Bad economics makes good editorials

Like in today's WSJ where we are told "Divided Government is Best for the Market" and treated to a lovely exercise in torturing the data. It turns out that, since 1948, the stock market has done better under Democratic presidents (15.6%) than Republican ones (11.1%). Now this number really means nothing. First, we'd like to know real, inflation adjusted returns, not nominal returns. Second, and most important, we need to control for other relevant factors. Despite the best efforts of the MSM, we do not live in a unicausal world; politics is not the unique cause of all outcomes.

However, the editorial writer has a unique approach to attacking the problem:

"But it's not so simple... First, not all Democrats act like Democrats, and not all Republicans act like Republicans. John F. Kennedy, for example, was an enthusiastic supply-side tax cutter, and George H.W. Bush raised taxes. Bill Clinton promoted free trade, and Richard Nixon imposed wage and price controls.

If you assign those four presidents to the opposite party based on that -- make the two Democrats into Republicans and the two Republicans into Democrats -- the numbers completely reverse. Now stocks average 14.7% under Republicans and only 10.5% under Democrats.

In fact, it turns out that if you do just one single switch -- if you make Richard Nixon into a Democrat -- it's enough to reverse the numbers."

Awesome!! When all else fails, massage the data!

People, no matter how you slice them, these numbers can't at all be taken as evidence about what market performance would be in the future under different Presidents or about how the market would have faired if George McGovern would have beaten Nixon because they don't take into account any of the other massively important factors that affect market performance. Give a couple of examples, would there have been no oil shocks in the 70s if Nixon were not President? Would the tech boom not have happened if Clinton were not president?

Of course our beloved editorial writer is a sophisticated guy and does bring in another factor later in the article: Congress!!!

"If the electorate were really smart, it would elect a Democratic president and a Republican Congress. Under that deal, stocks have averaged a 20.2% total return"

Again, awesome. That combo in this sample is the last 6 years of Clinton. So the tech boom happened because of a Democratic prez and a Republican congress. Elect that combo again and presto, another boom. It's just that simple eh?

Why oh why oh why oh why does the WSJ publish trash like this? And why oh why oh why would anyone put a single penny into the hands of Trend Macrolytics LLC?