It is an interesting and noteworthy excercise to determine how the economy and stock prices responds to one party over another. We hear that the stock market on average repsonds better to a Democratic president than to a Republican president. This mirrors the higher rating the Democrats are currently getting on the economy. But such statistics are incomplete and often misleading.

The best returns come not from just a Democratic president, but from a Democratic President AND a Republican Congress. The second best combination comes from a Republican President with a Democratic Congress.

The timing of the study is critical. If it had been held before Clinton’s two terms it would have been different, because it would have heavily weighted the Reagan adminsitration, which was a period of a booming market. Now it heavily weighs Clinton’s terms, which was an even more prosperous boom.

It also underweighs the impact of the change. Reagan was particularly an improvement compared to Carter. It also ignores critical impacts such as the OPEC oil crunch of Nixon’s term and 911 on Bush’s term. The stock market has been relatively flat under W, but perhaps considering the compound effect of 911, the high tech bust, the Enron/ Worldcomm disasters, the mortgage debacle, and the War on terror this is not such a bad performance. This is not to excuse some bad economic decisions clearly associated with Bush and Republicans, but it is critical to the analysis to consider the environment the administration must operate in.

I do not believe the stock market measurements included the bond market. The dramatic drop in the record high interest rates of the disastrous Carter years yielded a bigger return in bonds that the outstanding return in stocks over the subsequent decade. Not including bonds also distorts the proposition.

There are so many other factors that influence the market that this study is relatively worthless. It also includes a sample size so small to render it statistically useless.

It is far more productive to study the effect of policies. The tax reductions of Kennedy, Reagan, Bill Clinton and George W. has delivered results that can be verified regardless of the affiliation of the party in power.

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