The economy has a well-known liberal bias.

1. With all due respect, this analysis looks like cherry-picking to me. It starts right as the Great Depression hits under Hoover (though they’re kind enough to do the math without Hoover, that leaves Republicans down 4 years of growth/compound interest), and ends on the day of the 5-year low on the major indexes (October 10th) during Bush’s tenure. Also, what do the other major indexes look like over this period? Why the S&P and now the Dow? And with respect to the title of this blog post, it’s not clear that the S&P 500 mirrors the economy (in fact, it certainly doesn’t without some time lag, at the very least).

   Furthermore, this whole analysis makes some insane assumptions in the pursuit of simplicity. It does analysis independent of legislature, it assumes the market reacts to a President’s actions/inaction during his term, rather than in the months and years following it.

   Also, “correlation is not causation” is NOT just a funny little technicality. See: global warming with respect to pirates. Point being, if I sift through enough data, I’ll certainly be able to find correlations I find to be favorable (or at least amusing), but that doesn’t mean they’re actually relevant.

   The funny thing is that I think Obama will be much better for the economy than McCain would ever be, and I believe that the Democratic party in general has a lot smarter, more nuanced policies, but I don’t think that this chart shows that.

2. Presumably the start date is chosen because that’s widely seen as the onset of the modern economy. Choosing a earlier period would be sort of an apples-to-oranges thing. Though I’m certainly no economist, similarities between the DJIA and the S&P 500 are great enough that I can’t imagine the results would be much different moving to the Dow. (Check out the averages going back to 1970—they’re nearly a mirror of each other.)

   But you are correct to say that causality isn’t proven here. McCall isn’t trying to do that, just showing correlation. Correlation has been debated for years, and I can’t imagine that it will ever be proven; things as complex as the presidency and the economy can’t be boiled down to bivariate graphs. But this correlation is awfully strong.

   Given the enormous amount of work that people have put into trying to discern patterns in the stock market, I have a tough time envisioning a better predictor of when to buy and when to sell than based on the party of the president. Causality? With a correlation this strong, who cares? :)

3. Ben is probably just a bitter ninja.

4. I tend to purchase stocks based on the intrinsic value of the company that issues the stock.

5. By that logic, Waldo, with the rise of piracy in South Asia, we can then relax greenhouse gas emissions restrictions. After all, there’s been a good correlation historically.

   “I have a tough time envisioning a better predictor of when to buy and when to sell than based on the party of the president.”

   How about do what Warren Buffet does and invest in good companies when their stock is relatively cheap compared to what you think the business is worth?

   MB: yes, bitter and clinging to my swords and smoke bombs.

6. You’ve just jumped the shark.

   “I anticipate having a higher mix of stocks in my portfolio”

   You sound too Republican for me.

7. By that logic, Waldo, with the rise of piracy in South Asia, we can then relax greenhouse gas emissions restrictions. After all, there’s been a good correlation historically.

   But, Ben, there hasn’t actually been a good correlation. And I have the The Gospel of the Flying Spaghetti Monster on my bookshelf. :)

   I tend to purchase stocks based on the intrinsic value of the company that issues the stock.

   Duane, you wild and crazy guy you. :)

   NPR’s Marketplace did a great show a few years ago about the daily correlation between non-business world events and stock market behavior. Often you’ll hear quick market summaries that say “the Dow was down today on word of a car bomb in Fallujah,” or “trading was brisk after the Red Sox won the World Series last night.” WTF? Did one of those really cause the other? Marketplace concluded that, no, there’s no reason to suspect causality…but it doesn’t stop Marketplace from continuing to make the same foolish statements at the top of every day’s show.

   “I anticipate having a higher mix of stocks in my portfolio”

   You sound too Republican for me.

   Uh…thanks?

8. Looks like I’m not the only one who thinks this is total bullshit: http://scienceblogs.com/goodmath/2008/10/stupid_economic_comparisons_at.php

   The whole comparison is pretty idiotic to begin with. Comparing stock prices over different time spans is already so noise-ridden that it’s going to be damned hard to get any interesting information out of it. The idea of comparing things this way is really not reasonable, meaningful, or valid, because it’s not comparing like to like. For one example, World War 2 was fought entirely under a democratic administration, and was a period of dramatic growth in the American economy. But the biggest reason for the growth was producing stuff for the war and the reconstruction; the same thing would, arguably, have happened if the republicans had been in charge. Similarly, it includes the tech-stock bubble as a growth period under Clinton, and includes the tech crash under Bush, despite the fact that the tech bubble would have popped under Gore, had he (correctly) won the election.

   Now, if you want real evidence of economic improvement under Democrats: http://rodrik.typepad.com/dani_rodriks_weblog/2008/03/american-politi.html

   When a Republican president is in power, people at the top of the income distribution experience much larger real income gains than those at the bottom–a difference of 1.5 percent per year going from the bottom to the top quintile in the income distribution. The situation is reversed when a Democrat is in power: those who benefit the most are the lower income groups…. Democratic presidents generate higher income gains for all income groups (although the difference is statistically significant only for lower income groups).

   Bartels shows in his book that this difference is not a statistical artifact or a fluke. It is not the result of Democrats coming to power during better economic times, or of Republicans reining in the unsustainable excesses of Democratic administrations they replace. (It turns out that the same pattern prevails even when a Republican president is succeeded by another Republican.) These numbers are real and they are the outcome of partisan differences in policy.

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