There’s an interesting letter in the WSJ today, from John Callister in Ithaca. Callister has about $700,000 invested in the stock market, and all he cares about, in terms of the presidential election, is which candidate will make that sum grow the most.
The thing I remember about the 1992 election is that shortly after that inexperienced Arkansas governor was elected, my portfolio did a curious thing. . .it grew at a rapid rate. It continued to do so, right up to 2000, over doubling my net worth.
Since 2000, my portfolio has remained flat. Today’s S&P 500 index is almost identical to the value it had when George W. Bush took office.
I don’t really care about modest overseas wars, except that the hundreds of billions spent seem to depress the stock market. I don’t care about terrorism, when drug dealers kill many more people than terrorists ever will. I don’t care about health insurance, I have that. I don’t care about social security, I am quite sure I won’t collect much of it, if any. My income has not gone up in real terms. My tax burden is modest, and changes in tax rates affect me very little. But, a 100 point gain in the S&P 500 means about $50,000 in my pocket…
I will vote for the candidate that has the best chance of getting the stock market heading up. George W. Bush failed to do that. The stock market is the only chance that millions of us have to create wealth.
I really do wonder which candidate Callister will vote for. Mitt Romney, the Bain multi-millionaire? Mike Huckabee or Ron Paul, whose tax proposals would essentially abolish any taxes on capital, if they were ever implemented? Hillary Clinton, in the hope that she will repeat her husband’s equities-boosting success?
Alea, today, points to a paper by Pedro Santa Clara and Rossen Valkanov saying that the stock market does significantly better when a Democrat is in the White House – and also to its rebuttal, by John Powell, Jing Shi, Tom Smith, and Robert Whaley.
My feeling is that presidents have relatively little impact on the direction of stock prices, and that there are much more important things to base a vote on. If you think fiscal policy is crucial, and you’re minded to vote Republican, David Leonhardt lays out the candidates’ policies in the NYT today. But Bush has been very weak on the fiscal-responsibility front (huge tax cuts and big spending hikes, thanks mainly to the Iraq war and prescription-drug coverage), and it’s not clear that his actions have depressed the stock market much if at all. Meanwhile, most of the economic finger-pointing has been aimed at regulators and the Fed, for not doing anything sooner about the housing and mortgage bubble.
And in general, I don’t think that investors should rely on politicians to generate stock-market returns, and neither should politicians try to goose the stock market. As Dean Baker regularly points out, high stock prices help some constituencies and harm others:
The stock market is a measure of how well people who own lots of stock are doing, just as corn prices are a good measure of how well corn growers are doing. Stock prices may rise because the economy is growing rapidly and corporate profits are growing along with it. Alternatively, stock prices may rise because profits are rising at the expense of wages or simply because stockholders are being irrationally exuberant. The latter two causes of price increases are surely not good news for the bulk of the population.
Callister should have more faith in his own abilities, I think. The stock market is not his "only chance" to create wealth – there’s always the alternative of, you know, going to work.
Update: Some more research for you: Justin Wolfers looked at the 2004 election and concluded that stocks were worth about 2% more under Bush than they were under Kerry.