What are the expected economic consequences of a Democratic vs Republican government being elected for the upcoming term?
In the end, I really don’t think it matters who is in office. They get too much blame when things go wrong and too much credit when things go right. Historically, hasn’t GDP growth been a bit stronger under Democratic presidents? Also, I do believe that the best situation for the markets/economy is to not have one party control the white house and congress.
Its kind of tough to say because Reagan represented a dramatic shift in economic policy from previous Republicans in office, i.e. Nixon and wage and price controls. Bush 41 in the early 90s also received a lot of intra party criticism for his embrace of NAFTA. Also, the only democratic president, Clinton, that we have had since Reagan for the most part embraced his economic point of view; as can be seen through his advocacy for free trade and his rhetoric on the trail in 1996 when he said that the days of big government are over. It is difficult to tell whether or not the democrats’ rejection of relatively free markets that we see on the trail today will represent a reversal of the last 25 years or if it is mere political grandstanding; striking example is Obama’s attempt to reassure the Canadians that we don’t plan to roll back the amount of free trade that the two countries enjoy today.
i read a couple papers back in college about this. they all said that historically, it doesn’t really matter who’s in power (president or congress), the economic cycles were driven more by the fed’s easing/tightening of the discount rate. i guess there was a much stronger correlation between the easing and tightening of the discount rate that the political party of the president, which leads me to think that calling the chairman of the fed the second most powerful person in the US an understatement.
A big increase in the capital gains tax (to say, 25%-28%) would probably have a negative effect on the stock market. Interestingly, tax revenues from capital gains are highest when rates are lowest. Seems counterintuitive but it makes sense if terms of incentives to take gains and pay taxes. As for the economy, it’s difficult for one person to have a lot of an effect. Now, if both sides of congress and the presidency are controlled by one party…I’m sure there’s the potential for some effect one way or the other. Obviously, both parties want a strong economy it’s the policies that each believe is most effective that differs.
Any specific sectors that may be benefitted/disadvantaged?
The conventional wisdom is that a democratic president will not bode well for defense, big oil, etc. (all the usual suspects). This assumes that the political parties are poles apart, though, and I don’t think that’s the case anymore. We’ve seemed to converge to some middle ground of republicrats. Are results on Election Day tradable? I’m not sure, but 1) I think the market does a pretty good job of pricing these things in quickly anyway and 2) there are so many other factors at play affecting a sector, even if you are right politically, it may not work out for you financially.