I Made A Spreadsheet
I've heard a variety of people making claims about which political party is better for the economy. So I made a spreadsheet to see what I could find out. I went to the U.S. Department of Commerce Bureau of Economic Analysis (http://www.bea.gov/national/index.htm#gdp
) and got a list of year to year GDP change from 1930 to 2013. Then I went to the Tax Policy Center (http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=543
) to find the top tax rate for each year. Next I searched for a list of S&P 500 annual returns. (http://financeandinvestments.blogspot.com/2014/02/historical-annual-returns-for-s-500.html
) Finally I went to Wikipedia to get the list of party control of Congress for each year. (http://en.wikipedia.org/wiki/Party_divisions_of_United_States_Congresses
) (Note: Due to reader complaints about my use of Wikipedia as a source for a list of party control of Congress I have gone to http://www.senate.gov/pagelayout/history/one_item_and_teasers/partydiv.htm
to verify the accuracy of that data. In what will come as a shock to almost nobody, Wikipedia's information turned out to be completely accurate.)
I spent a little time mashing all that together into a single spreadsheet and ended up with a nice, sortable list of each year's GDP change, S&P 500 change, top tax rate, and the party controlling the White House, Senate, and the House of Representatives. First thing I did was to sort the list by GDP change as a general proxy for The Economy. Essentially, the economy has done overwhelmingly better during Democratic administrations as compared to Republican administrations. As shown in the chart below, of the top 24 years since 1930 the government has been almost entirely under Democratic control.
Then I got to wondering whether perhaps the Republicans may not have benefited the GDP so much, but instead helped out the stock market returns. I mashed those numbers and the result was so jaw-dropping that I had to recheck my work several times. If you had $1,000 in 1930 and invested in the S&P500 only while there was a Democrat in the White House, keeping your money in the mattress during Republican administrations, at the end of 2013 you'd have had $344,307.20. If, on the other hand, you followed the exact opposite tactic and invested only while the president was a Republican, and stayed out of the market during Democratic presidencies, at the end of 2013 you'd have had $6,721.72.
For my next trick I'm going to do the analysis based on Congressional control just in case it turns out that the purse strings have a bigger effect on the stock market than the presidency, but based on the way the chart looks I don't know if that will make much difference. More to come!
EDIT: Oh, hey, I almost forgot. If you look at the tax rate column, you'll note that in the best 24 years of GDP growth the top tax rates are WAY higher than current. In fact, the lowest top tax rate on the list is 1984, when it was only 50%. I'm not sure I believe the rhetoric that lowering tax rates helps the economy.
FURTHER EDIT: Oh, oh, oh, I forgot one important thing: While this is a fine intellectual exercise the actual even better rule turns out to be "Stay invested in the stock market all the time." Even though the Republican administrations' return was only a relatively paltry 6.7 times, that means that $1,000 invested in the S&P 500 in 1930 and just kept going all the way until the end of 2013 would be worth $2,314,336.59. The point of the post was to illustrate the surprisingly disparate performances, not to actually suggest a good investment rule to follow.