Republicans, Democrats and the Economy

Past performance is no guarantee of future results but....

I know the S&P 500 is only one of many indicators of economic performance, but decided to compare its performance with who has been in power in Washington. Barack Obama likes to trumpet the great economy managed under Bill Clinton while blaming the current economy on the "failed economic policies of George Bush."

Let's see what the numbers say.  Here is the change in the S&P 500:

Wow!  No wonder Obama likes to trumpet the Clinton years. Maybe I should take back everything I've said about the Democrats and the economy.   Well, not so fast.  There is another branch of government that has some influence on the economy.  Let's not forget about Congress.

Clinton operated with a Democrat controlled Congress for the first two years of his presidency.  In 1995, under the leadership of Newt Gingrich and his Contract with America, the Republicans took control of both house of Congress.  For the first time in our life time, they balanced the federal budget.  

Conversely, George Bush enjoyed a Republican congress for the first six years of his Presidency and has had to compromise with a Democratic congress for the last two.  Since the Republicans controlled Congress for roughly three times as long as the Democrats, in order to normalize the data I divided the Republican numbers by three.  The actual performance of the S&P500 during the Republican congress is three times higher.

Without further ado, here is the performance of the last two Presidents broken out by which party controlled Congress:

This paints a different picture.  There is no doubt that the Clinton years were better for the stock market and the economy than the Bush years.  But, the bulk of the Clinton stock market performance happened while the Republicans controlled Congress and all of the Bush stock market losses happened while the Democrats controlled congress.  Admittedly, this is rough "back of the envelope" analysis and I know correlation is not necessarily causation, but the data is interesting.

Here is the average performance of the S&P 500 while each party was in the majority in Congress.  Once again, in order to normalize the data, I divided stock market performance under the Republican Congress by three:

That fact is, Newt Gingrich's congress cut spending and balanced the budget.  Clinton, for his part signed the Republican congress's budget into law.  The compromise was good for the economy and the stock market soared.  Under the Bush administration the economy sputtered along with slow growth and the Republicans lost their way and went on a spending spree.  In his defense, this country was attacked by terrorists during that time.  However, the economy didn't really tank until the Democrats took over congress.

In my opinion, putting a Republican spending hawk like McCain in the White House with a Democrat controlled Congress will be a good thing.  The Democrats will moderate McCain's proposed tax cuts, and McCain will reign in Congressional spending.

I am going to commit Republican heresy and say that now is not the time to cut taxes.  The budget deficit is just too high.  However, neither should we raise taxes on the people and corporations that are the engine of this economy.  We should keep taxes fairly level and start tightening our belt and cut spending.  

Obama and a Democrat congress will raise taxes.  If they used that money to pay down the deficit, I would not be too concerned.  However, Obama plans to spend all of that money on expanding government entitlement programs.  That would be terribly irresponsible when deficits are soaring.

McCain has promised to cut pork and spending.  That is exactly what this economy needs.