"Politics is not the art of the possible. It consists in choosing between the disastrous and the unpalatable." -- John Kenneth Galbraith, US Economist (1908-2006)
With the election looming this Tuesday, I felt compelled to put in my two cents on the election with regard to the economy and stock market. I believe John Kenneth Galbraith hit the nail on the head in the preceding quote. Unfortunately for Americans, politicians will tend to strive in achieving that which is "disastrous" and never have the courage to do what is "unpalatable."
Politicians are only interested in perpetuating their power, which means that they will work for short-term gains with little or no attention paid to the long-term results. For example, tax cuts will often stimulate the economy in the short run but if government spending goes unchecked, the long-term result is a higher national debt. In your personal finance, would you choose to reduce your income and increase your spending at the same time? The economy, overall, is healthy. But at what expense? Our national debt averages nearly $30,000 per US citizen. I believe Mr. Galbraith would agree that this kind of political behavior (Republican or Democrat) is what he meant by "disastrous."
The "unpalatable" type of political activity would be to fix Social Security or Medicare, which are the 800 pound gorillas lurking in the corner. The risk of losing office is too great for our lawmakers to attempt real change. I have to give George W. Bush credit for attempting to fix Social Security. He just did not have a "palatable" solution. The "disastrous" result is to push the most important economic issues of today further into the future for other politicians to "fix" tomorrow while our children and grandchildren pay the bill.
As for the stock market, no political party can claim the stock market performs better under their watch than the other. In fact, the stock market performs best when the Congress and White House are run by different parties. The greatest economic expansion and Bull Market for stocks occurred under a Democratic President (Clinton) and a Republican congress during the 1990's. In fact, of the thirteen instances in history since 1961 that the two major parties split power between branches of government, the stock market rose in all but two of those periods with an average gain of 23 percent. In the ten instances since 1961 that one party ruled both the executive and legislative branches, the stock market's average gain is 11 percent. Take a look at this chart to see my source and to come up with some of your own conclusions...
For the sake of the economy and stock market, let's hope the Democrats take just enough seats in Congress to force gridlock but not enough to do any real damage. That way there will be no "disastrous" legislation from either party passed for at least two more years...
Kent Thune is the President and Owner of Atlantic Capital Investments, LLC (ACI), a fee-only, registered investment adviser based in Mount Pleasant, SC, near Charleston. ACI specializes in retirement, investments, and comprehensive financial planning.