It pains me to type this, but it is nearly election season again. Early contenders for the 2016 presidential election are lining up, making formal and less-than-formal announcements and warming up their campaign machines. The Republican field is littered with what seems to be a dozen candidates and the Democrats seem satisfied admitting that they’re bringing Hillary to the general. As always, the economy will be front-and-center in the debates. Candidates will point to their track records in state and local governments or their voting pattern on spending bills and tax bills and their past committee chairmanships. In doing so, each candidate will claim that his or her policies will be the best for economic growth. Some will say a balanced budget is best for growth. Others will lean on individual tax cuts or lowering the corporate tax rate or safeguarding Social Security payments or increased spending on education and the social safety net. I’m not going to touch any of those, except to say this: the extent to which any single candidate, politician and president can directly influence the economy is vastly overstated.
The US (and world) economy is a wildly complex organism. To suggest that if you simply pull on Lever A you’ll get Outcome B is comical. For one, there are hundreds and thousands of input “levers” that affect the outcome. Some we can influence through fiscal and monetary policy, but even the effects of those policies are hotly debated in economic circles. There are simply too many causal events to claim that any one specific item is responsible for an economic outcome.
Political candidates like to lean on the track records of their previous work and politicians of similar stripe who came before them. They’ll point to previous leaders of their own party and their records of employment growth, economic growth and stock market performance to “demonstrate” how policies of the party have worked in the past.
Here’s the thing, though. No incoming president has ever had the option to choose the state of affairs when he has taken the oath of office. It’s no more than a roll of the dice whether a president walks into a economic boom, malaise or disaster, whether we’re on the brink of a horrific terrorist attack or near the beginning of one of the greatest economic expansions in history. Want to see? Here’s each presidency by the numbers.
| President | Real GDP | S&P 500 Return | Beginning CAPE | Beginning Unemployment |
| Obama | 2.20% | 16.65% | 15.17 | 7.80% |
| George W. Bush | 1.62% | -3.91% | 36.98 | 4.20% |
| Clinton | 3.74% | 17.51% | 20.32 | 7.30% |
| H.W. Bush | 2.03% | 15.54% | 15.09 | 5.40% |
| Reagan | 3.44% | 15.03% | 9.26 | 7.50% |
So there you have it. Economic growth and market returns for each president’s time in office. Along with it, a quick look at how cheap or expensive the US stock market was when the president was inaugurated and how high unemployment was at the time. Now even your obnoxious uncle who will never shut up about politics has to admit a president doesn’t have any control over the state of affairs when s/he walks into the oval office for the first time. And as you can see above, the state on the day a president takes office has a huge impact on what comes next. Coming into office with high unemployment and reasonable stock valuations often leads to better times ahead for a simple reason: markets and the economy are cyclical. Good times follow bad times. You don’t get to choose when good times come and when bad times come, but the cycle continues indefinitely.
So when the candidates tout their ability to make the economy grow or your uncle insists that his candidate has the secret sauce, go back to the data and understand just how little we understand about what moves the economy. Once again we have to start by acknowledging our own limitations, and the limitations of those in power.
Bason Asset Management 