From a reader:
Jonah – Has it occurred to you that as the odds of a Democratic takeover of one or both houses of Congress have increased, the stock market has suddenly come to life? You think that’s a coincidence? Or somehow a credit to George Bush? Come on. Stock markets are famously attuned to political events, and the market expects a political earthquake in a few weeks. And it’s at an all-time high. Deconstruct as you wish.
Me: I would make two points. First, several Wall Street types have sent me their in-house political analyses of late and I think the potential for a Democratic takeover does seem to be playing a role in the market rally (though hardly a primary role). But, I think it would be a huge mistake to think this is because the market wants Democratic policies to succeed in Washington. What they want is for nothing to succeed in Washington. And Democratic control of the House and/or the Senate would create gridlock for two years. That would be advantageous if, in fact, this is a goldilocks economy. Second, I think it is indisputably true that many conservative economic pundits make exactly this sort of argument when it suits their purposes. They argued, I believe correctly, that the market rallied around Bush in ‘04. And if the facts on the ground reflected more favorably for Republicans we’d be hearing similar arguments right now.