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Does the Stock Market Affect Elections?

Joshua Tucker says no:

Studies of economic voting in the United States show a strong relationship between economic conditions and presidential vote (or vote for the president’s party in congressional elections), but the variables that have tended to matter have been more focused on economic grows (e.g., change in real disposable income) than the stock market. In fact, a 2001 study by Michael Lewis Beck and Charles Tien (gated) concluded that “despite the current talk about using stock market performance as an economic indicator [in economic voting models], we found it had no vote effect after all.”

By Ezra Klein  |  October 16, 2009; 10:30 AM ET
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Justin Wolfers (at UPenn) did a fun little paper about this a few years back. I don't know if he ever got it published, though. It runs counter to some papers from the 1980s saying the Dems increase economic performance more than republicans when they take control of government, though by the end of 4 years they come back to slow growth.

Posted by: GrandArch | October 16, 2009 10:39 AM | Report abuse

The stock market can create a "wealth effect", causing people to think more expansively. But my sense is that this applies to a small slice of the population who aren't so very rich that a million here or there it makes no difference in their lifestyle but who also own a substantial portfolio (say $300,00 at least, maybe $500,000). These are the folks who will take an expensive vacation or start a remodel when they feel flush. And the ones whose retirement prospects depend on the market the most.

But this is a very small slice. For most people, employment, hours worked and inflation are the big determinants. We forget the days of 10% plus inflation, but that was something that affected virtually everyone, and was probably when the economy had the most negative effect since the Depression. But most of the media people we see and read are in the small slice, so the market gets exaggerated.

Posted by: Mimikatz | October 16, 2009 11:07 AM | Report abuse

I'd just like to thank you for using "affect" rather than the increasingly popular and incorrect "impact" for your lede.

Posted by: MStreet1 | October 16, 2009 11:08 AM | Report abuse

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