Can the President really make a difference in the economy? (Archived Blog)

During the 1992 presidential election, the Clinton campaign regularly was quoted as saying “It’s the economy, stupid!”  Like a familiar tune, the current campaign also seems to be focused on the economy.  This started me thinking about what affect can a president, any president, really have on the economy and the financial markets? 

The Romney campaign alleges that President Obama hasn’t done enough for our economy and that, if elected, Romney will create the needed jobs, jobs, jobs.  On the other side of the isle, the Obama campaign says that they inherited a really bad situation, and while they have made good progress, they’d have done more if it wasn’t for those darn Republicans getting in the way.

So who really would be better for the economy on our financial markets?  For the past 25 years, or so, I’ve been keeping track of the stock market returns each year by the political party holding the presidency and updating it every election.  Here’s what it looks like now:




After carefully studying this chart over the years I’ve come to the conclusion that one cannot predict anything from this information.  One has no idea what the stock market will do during the next president’s term, regardless of party.

I recently came across another chart showing similar data:


After looking closely at this graph, I come to the same conclusion.

Now, I wondered about unemployment. That seems to be the hot topic this political season:


Once again, I cannot find any correlation between party and performance.

Ok, let’s look at GDP Growth:



Gee, there seems to be a pattern here.

Now, I’m not saying that a president’s policies have no effect on the economy or the investment markets. What I’m saying is that they are not the controlling factor in determining what happens.  I believe that their policies can make things better or worse. As can, perhaps to an even greater extent, can congress.

The economy is a pretty complicated thing.  Are the Chicago school free market economists who believe in free enterprise and less regulation correct?  Are the Keynesians right to believe that markets work better with selected government intervention?  Perhaps a bit of both are correct.

I don’t expect to change anyone’s mind about who to vote for.  I’m not saying that this election isn’t as the two sides have framed it as an epic philosophical battle about the direction of the country.

I’m saying don’t get your hopes too high that your favored candidate can change everything for the better quickly.  This is a very significant economic crisis we’ve have been living in.  And history tells us that no matter who is in charge, it is going to be a long, painful slog to get out of it.  But that is another story.

Economic and Investment Update from our September 2012 client webinar (Archived Blog)

Aren't we all unique and worthy of our very own "safe withdrawal rate"? (Archived Blog)