Democrats vs. Republicans on the Economy
A Five Point Analysis
It's important to dispel the myth that republicans are the party of fiscal responsibility. It's easy to point at the fallout from the Bush 43 administration; but the evidence disproving this false marketing slogan goes back much further. In fact, the contrary evidence goes all the way back to 1896.
1 - The Markets, and especially small companies, perform better under the Democrats.
This was proven in a study by two finance professors at the University of California at Los Angeles, Pedro Santa-Clara and Rossen Valkanov. The report is titled "The Presidential Puzzle: Political Cycles and the Stock Market", and you can see it here (.PDF format).
Using
data since 1927, we find that the average excess return of the
value-weighted CRSP index over the three-month Treasury bill rate
has been about 2 percent under Republican and 11 percent under
Democratic presidents: a striking difference of 9 percent per year!
This difference is economically and statistically significant. A
decomposition of excess returns reveals that the difference is due
to real market returns being higher under Democrats by more than 5
percent, as well as to real interest rates being almost 4 percent
lower under Democrats.The results are even more impressive for the equal-weighted portfolio, where the difference in excess returns between Republicans and Democrats reaches 16 percent. Moreover, we observe an absolute monotonicity in the difference between size-decile portfolios under the two political regimes: From 7 percent for the largest firms to about 22 percent for the smallest firms.
2 - Economic Volatility? Worse under the Republicans.
This study by David Leblang of the University of Colorado and Bumba Mukherjee of Florida State University tracks stock market returns since the first day the Dow Jones industrial average was calculated in 1896 through the fall of 2001) shows that market volatility decreases during Democratic administrations.
The paper shows that the expectation that inflation rates will rise under left-wing presidential administrations does indeed have an impact on trading, as older studies have suggested, but in a different way than those studies proposed.
"Our model predicts that rational expectations for higher interest rates under left-wing administrations decreases demand for stocks among traders," the professors write. "This decrease in demand leads to a decline in stock price volatility not only during the incumbency of left-wing governments, but also when traders expect the left-wing party to win elections."
Alternately, the statistics also show that expectations of lower inflation under right wing administrations make the market more volatile. This is because traders increase their inflow of capital and investment into the stock market when they believe the interest-rate environment is more friendly for stocks. More money at work translates into more volatility in the markets.
The study showed this trend was consistent regardless of whether a right wing administration was in office or whether traders merely expected the Republican party to win the presidential election.
3 - Democrats pay their debts. Republicans create them.
National debt. The Chinese own a couple of trillion dollars of our debt. So do the Japanese and British. Let's see who ran up that debt, shall we?
Every single year since Reagan, we've heard that tax breaks will stimulate the economy and help pay down the debt. Yet it never happened. The only time it trended downwards was when Clinton Economics were in play.
4 - Deregulation: The myth of the "free" market.
Republicans want no rules for lenders. Then, when common sense happens, they'll call the borrowers "irresponsible". This practice is marketed as "free market economics". The fact is that you cannot have a free market without anti-trust legislation and other laws to even the playing field and prevent monopolies and plutocracy. Think of capitalism as a football game. How well would the game work if there were no referees and no goal posts. Therefore, a free market is a regulated market. The following graph shows the clear effects of de-regulation policies.
It was precisely because the Republicans wanted less regulation that less regulation occurred. It was precisely because of less regulation that people were able to obtain "Liar Loans", which CNN Money points out were "very popular with buyers seeking investment property rather than a home to live in" Now we have banks closing. We're having runs on banks. People lining up outside of banks, just like in the 1930s...
5 - The weak dollar? That leads to Federal deficits. So
says Greenspan.
And having a weak dollar leaves us with less wiggle room too.
As reported in the New York Times:
"While Mr. Greenspan did not say so, a stronger dollar would
also leave the Federal Reserve with more freedom to cut interest
rates if it perceived the American economy to be slowing sharply."
...a weak dollar increases the likelihood that bad economic news
would mean higher inflation. Just like now. Greenspan also said
"Looking back at the history of the past century or more, the record
would suggest that nations ultimately must rely on their domestic
savings to support domestic investment."
Oh, did you notice these statements were in 1995? Funniest part of
that article was the bit where it says 'Congressional Republicans
introduced plans last week to balance the budget by 2002.'
Finally, let's look at what an invested $10,000 in the S&P market index (excluding dividends) would yield in returns under the differing administrations:
(Click to Enlarge)
So there we have it. Republicans are the party of fiscal responsibility? Not hardly.
Credit: Jackpot777 of fark.com