The early line on President Bush's acceptance speech says he's going to focus it on the ownership society. Sample applause line: "If you own something, you have a vital stake in the future of our country." Plainly, Republican political strategists think that owning assets—homes and stocks—makes people vote Republican.
This isn't just a GOP theory: It's universal political dogma that stockholders go for Republicans. But if owning stock is likely to make you vote Republican, how come there aren't more Republicans, especially in investor-packed territory like New York? And if enacting legislation that favors investors—like cutting taxes on capital gains and dividends—is supposed to garner support, how come President Bush's standing among investors isn't noticeably better than his standing among the electorate at large?
The growth in the investor population has been one of the great demographic stories of the past 15 years. In 1990, about 23 percent of Americans owned stocks and mutual funds in some form. By last year, a whopping 91 million Americans in 53.3 million households—47.9 percent of the total—owned mutual funds, according to the Investment Company Institute.
"Stock ownership really has contributed to more people identifying themselves as Republicans," claims Daniel Clifton, executive director of the American Shareholders Association. "We've seen a major change in party identification, and some of that has to do with owning stocks." It's difficult to take Clifton seriously (and not just because the nonpartisan ASA shares a fax machine with very partisan, supply-side-pushing Americans for Tax Reform). The data doesn't back Clifton up. The Pew Research Center for the People and Press, a seriously nonpartisan research outfit, has a good set of polls on party affiliation. After spiking in the early 1990s, the percentage of Americans calling themselves Republicans fell over the course of the decade even as the investor population essentially doubled. Moreover, Bush's recent efforts to reward investors—like cutting taxes on marginal rates, capital gains, and dividends—haven't produced significant realignment. "The Democratic Party has achieved a small gain in party affiliation and holds a 33 percent-29 percent edge over the GOP in Pew surveys conducted in 2004," Pew reports. These are roughly the same figures as in 2000, in 1992, and in 1987. A Gallup Organization poll taken Aug. 23-25, 2004, showed the nation's partisan breakdown as 35 percent Republicans, 32 percent independent, and 32 percent Democrats—essentially the same as in August 1989. The partisan breakdown among investors, as measured by John Zogby, is virtually the same: 38 percent Republicans, 35 percent Democrats.
The data rebuts the gut feeling that investors ought to support Bush. After all, there's a pretty stark divide between the two candidates on stock market-related issues. (Indeed, Forbes editor Rich Karlgaard and American Enterprise Institute fellow Eric Engen have recently, and disingenuously, argued that the market's recent slump can be ascribed in some part to the fear that John Kerry would raise taxes on capital gains and dividends. They seem to believe that presidents can change tax policy by executive fiat.) But Bush is not benefiting. "Investors aren't supporting Bush to the degree I would have expected at the beginning of the year," says pollster Scott Rasmussen, who charts the confidence of investors daily. His most recent poll shows Bush and Kerry tied at 47-47 among all voters, and essentially tied among investors, 48-47.
There are a few possible explanations for this non-realignment of the investor vote. First, it's the flip side of Thomas Frank's theory in What's the Matter With Kansas. Frank, a Democrat, argues that poor Kansans vote against their economic self-interest for Republicans, because the GOP has deluded them that social issues matter more than economic ones. Perhaps investors—more educated and socially liberal—vote against their economic self-interest for similar reasons, because they prefer Democratic positions on social issues.
Second, it's possible that Bush and Republicans really are better for investors but that many investors suffer from false consciousness. They don't regard themselves as investors because their assets are in retirement accounts—and hence they don't benefit directly from reductions in capital gains or dividend taxes—or because they've lost interest amid the recent choppy markets. In his recent poll, in fact, Zogby found that only 60 percent of the investors he questioned self-identified as members of the investor class—a group that is more likely to vote Republican.
Third, perhaps investors recognize that Republicans actually aren't better for them. As I've noted elsewhere, stocks have generally done better under Democratic administrations than under Republican ones. Merrill Lynch strategist Richard Bernstein earlier this year noted that since 1943, stocks have risen by an average of 13.6 percent per year under Democratic presidents and 11.7 percent under Republicans. (If one adjusts for inflation and after-tax returns, however, the figures may be somewhat closer.) Somebody who sold all his stocks in 1993—terrified at the prospect of eight years of a putatively investor-hostile Clinton presidency—and then invested all his cash in stock in January 2001—enthused at the prospect of an investor-friendly Bush presidency—would have been one of the most foolish market-timers ever.
I'd add a fourth possible explanation. Investors are on the whole more pragmatic and less ideological than many of us who theorize about the investor class. Investors may follow politics more closely than non-investors do, but not to the exclusion of other information. They know that who controls the White House and Congress is only one among the many factors that influence asset prices—not the determining factor.