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dalepetrie's avatar

Do you think the Dow is a good indicator of the President's performance as it relates to the economy?

Asked by dalepetrie (18002points) October 9th, 2008

By this I mean, if you were to look at what the Dow opened at the morning each President took office, and looked at what it closed at the day before they left office and figured out how much it grew (in terms of percentages), do you think that would be a fair way to assess the degree to which the President was good or bad for the economy? I have some stats I’ll provide in an answer.

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18 Answers

dalepetrie's avatar

To answer my own question, I do, or at very least I think it’s a good indicator of public perception as to how well a President performed, even though the majority of people probably don’t pay a ton of attention to the Dow. I crunched some numbers on a hunch and here’s what I came up with.

Of the past 4 Presidents prior to W:

Jimmy Carter – Dow up 0.24% during his Presidency. Left office with a 33% approval rating

Ronald Reagan – Dow up 230.6% during his Presidency. Left office with a 62% approval rating.

George H.W. Bush – Dow up 145.41% during his Presidency. Left office with a 55% approval rating.

Bill Clinton – Dow up 325.17% during his Presidency. Left office with a 65% approval rating.

The numbers are directly correllated. From most popular to least popular on leaving office, the Presidents rank:

1. Clinton
2. Reagan
3. Bush
4. Carter

From greatest growth in the Dow to least, the Presidents rank:

1. Clinton
2. Reagan
3. Bush
4. Carter

Do you think there actually is a correlation between how good a President is for the economy and how well the Dow does while he’s in office?

Do you think people perceive a correlation between how good a President is for the economy and how well the Dow does while he’s in office.

What does this mean for W, who took office when the Dow was at 10,587.59, and 10 minutes to closing today it’s at 8,579.19 (and falling). So as of this minute the Dow is actually -18.97% during his Presidency. Seems to hold for a fifth consecutive President considering that his approval on 9/22 was 19%. I wonder where this will end up on 1/19/09?

Any predictions for where the Dow will close on 1/19/09 and where that will put W’s end of term approval rating? And will that be an indicator of how he did for the economy?

Discuss…

wundayatta's avatar

Well, they do say, “It’s the economy, stupid.”

The Dow does reflect satisfaction with the economy to some degree, I believe. If the economy is bad, people blame it, rightly or wrongly, on the President.

So my answer is yes.

I’ll tell you this. It’s a hell of a way to make a change in the White House.

dalepetrie's avatar

Ceratinly an expensive way to bring about change!

wundayatta's avatar

Oh baby! You don’t know the half of it! When you count investment losses, I’ve probably given way more than I care to even think about to get rid of the Republicans. Well, in the end, it’ll probably be worth it. But I tried so hard before, because I knew it would end like this. Sigh.

dalepetrie's avatar

Well, look on the bright side if the Dow climbs 2,033.81 points in the next 102 days (and we’ve seen it can fall this much in a week, so that shouldn’t be too hard), Bush will be as good for the economy as Jimmy Carter was!

dalepetrie's avatar

And if it climbs 25,850 points in the next 102 days, W will have been as good as Clinton!

fireside's avatar

Just think how high Obama’s ratings will be if the turnaround doesn’t happen until he takes office. What’s a 500% increase translate to?

wundayatta's avatar

You know what they say about counting chickens before they hatch.

Don’t do it!

This crisis is very serious, and there will be no quick turn-arounds. Investors are bitten, and now, twice shy, very reluctant to invest in anything but the safest of vehicles. Of course, now is the time to buy, buy, buy. If only I had cash to do it with!

dalepetrie's avatar

No quick turnaround, but consider this. I could be wrong, this hasn’t been tried since the days of FDR, but I’ve always believed that real prosperity comes from the bottom up, and not the top down, which is exactly what Obama says. I’ve always felt that by cutting the taxes for the wealthiest, allowing their wealth to reach dizzying new heights, while more and more people fall from the middle class into the ranks of the impoverished, and the less we invest in keeping these people solvent, educated and safe, the worse our society and indeed our economy will fare. I think you CAN create prosperity, particularly at the top end with a supply side system, clearly Reagan did give us explosive market growth, but he did so at the expense of widening the gap between the haves and the have nots.

Clinton actually narrowed that gap and spread the prosperity, while still keeping plenty of money flowing to those at the top, and he Presided over the longest expansion of the economy in US history (and historically high stock market gains).

I would suspect, that someone like Obama who wants to build up our economy at all levels, from the bottom up, will do even better than Clinton. Because if you create jobs and move people out of poverty on the bottom rung of the economic ladder, they have more money. And up to a certain point, people essentially spend everything they make…you don’t see a lot of families of 4 making $20k that save any money, or $30k, or $40, or even $50k for that matter (heck, my wife and I will soon be making a combined nearly $90k with one child and I don’t see how we can begin to accumulate savings any time soon with the cost of living in a big city). So, we lift 15 million people out of poverty, and another 50 million who are not impoverished, but not exactly flush with cash also get lifted up, well all that extra money, say $10 or $20k a person, well that brings a trillion a year of new spending int the economy. That spurs production to meet demand. That creates jobs. That employs (and pays more people). These people then have money to buy things. That creates more demand, which needs more supply, which creates more jobs (and makes the business owners wealthier). That drives up wages, that spurs spending even further.

I’m saying that if the bar is set low, let’s say Bush leaves office with the Dow at 8,500. and I suspect like fireside said, if Obama serves for 8 years, maybe 500% isn’t out of the question, that puts the Dow at 42,500 by January 19, 2016. We could actually have a governmental surplus, the lowest tax rates and highest employment levels in history, virtually no national debt and zero poverty.

They say I’m a dreamer…but I’m not the only one….I hope someday you’ll join us…

wundayatta's avatar

I am 100% with you about the economy. Bottom up is how to build it. Drive the economy with consumption. Supply side economics was crap.

I surely hope you’re right about how fast it can be done. I know that if there’s a landslide with Obama, he may even provide coattails to totally change congress. It’ll change, but by how much.

There will still be the conservative democrats, but hopefully people will be chastened by this experience, and will use the power of the government aggressively to bring the economy back.

How long did it take to recover from 1929? 25 years? My guess is that this will be at least ten years, and if it gets worse, it could rival the depression. But then, I’m a pessimist. Although I think I’m a realist.

critter1982's avatar

Perhaps it is the DOW which many times shifts with the economy that determines whether people are happy with the President. I think no matter what, if we have a good economy people will in general be happy with the President, if we have a bad economy people will in general by upset with the President.

Although this generic assumption may not be accurate in times of crises, such as 9/11, when Bush’s approval rating was incredibly high.

critter1982's avatar

I don’t have a lot of knowledge regarding a bottom up economy but some things don’t make a lot of sense to me. Please correct me where you think my logic is wrong.

1. @dale mentioned $10–20K a person? Is this through tax cuts? If we generate this much in tax cuts I assume we increase the taxes on the rich and small and large companies? Won’t this reduce jobs because companies won’t have as much liquidity?

2. Regarding the $600 tax return….Wasn’t this a bottom up type of solution to an inherent economy downturn. It didn’t seem to help. In fact I believe most people didn’t even spend this additional money.

3. At this point it seems like so many companies are suffering because their investor equity is going down in the trash with the stock market. Won’t increasing taxes on these companies especially at this time in our economy only drive these companies further into debt?

4. It seems to me that a bottom up sort of economy is all based on the fact that people are going to spend their money. What happens if they don’t and start to hord (spelling??) their money like many Americans are doing right now.

I’m not saying a totally disagree with a bottom up economy but it seems like at this point in the US economy it might not be the “right change” that we need. Again I’m not that knowlegeable about economics other than the few classes I had in my grad classes but it doesn’t seem like this, “at least at this point in our US economy” would drive the economy in the direction we want to go.

Also, wasn’t it the creation of jobs without consumer spending that drove us out of the Great Depression? I believe (I wasn’t alive at this point and can only believe what I read) it was the WWII and the country unification that generated jobs to produce supplies for the war that really drove us into an improved economy. It seemed like companies didn’t care much about borrowing money because the country was functioning as a bipartisan unit because of the war. People were more worried about the war than the economy.

critter1982's avatar

Did you ever find yourself staying up late waiting for a response from Dale? :)

fireside's avatar

heh, you’re going to be up even later reading the response from dale, i suspect.

Judi's avatar

I’m sure approval ratings are directly rlated to how well people feel they are doing and if they economy is strong people tend to have less to complain about and would have a higher approval rating for their president.

dalepetrie's avatar

critter -

1) I’m saying that through a combination of increasing the minimum wage and strengthening the social safety net, providing better education and training to get people working, and investing in green sector technologies to stimulate job creation, eventually on average, your lowest paid worker will see his salary rise between $10 and $20k per year. So, it’s not about cutting taxes and just giving money to the poor. Taxation is a separate issue, but yes, I would agree with trying to make the tax system more fair, which in my opinion would require higher taxation levels on those making the most money, essentially I think Obama has the right idea. I can summarize why taxing the most wealthy more is fair in a nutshell. Basically it’s because most of the taxes people pay are not related to income, and do not vary with income. A few grand per person is collected in taxes whether you make 10 grand or 10 million a year. This is why we have a progressive tax tier system. And so much in corporate taxation is shielded from taxes. So let’s make this clear…we’re not talking about businesses that aren’t making any money…we’re talking about taxing the PROFITS of the PROFITABLE companies. And if you spend more money on salaries, that won’t be taxed.

2) The tax rebate was a one time thing…$600 doesn’t really go that far, and it’s far from a long term solution. I’m very much against just giving someone money…I’m more into the philosophy of give a man a fish….you know the rest…

3) If companies are not profitable because of the economy, they won’t pay taxes, because you pay taxes on profits, not revenues.

4) The spelling is horde, and if you spend every penny on food, clothing and shelter, you have nothing left to horde. If someone is supporting a family of 4 on $20k a year, that’s not enough. People eat cheap crap with no nutritional value, live in neighborhoods most people wouldn’t even want to visit and rely on various government subsidies such as earned income tax credits and EBT cards. Put this money instead into investing in a green technology job sector and better education like Obama wants to do.

Once jobs were created in the Great Depression, people took the money they got from those jobs and spent it on things they couldn’t afford before, you know, like FOOD. And remember that the worst of the Depression happened from about 1939 to about 1935 and the US didn’t get involved in WWII until 1941. And as for borrowing, people pretty much didn’t borrow money back then, they lived within their means.

And like I said, I haven’t seen what happens in a bottom up economy, but I’ve lived most of my life in a top down one, and logic says to me that one of these theories makes more sense:

1) You give all the tax breaks to the people who already have all of the money and let a huge swath of your country live without enough money to survive much less prosper, because the rich will be able to spend this extra money creating jobs so these poor people can take them (instead of say investing the money on the stock market or buying a 7th house).

2) You give the tax breaks to the people who will spend every penny they have on survival, they will spend every penny of that money, and THAT will result in more demand for products and services, the business owners will invest in job creation because they will be able to make money selling those products and services which are now in higher demand. This will create a cycle with no end, more people will be working, there will be more jobs than people, they’ll have to pay more to compete, but that’s OK, because they will be making more money. Taxes will actually go down on everyone because there will be more taxpayers making more money.

I think #2 is more likely. And I’ve seen #1 fail….miserably.

googlybear's avatar

The economy goes through cycles naturally every 10 years or so….While the President has an impact on spending initiatives, etc., they can’t be fully to blame or take all the credit…

jvgr's avatar

No, as googlybear says, the economy has it’s own life cycle and president’s can’t do a lot.

The market doesn’t like uncertainty and now we have lots. Usually, the market is volatile before an election. But we have the added financial conundrum, but many good companies have share prices that are very low for no reason other than volatility and investor sentiment. If you are contemplating investing, do your homework and start buying companies that are sound and underpriced.

Warren Buffet didn’t get wealthy by buying high.

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