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Part 5: Party Performance and Stocks
The first presidential campaign that I can recall is Johnson vs. Goldwater. I was
still in elementary school then and certainly more interested in astronauts than
politicians. I spent much more time in those days in designing a better rocket ship
than designing a better economy. But, I do remember stopping the design work of
my latest Top Secret manned lunar orbiter to listen to what was being said about
the election. (I was smart enough back then to figure out that young rocket
scientists had to worry about agency budgets too.) Even then, I remember the
adults in my life debating the merits of a version of what is commonly known today
as the trickle down theory.
The theory is somewhat logical and seems to make sense. All you have to do is cut
taxes, the Republicans argue, especially for the folks in the upper incomes and
they will invest more money in American industry via the stock market and
increasing the price of shares. This would increase our ability to produce goods
and services and in turn increase the overall prosperity for all. Those that owned
the stocks would benefit the most, but other benefits would trickle down to the
remainder of society.
Today a version of the trickle down debate is still raging in presidential politics.
Like the philosophers of old, we love to ague this point with all of the fervor of
medieval philosophers arguing over how many angels can dance on the point of a
needle, without looking of course, to the available data. Yet testing this idea is
very easy.
It would stand to reason that if the Republican theory is valid, then the average
annual gain in the stock market would be higher in Republican administrations than
Democratic administrations. Although there is not a single number that measures
all of the US stock market there are several good indicators that are generally
accepted as acceptable proxies of the market as a whole. Probably the most
accepted and represents one of the broadest range of stocks is the Dow Jones
Composite Index (DJCI). The annual historical data is found on the Dow Jones
Company website. From that data, I computed the annual change in the DJCI.
As usual, I analyzed the data from 1950 until the most recent available. In this
case, it was 2007. The results were fascinating. But unfortunately, the averages
are disappointing to both my Republican and Democratic friends. The average gain
for the Republican Party was a respectable 7.4 percent. The average gain for the
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