Sunday, December 27, 2020

This is Us: The Economy Under Democrats and Republicans

President Trump was very proud of the economy and especially the stock market, pre-Covid. While it's debatable how much influence Presidents actually have on the economy or financial markets, they are more than happy to take credit when things go well and ascribe blame to others when they don't. 

It is however interesting to see what how the data falls. Using data from the BEA and thebalance.com, we can get a sense of different Presidents' stewardship of the economy over the last 40 years (with the acknowledgement numbers alone never tell the whole story). Republicans fancy themselves as better financial managers. Yet the US economy has clearly fared better under Democract presidents, growing at 2.8% per year vs 2.3% under their counterparts (click to enlarge):


From Reagan to Trump, the US economy has grown around 2.5% per year, on average. Breaking the data out by the Presidents themselves, the economy grew fastest under Clinton (3.9%) and Reagan (3.5%) and below trend over the others' terms. (The data for the Trump years include CBO's GDP projections for 2020)

Yes, Trump faced a once-in-a-century calamity. But even without 2020, the economy grew only at around 2.5% under his administration. Basically on trend.

Obama also faced a grave economic crisis in his first term. Excluding 2009, the economy grew about by 2.2% per annum on his watch. Not as good as Trump, pre-Covid (...though Obama and Biden will make the argument they laid the foundation for Trump's economy).


But what about the stock market? Which increasingly has little relation to the real economy but nonetheless is still held as a barometer of economic health and consumer sentiment ("...it's forward looking"). Don't investors favor business-friendly Republican administrations? 

Not necessarily. The chart below shows the cumulative price returns of the S&P 500 under different presidents. Clinton (1993-2000) had the best stock market. He certainly rode the Internet Bubble and left just in time. "W" had the worst. He inherited the Tech meltdown on the way in (a consolation of sorts for internet "founder" Gore) and oversaw the subprime meltdown on the way out. The stock market actually performed much better under Obama than under Trump (through 12/24/2020) and even Reagan!


Can Biden nuture the economy back to health? We'll see...but if you're looking to the stock market for any indication (you shouldn't, but if you are)...then the verdict is in. The S&P 500 is having the best post-election performance in at least 40 years (more due to Pfizer, Moderna and the promise of easy money than anything else, but I'm sure the Biden folks won't mind taking some credit).

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