WASHINGTON: can one draw any lesson about stock market returns from electoral outcomes? A recent National Bureau of Economic Research working paper by Lubos Pastor and Pietro Veronesi from Chicago Booth School of Business shows that stock market returns in the US are much higher when a Democrat is in the White House. The paper finds that “all of the equity premium over the past 89 years has been earned under a Democratic president”. Between 1927 and 2015, the average excess market return under Democratic presidents has been 10.7% per year, whereas under Republican presidents it has amounted to only -0.2% per year. The authors attribute this to the fact that election of a Democratic president is a reflection of risk-averse behaviour among the voters, which leads to higher returns in equity markets as well. In contrast, Republican victories are associated with less risk-averse behaviour, hence the lower returns. The authors also suggest that Republican-Democratic return differential is the highest in early years of Presidencies, as preferences tend to change overtime.
The Trump administration’s proposal to change the way trade deficits are calculated in the US has angered economists. The proposal seeks to exclude all goods imported into the US and exported without any changes from being taken into account in exports. This will effectively increase trade deficit numbers as it would count incoming goods as imports but not count them as exports when they leave the country.
Writing in the CafeHayek blog, Don Boudreaux, professor of economics at George Mason University, has termed the proposal as an accounting fraud, one that would only serve Trump’s agenda by whipping up public hysteria over trade deficits. According to Boudreaux, such goods should either not be counted at all in import-export calculations, or it should be included in both. He showed the fallacy of Trump’s proposal by pointing out that the reverse, which would involve counting such goods as exports but not as imports, would shrink the trade deficit.
