By DAVID MOON, Moon Capital Management,
September 7, 2008
My friends are convinced that if he
is elected president, the negative impact on the economy will be immense. Stock
prices will suffer for another four years. Deficits will skyrocket. Tax breaks
will become 'tax favors,' simply handed out as political
Short version: His election will spell doom for the
Who is the candidate? John McCain. And Barack Obama.
It depends on which of my friends is making the
Plenty of historical studies will support whatever
conclusions you would like to draw concerning a president's political party and
the economy. After today, readers will send me emails referring to one study or
another, depending on whatever point they are trying to make.
The problem with these studies is that they simply
measure correlation ' that is, what happened. They do little, if anything, to
Presidential politics and economics can be a
frustratingly complex pair of topics. Many things that happen simply make no
The polling folks at Gallup tell us that 56 percent of the voters
with postgraduate college education favor Barack Obama. Yet these are among the
folks most likely to be among the top ten percent of wage earners and presumably
the targets of the repeal of the Bush tax cuts that Obama
BIGResearch, a consumer retail consultant, has
discovered that Wal-Mart shoppers overwhelmingly prefer John
Neiman Marcus would have been my
I have a postgraduate degree and I love Wal-Mart. Maybe
I'm supposed to vote for Libertarian candidate Bob Barr or perennial candidate
Presidents get credit and blame for things over which
they have little influence and zero control. Should a president get
credit/blame for the economy while he is in office? Or is there some lag between
his stupid/genius decisions and their impact on the economy? Six months? Three
The stock market has, in total, performed terribly
during George Bush's presidency. Since he took office in January 2001, the Dow
Jones Industrial Average has increased about two percent a
How much of that performance, however, is because stocks
were overpriced in 2001 and still in the beginning stage of a bear
market that started nine months earlier?
Does Ronald Reagan get credit for the 128 percent
increase in the Dow during his eight years in office? Or was some of that
a function of historically low P/E ratios at the start of his presidential
During Bill Clinton's eight years, the Dow increased a
whopping 226 percent. My Obama friends credit Clinton's economic policies and a reduced
budget deficit during that period.
My McCain friends thank the Republican-controlled
Congress for Clinton's second-term budget
I think stocks increased so much during those eight
years because they were cheap to start with.
Like quarterbacks, politicians get way too much credit
and blame for what happens while they are on the field. Tax policies obviously
have an impact, but other than being a cheerleader, a president has limited
tools to manage the economy.
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).