A Bull Market for Republicanism?
By James K. Glassman

As a financial writer at heart, marooned in Washington, I frequently find that finance provides the right context-and the right words-for understanding politics. For instance, the results of the November 2 election bring to mind two financial terms: "secular" and "capitulation."

 

Secular: In financial jargon, "secular" has nothing to do with religion or the lack of it. Instead, the word means "long term," "enduring."

 

The victory of President Bush was not mainly the result (as the Democrats would have it) of a rise in religious intolerance, or the inadequacy of their own candidate, or a failure of their get-out-the-vote effort. The key factor was a powerful secular trend toward the Republican Party and conservatism.

 

Starting in 1932, when Franklin Roosevelt beat Herbert Hoover, Democrats held the White House for 32 of the next 48 years. They held both houses of Congress for 44 of those years. There was a secular trend toward the Democratic Party.

 

But from 1980, when Ronald Reagan beat Jimmy Carter, until the end of George W. Bush's second term, Republicans will hold the White House for 20 of 28 years. They will hold the Senate for 16 of 26 years, and the House for 12 years in a row. Republicans currently control 28 of the 50 governorships, including those of the four largest states, plus both houses of 21 state legislatures, versus 20 for the Democrats-a far cry from 1990, when Democrats had an advantage of 30-6.

 

What's responsible for the secular change? Three major explanations: 1) the literal dying-out of the New Deal generation, the core of the Democratic Party for a half-century; 2) a backlash against the cultural revolution of the 1960s and 1970s, whose main products, in addition to some good music, were increases in crime, divorce rates, drug use, and out-of-wedlock births; and 3) the rise of the investor class, which has brought the interests of average Americans more closely in tune with those of businesses.

 

An analysis of exit-poll data conducted for Investors Action, a new organization for America's small investors that I helped launch, found that 70 percent of voters on November 2 were investors-that is, owners of stocks, bonds, or mutual funds. Investors backed Bush, 52 percent to 46 percent, while non-investors backed Kerry, 54-45.

 

The "investor gap" cuts across important characteristics like age, sex, and income. Investors with incomes less than $40,000 were nearly evenly split (47 percent for Kerry, and 46 percent for Bush); non-investors went for Kerry, 57 percent to 36 percent. Investors under age 50 voted for Bush by a margin of 8 percentage points; non-investors preferred Kerry by 12 percentage points-a 20-point gap!

 

There's little reason to believe this secular trend will fizzle out any time soon. New Dealers are disappearing. Young people, especially, are growing more culturally conservative. And the "ownership society," as the President calls it, will grow, especially if Social Security is reformed to allow personal investment accounts.

 

Capitulation: The common meaning, of course, is surrender. But on Wall Street, notes Investopedia.com, "the term refers to the time when investors...sell all their stocks because they want out."

 

How does this apply to the election? The results may cause Democrats to give up, finally, on their hopes of regaining control of Congress for a long time. As a result, Democrats in the House of Representatives, at least, may adopt a posture of compromise and even imprecation-just as the Republicans did for so long when they were in the minority-in the hope that Republicans will feed them a few crumbs off the Congressional table.

 

In addition, capitulation will bring retirements. The New York Times recently reported that three Democratic senators--Charles Schumer, Jon Corzine, and Chris Dodd--are thinking about ending their Congressional careers to run for governor, "in a sign of growing Democratic powerlessness and despair in Washington" after the last election.

 

President Bush has big plans for his second term, including the reform of the tax code and Social Security. Thanks to the secular Republican trend and some likely Democratic capitulation, he has a good chance to achieve those goals. But remember another financial concept: Unpredictable events and emotions are what move both financial and political markets in the short term. Stocks never go straight up, and neither do politicians.