Wednesday, September 17, 2008

How Has the S&P 500 Done, by Presidential Party?

The other day, Jeff Frankel posted a discussion in which he discussed efforts by Donald Luskin (stop snickering) to define away evidence that the economy has performed better under Democratic than Republican presidents (no joke: Luskin "does" this by labeling Kennedy and Clinton, Republicans, and Nixon and Bush II, Democrats -- we don't want 'em, you take 'em!).

Frankel links to this interesting paper by Ettlinger and Irons, which provides a series of comparisons of economic measures in the years following first-term inauguration of Presidents Reagan, Clinton and Bush II. That paper focuses on a variety of what might be termed economic fundamentals: employment, investment, etc. (I note that the paper does not consider population growth and thus doesn't measure John McCain's preferred notion of "fundamentals", i.e., the number of Americans. But I digress.)

One measure not discussed in that paper (not that I saw, anyway), is stock-market performance. Last night, my friend and fellow economist, Steven J. Haider, sent along a simple chart showing growth of the S&P500 stock index, and in the interests of extending the Ettlinger-Irons comparison, here's a slightly modified version of what he sent:


1. The source for S&P quotes is this Yahoo finance page. Data for Nixon I start on Jan 2, 1970, because Yahoo's web page screws up dates before Dec 31, 1969. I used Sep 12, 2008, which is last Friday, as the last date to avoid debates over the financial crisis of the last several days (though they should be attributed to Bush IIb in any fair discussion).

2. I used the CPI (data from the BLS inflation calculator) to adjust returns for inflation. No doubt there are other deflator choices that make sense, but this approach will help you answer a question like "If I invested a dollar at the beginning of President X's administration, how much more would I be able to buy with the proceeds at the end of four years?"

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