Earlier this week I had a post looking at changes in the nominal money supply per capita. I thought the changes hinted at the Fed behaving in ways intended to influence elections. Others saw only coincidences.
So… I worked on the data some more. I adjusted for changes in population and inflation. And I created a table (near the bottom of this post) that shows the 3 month change in real M2 per capita – that is, the change in M2 money over and above (or under and below) the rate of change of inflation per person.
Before we look at the table, I’d like to tell you what I expected. I figured the Fed does try to influence elections. I would imagine it is more likely to favor incumbents (first, the incumbent is more likely to have appointed or re-appointed the Fed chair, and in 6 out of the 8 observations in the sample in which an incumbent has stood for re-election, the Fed chair came from the same party as the sitting incumbent).
The way to influence an election is simple… increase the Money Supply in an unusual way (say, more than normal for that month of the year) in the months leading up to an election, making the public feel a bit more prosperous than they otherwise would. However, to avoid inflation, in the months following an election, the Fed would have smaller increases in the Money Supply than usual for that month of the year.
The table below shows the 3 month percent change in M2 up to each month of the calendar year. Results are shown for all years, years preceding a Presidential election in which there is an incumbent, years in which there is a Presidential election in which there is an incumbent, and years after a Presidential election in which there is an incumbent.
This seems to indicate that:
1. The three month percentage change in real M2 per capita through September, October, and November seem to be unusually large in years in which an incumbent President is running for re-election
2. The three month percentage change in real M2 per capita ending in December and January following an election in which an incumbent President is running for re-election are unusually low
3. What I cannot explain – I didn’t make a prediction either way, but results strike me as a bit odd – is the fact that in the year before a presidential election in which an incumbent is running for re-election, changes in real M2 per capita are unusually high in many of the early months of the year. Pure speculation…. It may be related to congressional elections… while most Presidents running for re-election were Republican, most Congresses running for re-election during the same period were Democrat. Anyone else have a guess?
But, items 1 and 2 seem to indicate… the pattern of changes in the real money in the month of a Presidential election in which a sitting President is running for re-election, in the two months previous to that, and in the two months following that, just happen, by shear coincidence, to be precisely those one would expect if the Fed was trying to influence the election.
As always, let me know if you want my spreadsheet.
Also, if you’re interested in where I’m going, here’s my thought process. I intend to examine this a bit further… I want to break out whether there’s a difference (as I expect there to be) between situations in which the incumbent and the Fed chairman come from the same party as opposed to different parties. I also want to see what happens when the Fed chairman is a Republican as opposed to a Democrat. There may be one or two more things to look at… then I want to get back to where I started last week, namely looking at the relationship between changes in the real money supply per capita and growth rates in the economy.
Update…. corrected first sentence – error pointed out by reader Bobby Corcoran.
Update 2… Reader Don Lloyd suggested that the Fed might think more in terms of nominal, non-per capita money. The table below shows the changes in the nominal money supply, by month, in and around years in which an incumbent President sits for re-election.