Via Kathryn (who previously pointed us to a similar exercise for the U.S. election), Theo Gray expands on the work of Tommy McCall (as published in the NYT under the title “Bulls, Bears, Donkeys, and Elephants,” which was glibly dismissed by Greg Mankiw*).
While his conclusion will be heartening to Brad DeLong:
And one more thing, notice the little gray figure labeled “Current value under Both”. That’s the figure if you had just left your money in the market the whole time regardless of party affiliation. Notice that it’s much bigger than either the Republican or the Democratic figure. Not a bit bigger, much bigger, so much bigger that if you check the box to graph the “both” curve (basically the index value itself) we have to let it go right off the scale in order to make the other two lines visible at all.
Play with the policy delay slider and you can see the Democratic and the Republican curves fighting it out in the noise at the bottom of the graph while the steady-as-she-goes full-time investment curve towers over them laughing at their silly antics. It doesn’t matter who is in charge, the market is saying, in the long run it’s going to be OK.
the whole thing is worth reading, especially as Mr. Gray has sent the model up so that you can “playing with it” yourself.**
*We might justly ask Mr. Mankiw to then justify several of his Very Public Statements about the value to the market provided by the Current Administration when he worked for them. But that is for another time.
**I hope to do the playing maybe this weekend, by which time I might expand the details of this post. Meanwhile, I note that The Skinny Brown Man has made an interesting start by putting it into a much larger context.