In 2017 I wrote a detailed post about how political biases consistently hurt people’s portfolios. In that post I provided some historical data showing that the President doesn’t determine market returns. But I want to be even more direct about this – there’s zero reliable data on this point and the data points that would impact the outcomes are so random that they will render the data meaningless.
Let’s take two recent examples to emphasize this point.
- In the post 2009 era we heard a lot about how the economy was weak and the national debt exploded. And this meant that President Obama was a bad President. This was, of course, nonsense in retrospect. President Obama inherited an economic disaster following the Financial Crisis and the national debt blew up primarily because tax receipts collapsed and automatic government spending programs were enacted following the GFC. But if you were politically biased you might cherry pick low GDP growth and high debt figures to argue that these things proved something that they didn’t.
- In the post-2020 era we have heard a lot about how the economy is weak and the national debt has exploded. To some people this means that Donald Trump was a bad President. This was, of course, nonsense in retrospect. Trump didn’t cause COVID anymore than Obama caused the GFC.¹
You could go through history and find similar examples. But even if you did the data set would be so tiny that it’s virtually useless anyhow. After all, there have only been 13 Presidents since 1945. Just taking the two examples above you can essentially throw out their data because they were impacted by outlier events. That alone leaves us with 11 pieces of data with many different conflicting Congressional configurations that rendered that political party less influential than you might think.
The real point here is that the economy is a massively complex system with outcomes that are so broadly impacted that no single person or entity can influence them single-handedly. The market and the economy are going to react to things waaaay outside of the control of politicians. So, the next time you get the urge to attribute political or market outcomes to your (least) favorite politician I’d recommend stepping back and considering the fact that the world is a lot more complex than our political cheerleaders might want us to believe.
¹ – It’s fair to criticize certain responses to the GFC and COVID. I was highly critical of both Trump and Obama after their crises. But in a government with as many checks and balances as ours it takes a village to make bad decisions.
NB – This is not to imply that politicians have no impact over the economy or financial markets. Of course they do. But it’s safe to say that they’re generally less impactful than what we might be led to believe.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.