This is the second article in a series of three which examines the relative economic performance of Republican and Democratic administrations over the last forty years. If you haven’t already done so, start with the first article, which compares management of the federal debt––a contest the underdog Democrats won, and not by a small margin.
In this article, we determine which party has been the better steward of economic growth, also from 1977 to 2017. There are a lot of ways to gauge economic growth, but most are arguable or complicated or both. (See Notes below.) For the purpose of this comparison, we’ve chosen yet another simple, agnostic, and numeric yardstick: relative stock market performance during each party’s administrations.
The three major market indices are the Dow Jones Industrial Average, the Standard and Poor 500 Index, and the Russell 2000 Index. The markets tend to move together, thus any one would be a fair measure, but, to misquote Goldilocks, “The Dow is too small, and the Russell 2000 is too big, but the S&P 500 is just right.”
Forthwith, the incoming and outgoing S&P 500 indices by Republican and Democratic administration were as follows:
President Party In Office Opening S&P Closing S&P Change
Carter Dem. 1977-1981 101.00 128.40 +27.1%
Reagan Rep. 1981-1989 128.40 294.00 +129.0%
Bush I Rep. 1989-1993 294.00 441.70 +50.2%
Clinton Dem. 1993-2001 441.70 1305.75 +195.6%
Bush II Rep. 2001-2009 1305.75 805.22 -61.7%
Obama Dem. 2009-2017 805.22 2329.91 +189.4%
On average, the S&P 500 index increased by 13.6% during the last three Republican administrations. In comparison, the average S&P 500 index increased by 137.4% during the last three Democratic administrations.
Using the S&P 500 as a benchmark, the last three Democratic administrations beat the last three Republican administrations––by a factor of ten.
The next time someone tells you that the Republicans are better stewards of the economy than the Democrats, ask, “By what measure?”
Full disclosure: From February 1, 2017 to February 1, 2018, the S&P 500 Index increased from 2329.91 to 2816.45, or 20.9%, but that’s one year on the Trumpian calendar. The performance of the last three Republican administrations suggests that the index will close at 2648 on February 1, 2021 or 2025, or 225 points below the market peak of 2873 reached on January 26 of this year. Fortunately, and by that I refer to the value of our fortunes, past isn’t always prologue.
1) The comparison begins on February 1, 1977, twelve days after Jimmy Carter was inaugurated, and continues through February 1, 2017, twelve days after Barack Obama left office.
It could be argued that the impact of each incoming president’s policies is not reflected in the indices until a year or so after his inauguration, although Donald Trump would disagree. In this (rare) instance, it is probably fairer to agree with The Donald because: a) market performance anticipates the policies of the incoming administration, and b) the numbers reflect the impact of the president’s policies at different therefore debatable times after his inauguration. If, however, you feel the need, then by all means change the dates and/or indices and run your own comparison. It’s unlikely though that the pendulum will swing more than a few degrees, and it may swing in either direction.
2) The commonest economic metrics we might have chosen but didn’t were per capita income and gross domestic product (GDP) growth. Since 1977, per capita income has increased every year except 1991, 2002, and 2009, but the majority of that growth favored the wealthy––which may make it the Republican party’s favorite benchmark (although Republican presidents were in office all three years), but not ours. The other candidate was GDP growth, but this measure by its nature has a long policy tail. There’s no reasonable way to approximate the beginning and end points of each administration’s influence, and the length of the tails will vary.
The bottom line is that every measure has its plusses and minuses. We chose what we chose; choose what you will.