There is a widespread sentiment in America that Republicans in office are better for business, stocks, and the economy than Democrats. The logic of this sentiment is based in part on the tendency of Republicans to reduce taxation, regulation, and all sorts of interference by government in the affairs of business. There is a general belief that business knows best and functions more efficiently than government, and thus the economy will prosper if government just stays out of the way.
Closely related to the notion that Republicans are better for business, is the concept of supply side economics. (Critics of this economic theory call it "trickle down economics." Being a critic of the theory, I will do so hereafter.) According to Wikipedia, "trickle down economics holds that economic gains by the wealthy are spent by investment or purchases that result in jobs for middle and lower class individuals." Trickle down theory(TDT) is the Republicans and Libertarians answer to poverty. Trickle downers are fond of quoting JFK when he said, "A rising tide floats all boats."
Another closely related concept is Free Market Capitalism (FMC). The idea here is that supply and demand is the best way to regulate pretty much everything. Republicans and Libertarians believe that FMC will provide the best management of prices, labor costs, healthcare costs, poverty, ... you name it.
The overarching idea here is that if (Republican) government stays out of the way, business, in its wisdom, will prosper, and that prosperity will spread to the general population.
CXO Advisory Group (http://www.cxoadvisory.com/) is a financial research organization that tests all sorts of claims and assumptions about the market. Their web site states that "Our default approach is to challenge any and all conventional market wisdom with analytical skepticism."
Their research suggests that the case described above is not quite so simple. In summary, they state that U.S. stocks tend to be most overvalued under Democratic Presidents, under popular Presidents, during election years and during years when no new major military conflicts start. Conversely, they conclude that U.S. stocks tend to be most undervalued under Republican Presidents, under unpopular Presidents, and during years when new major military conflicts begin. Follow this link to see their conclusions in more detail: http://www.cxoadvisory.com/blog/external/blog7-26-07/default.asp.
This suggests that the conventional wisdom on Republicans being better for the economy is all wrong.
The first problem I have with this conventional thinking is the assumption that business always knows best. Publicly traded corporations are legally obligated to make the greatest possible profits for their stock holders. They are not legally obliged to provide American jobs, good wages, or any particular benefits to their workers and their community, or any particular level of quality in their products. My contention is that business cannot see the forest for the trees, and is incapable of acting in its own best long term interest. The trees that block the view are quarterly profits. Corporations are obliged to do what works now. CEOs and CFOs are under extreme pressure to show profits not five or ten years out, but right now.
The second problem I see is with the logic of Free Market Capitalism. FMC argues that everything is best governed by the tug of war between supplier and consumer. FMC treats employees as both consumers (of benefits and wages) and suppliers (of labor) and leaves them on their own to find the best deal they can. FMC seeks to eliminate government regulation of labor, products, and business practices generally on the assumption that these things will find an acceptable balance between what suppliers can get away with and what consumers will tolerate. There is a level at which this theory is correct, but the problem is that that level is the level of the least common denominator. The result is mediocrity both for supplier and consumer. Each gets, and gives the least result tolerable to the other. This became clear to me when my employer touted their commitment to providing "the most competitive health care benefits available on the market." That sounded like they were competing for my approval, but in reality it meant that they were competing with other employers to keep their health care costs as low as possible while retaining employees. The net effect was that the benefits diminished steadily year after year.
The third problem is with the underlying premise of trickle down theory. To illustrate this problem, consider the JFK quote. "A rising tide floats all boats." Trickle-downers think of the water as profits and wealth, and the boats as people and business. Their assumption is that wealth is the water that lifts people and business to prosperity. This is just weird. It's like assuming that the level of the ocean is regulated by the amount of water pumped out of boats, since people and business are the sources of wealth. But even trickle-downers know this is not really true. The market is highly sensitive to things like the labor and consumer sentiment data, because everyone knows that these are the real tide that floats business. The reality is that wealth and profits well up from a healthy, robust populace that has expendable income and a secure lifestyle. How ridiculous is it to think that a handful of ultra-wealthy corporations and individuals are the sea, and 400 million consumers are the boats! In reality, business soars when the population prospers, not the other way around. And this is why the economy improves with Democrats in office. They regulate business to protect the population at large from the excesses of the untempered profit motive, and spend money to stimulate and foster a social safety net and labor environment that increase the prosperity of workers and consumers...and that's the rising tide that JFK was talking about. FDR proved this with his new deal economy that pumped cash into the economy through jobs and social programs that improved the well-being of the population at large and ended the great depression, which was caused BTW by unregulated business under the Republicans watch.
Thanks to Jason Kelly for tipping me off to the existence of CXO Advisory Group.
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