The Political Machine and the Market

Glad you dropped in. Electionomics.com is the study of how the political machine impacts economics in the United States and more specifically, how elections every four years impact the stock, bond and futures markets. From a technical standpoint, markets lead the economy so what happens can provide valuable insight into where the economy is headed. Due to its importance as the world’s largest economy, what happens in America will affect markets around the world. 

One only has to examine historic stock charts to see the cycle that exists in U.S. stocks and indexes. As far back as the early 1800s, there has been a clear trend. Immediately following an election, stock performance is generally weak up until the middle of the President’s term. Then beginning in the fall of the second year of the term (right around mid-term elections), stocks begin to come to life as the political machine gears up for the next election.

Why? In his 1978 book entitled Political Control of the Economy, author Edward Tufte provided an opinion – it’s government manipulation plain and simple. Judging from the evidence, while Democrats have a better record of getting the good times rolling and driving markets higher for the next election, both parties are equally guilty of playing the game.

Suffice it to say, the stakes are high and so is the motivation for governments to do what they can to influence the outcome of each election and the evidence shows that parties in power do so without reservation. It also shows how much power governments hold over markets through impacting monetary policy, government spending and money supply – tools they use without shame to insure that the economy is running on all cylinders and the voter is in the best mood possible heading into the next election. The reason for this is simple. Woe to the ruling party going to the polls when the economy is in tatters and voters are given the opportunity to vent their rage on Election Day!