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Kudlow Rewrites History, Blames Dow's Slide on Democrats

August 26, 2008

Monday was a miserable day for the Dow, with the market suffering a 242 point drop. But rather than joining "so-called market analysts" in attributing the sell-off to credit market woes, higher oil prices and a fluctuating dollar, the National Review's resident class warrior Larry Kudlow found a predictable villain. Despite the inescapable history that the stock market does better under Democratic presidents than Republican ones, Kudlow blamed the market steep slide on the opening of the Democratic Convention in Denver.
Unsurprisingly, the reliably Republican Kudlow faithfully regurgitated every GOP talking point in laying the Wall Street's woes at the door of the DNC:

"Are the Denver Dems downing the stock market today? The Dow is off 230 points, starting right from the get-go. So-called market analysts are blaming financials and the credit crunch as they always do. But there’s more.
Obama and Biden gave us plenty of class warfare in their Springfield, Ill., get together on Saturday. Tax the rich. Redistribute income and wealth. Go after all those corporate meanies. Trade protection...
...With the Denver Dems strutting their stuff, this could be a bumpy week for stocks. Did anyone say free-market capitalism is the best path to prosperity?"

Of course, 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 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.
Back in April, CNBC's Kudlow compared the economic downturn to an enema, declaring, "Recessions are therapeutic." Needless to say, Kudlow's "let them eat cake" pronouncement is not true. Then again, neither is his myth that Republicans are better than Democrats for the stock market.


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

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