason to keep John McCain and the Republicans out of the White House. As the record shows, the best path to prosperity is to elect Democratic presidents.
The superior performance of Democratic presidents covers virtually the entire spectrum of economic indicators. As Elliott Parker of the University of Nevada, Reno detailed in a 2006 paper, since 1949 Democratic administrations have done better than Republican ones when it comes to unemployment (5.2% to 6.0%), job creation (-.0.4% decrease in unemployment, compared to 0.3% increase), GDP growth rate (4.2% to 2.9%), and even corporate profits as a share of GDP. And to be sure, he found the Dow benefits from Democrats in the White House.
There's no shortage of studies to show that stock market returns are higher under Democratic leadership. (As it turns out, Wall Street's performance is also better when Democrats control Congress.) In 2000, Pedro Santa-Clara and Rossen Valkanov of UCLA's Anderson School of Business concluded that "that the average excess return in the stock market is higher under Democratic than Republican presidents - a difference of 9 percent per year for the value-weighted portfolio and 16 percent for the equal-weighted portfolio." As the New York Times noted of UCLA study in 2003:

"It's not even close. The stock market does far better under Democrats...
...Professors Santa-Clara and Valkanov look at the excess market return - the difference between a broad index of stock prices (basically the Standard & Poor's 500-stock index) and the three-month Treasury bill rate - between 1927 and 1998. The excess return measures how attractive stock investments are compared with completely safe investments like short-term T-bills.
Using this measure, they find that during those 72 years the stock market returned about 11 percent more a year under Democratic presidents and 2 percent more under Republicans - a striking difference."

In 2002, Slate similarly concluded that "Democrats, it turns out, are much better for the stock market than Republicans":

Slate ran the numbers and found that since 1900, Democratic presidents have produced a 12.3 percent annual total return on the S&P 500, but Republicans only an 8 percent return. In 2000, the Stock Trader's Almanac, which slices and dices Wall Street performance figures like baseball stats, came up with nearly the same numbers (13.4 percent versus 8.1 percent) by measuring Dow price appreciation. (Most of the 20th century's bear markets, incidentally, have been Republican bear markets: the Crash of '29, the early '70s oil shock, the '87 correction, and the current stall occurred under GOP presidents.)
According to almanac editor Jeffrey Hirsch, the presidential party figures are among the most significant he's found. If the stock market were random, we'd expect such a result only one-quarter of the time. "I don't know why people are convinced Republicans are good for the stock market," Hirsch says.

Why? Because Republican water carriers like Larry Kudlow and Donald Luskin continue - with great success - to perpetuate the myth that the regulation-free policies of the GOP that so benefit them personally somehow help the American people overall. (In an example of legendarily bad timing, right-wing water carrier and McCain adviser Luskin took to the pages of the Washington Post Sunday to defend Phil Gramm's assessment of the economy, calling America "a nation of exaggerators.")
So, when John McCain calls for a commission to look into the crisis on Wall Street and decries, "a casino on Wall Street of greedy, corrupt excess," remember that he's describing his friends and political allies. And as the history shows, it's not just John McCain's record on the economy which is pathetic. He has that in common with his Republican predecessors.
As Harry Truman famously said, "if you want to live like a Republican, vote Democratic."

11 comments on “History Lesson: Wall Street, Economy Do Better Under Democrats”

  1. For riveting information on job creation under various administrations, check out You'll find strong, undisputable stats clearly presented.
    What Waggoner found was this: Through the past 75 years the six Democratic administrations have dramatically outpaced the six Republican administrations when it comes to job creation, and this is true of each individual administration. In other words the worst-performing Democratic administration has outpaced the best of the Republicans.

  2. I wrote a fairly long and detailed rebuttal to the post above, but it was removed. I'm hoping this one will stay, but due to the earlier track record with either the moderator or software, it will not be as detailed.
    From a straight logical standpoint, no politics involved, your data does not prove your assertion. Financial markets are chaotic systems with many variables with differing effects, most of which the President does NOT control at all.
    For instance, a lot of Clinton's higher tax receipts was due to over-inflated values of internet stocks that was unsustainable, and which failed under Bush.
    Also, there are black swans such as 9/11.
    Don't misunderstand me, the President with the legislative branch can do a lot to screw things up, but they have very little control over economic growth.

  3. Interesting. I've just had a very long conversation with a couple of bastions of the liberal mindset wherein they tried to convince me that they wanted democratic policies in government because they were against corporations and their policies.
    How exactly does that work? Sounds like everything the democrats do makes corporations STRONGER!

  4. Isn't it really past time when we can say that "presidents produce jobs?" They sign regulation, sure, but its the congress that is in charge of legislation. To suggest that republican presidents or democratic presidents make or break the job market is a dangerous power gift to the executive of the nation. Blame corporate executives for job loss or creation.


Jon Perr
Jon Perr is a technology marketing consultant and product strategist who writes about American politics and public policy.

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