Why Does the Economy do Better under Democrats?

Election year is upon us and the nation will pick a Republican (Donald Trump) or a Democrat (Hilary Clinton) as its next president. From an investor’s point of view which party is better in the White House for the economy? Despite the association of the Republican Party with business it would appear that having a Democrat in the White House is better for the economy. Salon demonstrates with charts that the economy does better under Democratic presidents.

The right likes to argue that [economic] conditions mark a clear failure of progressive policies, and in particular of the Obama administration. In the process, they reject policies that have, however imperfect, unequivocally strengthened the economy over the past seven years, such as the stimulus packages that came in response to the economic crisis.

Meanwhile, while conservatives often claim that their policies are good for the middle class, systematic studies by economists, political scientists and sociologists suggest these claims are overblown.

If you want the economy to thrive and your stocks to go up it would be better to vote a Democrat into the White House according various studies. Looking at the period from the end of the Second World War to the present a democrat in power was associated with higher GDP growth, faster S&P 500 growth and faster wage growth. Also quarters in recession were fewer and unemployment was lower for Democratic presidents than when a Republican has occupied the White House. Why does the economy do better under Democrats?

Just the Facts

An article by Forbes quotes the late New York Senator Patrick Moynihan: “everyone is entitled to his own opinion, but not his own facts. “  The fact of the matter is that the economic theories espoused by die hard Republicans don’t necessarily measure up when it comes to growing the economy, creating jobs and causing stock prices to rise. It appears that if you want a better economy vote for a Democrat.

The authors looked at a range of economic metrics including inflation, unemployment, corporate profit growth, stock market performance, household income growth, economy (GDP) growth, months in recession and others.  To their surprise (I had the opportunity to interview Mr. Goldfarb) they discovered that laissez faire policies had far less benefits than expected, and in fact produced almost universal negative economic outcomes for the nation!

This graph is a distillation of just how the economy has done under presidents since the Great Depression.

Presidents and the Economy

• Personal disposable income has grown nearly 6 times more under Democratic presidents
• Gross Domestic Product (GDP) has grown 7 times more under Democratic presidents
• Corporate profits have grown over 16% more per year under Democratic presidents (they actually declined under Republicans by an average of 4.53%/year)
• Average annual compound return on the stock market has been 18 times greater under Democratic presidents (If you invested $100k for 40 years of Republican administrations you had $126k at the end, if you invested $100k for 40 years of Democrat administrations you had $3.9M at the end)
• Republican presidents added 2.5 times more to the national debt than Democratic presidents
• The two times the economy steered into the ditch (Great Depression and Great Recession) were during Republican, laissez faire administrations

Why the economy does better under Democrats may well be because of laissez faire excesses under Republican administrations. If you are, for example, investing in an ETF that tracks the S&P 500 the evidence shows that having a Democrat in office will increase your profits.

Why Does the Economy do Better under Democrats? PPT