Are you worried that the economy grew by only 1.9% in the recent quarter? That's a pretty weak performance. But it would seem downright dismal if you believed President Donald Trump's assertion during the 2016 campaign that 1.9% growth during one of former President Barack Obama’s quarters signaled an economy "in deep trouble."
Economists are now forecasting 1.8% gross domestic product growth in the fourth quarter. Things are most definitely slowing down. Clearly, Trump will not whip the economy into the 4% annual growth he bragged about during the campaign. Never mind 6%. And despite the economy's so-so October performance, Trump ended the month tweeting, "The Greatest Economy in American History!" But we're used to that.
Trump-believers might also swallow the baloney that Democrats are all socialists eager to smite capitalism. Real capitalists closely monitoring their stock portfolios would disagree.
If you’re a real capitalist, chances are good that you miss Obama. During Obama's eight years, the S&P 500 rose almost 176%.
Researchers at the University of Chicago's business school concluded that historically, stock investments do better under Democratic presidents than Republican presidents — a lot better.
From 1927 to 2015, the average excess return on stocks was 10.7% a year under Democrats compared with minus 0.2% under Republicans, according to Lubos Pastor and Pietro Veronesi. (Excess returns are a metric that helps investors compare stocks' performance with those achieved by other kinds of investments.)
"The return gap is not explained by what presidents do," Pastor and Veronesi wrote, "but rather by when they get elected." Democrats tend to get elected when expected future returns are high. Republicans win when expected returns are low.
But the question naturally follows: Why are expectations for strong stock performance higher when Democrats ascend to the Oval Office? One plausible reason is that their Republican predecessors often leave behind a screwed-up economy with stock prices already depressed.
Presidents don't have total control over an economy. There are lots of influences — new technology, energy prices, demographic changes — that can boost or drag economic performance.
But history suggests that economic governance goes south when a Republican president has a Republican Congress backing his bad ideas. Start with 1930, when Republican Herbert Hoover made a troubled economy worse by launching a trade war. Democrat Franklin D. Roosevelt had to pick up the pieces.
Another example is 2008, a time of near financial collapse. Former President George W. Bush's administration had encouraged speculation in house prices, let Wall Street run wild and supercharged deficits thanks to large tax cuts and little control on spending. (Former President Bill Clinton had left him a booming economy with budget surpluses.) Obama inherited Bush's mess.
It would be unfair to compare investment performance early in Obama's presidency, when stocks had nowhere to go but up, to that of Trump. So let's compare the first 33 months of Trump with the last 33 months of Obama. Under Trump, so far, the S&P 500 has risen just more than 33%. During Obama's last 33 months, it jumped almost 48%.
Republicans argue that a Republican-controlled Congress curbed Clinton's ability to spend. There may be some truth to that. But Bush had Republican majorities in both houses of Congress — for half his presidency —when all fiscal discipline flew out the window.
The same can be said for the first two years of Trump's presidency. We're now running annual deficits of around $1 trillion a year. And Trump's trade war adds further drag.The economy may not currently be "in deep trouble," but what can you say to those who still believe in Trump's magical powers to make everyone rich? You're on your own.
Froma Harrop is a columnist with Creators Syndicate.