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The Economy Has Been Great Under Biden. That's Why 💩💩💩💩💩Won.
Try out this theory.
Our main thesis is that a strong economy favors Republicans, and a weak economy favors Democrats, regardless of the incumbent.
https://www.chicagobooth.edu/review/the-economy-has-been-great-under-biden-thats-why-trump-won
It indicated that the 2024 election would be won by the Republican candidate not despite the strong economy but precisely because of it. Our mechanism doesn’t rely on voters acting irrationally by ignoring the strength of the economy and focusing only on the price of milk and eggs.
...
Key to our findings is how voters feel about risk. We argue that when the economy is weak, Americans become more risk averse, and that’s why they favor the party that promises redistribution and social insurance—Democrats. During booms, by contrast, voters are more willing to take risks and therefore more likely to elect Republicans, who favor lower taxes.
...
If our argument holds, there’s also a lesson here for investors: Brace for lower-than-usual stock market returns under the new Trump administration. In finance, there’s a phenomenon known as the “presidential puzzle”—stock returns have been higher under Democratic administrations than Republican ones. Between 1927 and 2015, the period analyzed in our study, the average excess market return was nearly 11 percent per year higher under Democrats than Republicans.
Our model offers an explanation for this pattern. It’s not that Democratic presidents cause high stock returns; rather, they tend to get elected when risk aversion and expected future returns are high. The opposite is true for Republicans. According to our model, Trump just got elected because risk aversion is low due to the strong economy. And when risk aversion is low, so are expected future returns. Though the stock market spiked when the election results became clear, as the political uncertainty fades and the prospect of lower taxes sinks in, the stage is now set for lower stock returns during Trump’s term. This is not Trump’s fault—blame it on the strong economy under Biden.
...
Key to our findings is how voters feel about risk. We argue that when the economy is weak, Americans become more risk averse, and that’s why they favor the party that promises redistribution and social insurance—Democrats. During booms, by contrast, voters are more willing to take risks and therefore more likely to elect Republicans, who favor lower taxes.
...
If our argument holds, there’s also a lesson here for investors: Brace for lower-than-usual stock market returns under the new Trump administration. In finance, there’s a phenomenon known as the “presidential puzzle”—stock returns have been higher under Democratic administrations than Republican ones. Between 1927 and 2015, the period analyzed in our study, the average excess market return was nearly 11 percent per year higher under Democrats than Republicans.
Our model offers an explanation for this pattern. It’s not that Democratic presidents cause high stock returns; rather, they tend to get elected when risk aversion and expected future returns are high. The opposite is true for Republicans. According to our model, Trump just got elected because risk aversion is low due to the strong economy. And when risk aversion is low, so are expected future returns. Though the stock market spiked when the election results became clear, as the political uncertainty fades and the prospect of lower taxes sinks in, the stage is now set for lower stock returns during Trump’s term. This is not Trump’s fault—blame it on the strong economy under Biden.
So Blame it on Biden?"
Hadn't heard that one before.
Anyway, the model is not shown, so it could be a BASIC program running on a TRS-80 for all the authors disclose, or just science fiction. No way to check it.
6 replies
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