This Economist video was sent to me by numerous readers and friends within the last 12 hours. It concludes with the following stark revelation: "In real terms, Democratic administrations produced 300% cumulative returns [in stock prices between 1929 and 2011]. The Republicans accounted for nil."See web-only content:
Does this video show that Republican presidents are bad for the stock market? Or that Democratic presidents are the magic elixir of growth? Not even. The executive branch isn't the entire government, government isn't the entire U.S. economy, and even the entire U.S. economy can't explain global forces that move equity prices.
Also, there are lots of ways to splice the results. If you were a GOP homer, for example, you could correctly point out that until the 1990s, Republican and Democrat administrations oversaw the same number of terms with positive stock market growth. (Nice job, everybody!) Meanwhile, Democrats could point out that the last time we elected a Republican president who would preside over positive stock market performance, it was the 1980s.
But this statistic is really an indication of Black Swans rather than planned policies. To the extent that Democrats are marshaling this video to make a point about the president, it bears reminding that the major differences between Obama and Romney -- tax policy and welfare spending -- played small if non-existent roles in the crises that depressed stock market performance under Republicans. As the video shows, the difference is almost entirely explained by
the fact that both the Great Recession and the Great Depression began
under a Republican administration and were resolved under the next
administration, which was Democratic. Contributing to the Democrats'
overall advantage were two more factors: (1) the oil shock/stagflation
period of the 1970s began under Republican administrations; and (2) as
impressive as the Reagan recovery was, the Clinton boom was even better
for the stock market.
Do you blame Republicans for the price of gas? Do you credit Clinton with the invention of the Internet? Presidents are important, but stock performance is a lot more complicated than the color of the tie on the guy in the Oval Office.
So: Fun video and interesting stat. But I'm not sure it's a factoid with any meaning besides: If you're going to claim that the stock market hates Democratic policies, you should rely on something besides historical equity performance by administration.
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