October 28, 2008

WHERE ARE BILL,TRENT AND NEWT WHEN WE NEED THEM?:

Taking stock of the parties (Richard Rahn, October 28, 2008, Washington Times)

[O]ver the last quarter of a century when the Republicans controlled both houses of Congress, the stock market rose by an average of about 20 percent per year. When the Democrats controlled both houses of Congress, the stock market only rose at an average annual rate of 6.9 percent for the Dow Jones and a tepid 5.1 percent for the Standard and Poor 500.

When one party controlled one house and the other party controlled the other house of Congress, the growth in the stock market was significantly less than when the Republicans controlled both houses (15.6 percent for the Dow Jones and 12.7 percent for the S&P), but significantly more than when the Democrats controlled both houses.

There is a natural tendency for people to focus on the party of the president who is in power; but, in fact, the Congress is far more important to markets because it decides how to, and how much to, tax and spend. Some Democrats will try to argue that this is merely random variation, but the averages are sufficiently disparate to compensate for the small sample size (the last 25 years).

The Democrats have controlled 10 years, the Republicans 11 years, and in five years they shared control. [...]

The responsiveness of the markets to the party in control in Congress has been consistent with the shifts back and forth between the parties. When the Democrats and Republicans each controlled one house in the 1983-87 period, the S&P rose at an annual rate of 19.5 percent. When the Democrats controlled both houses during the 1987-95 period, the S&P rose at annual rate of 10.8 percent, and again when they controlled both houses from 2007 to the present, the S&P dropped at a 20.4 percent annual rate.

The Republicans controlled both houses from 1995-2001 when the S&P rose at annual rate of 29.9 percent, and again from 2003-2007 when the S&P rose at annual rate of 14.0 percent. During the 2001-2003 period, the control of the Senate shifted back and forth between the Republicans and Democrats, neither party having sustained control, and the S&P dropped at an annual rate of 14.6 percent for those two years (which also coincided with the Sept. 11, 2001, aftermath).


The optimum appears to be a Democratic resident with a Republican Congress.

Posted by Orrin Judd at October 28, 2008 7:39 AM
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