The Republican Lottery

Thursday, October 16, 2008

Tommy McCall at The New York Times has posted this set of charts show the return one would see from a $10,000 investment in the S&P index under each political party over the last 80 years. Under 40 years worth of Democratic administration, your return would be $300,671. Under roughly the same during of Republican administration, your return would be only $51,211. (And if you include Herbert Hoover’s term, the Republican return drops to just $11,733.) All very interesting.

But this leads me to wonder about something. The investor class has historically favored Republican candidates for President, at least in terms of campaign contributions. (I should find a source for this, but for the sake of argument, lets assume that statement is true.) Do you think, given the above information, investors are likely to change their ways and throw more of their campaign dollars behind Democratic candidates in the future? I tend to think not.

I wonder if this might stem from the pervasive sense of exceptionalism that Americans hold about themselves. American exceptionalism is often a force for good; we tend to believe we can achieve our goals even when the odds are against us, and sometimes our determination helps us beat those odds. But I think exceptionalism causes us to act foolishly as well. On the macro level, for example, there is our heavy-handed foreigh policy. But sticking to the micro level, the level of the invidual, I think a sense of exceptionalism leads many to participate in the lottery even though they know it is a losing proposition. They somehow hope that they can be the one, the lucky one. Lotteries would have zero participation were it not for exceptionalism.

Perhaps investors are a victim of this exceptionalist thinking as well. I don’t have a source for this either, but it seems to be accepted fact that the very wealthy do better under Republican administrations than under Democratic ones, when it comes to tax policy and billion-dollar military contracts and such. But the charts above refute the idea that all investors do better under Republican rule. Perhaps the bulk of investors give their campaign dollars to Republicans in hopes that they, too, can win the lottery.

(Via Daring Fireball)

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