A Sensible Plan For Economic Recovery

A PROJECT OF THE INSTITUTE FOR POLICY STUDIES (www.ips-dc.org)

(Following is a brief summary of a comprehensive recovery plan recently proposed by the Institute for Policy Studies in Washington DC).

The grassroots blowback against the Bush Administration’s Wall St. bailout is rooted in a deep distrust. Americans recognize the need to act swiftly on our current crisis. The program outlined below can far better address the root causes of our financial collapse, and restore trust and confidence in our economy.

The Institute for Policy Studies has identified $900 billion in revenue to pay for a Main Street stimulus and Wall Street bailout. This document is a must read! The full text can be found at: www.ips-dc.org/articles/740

A fair and responsible plan could raise at least $900 billion, and would include:

Beyond the Bailout: Agenda For A New Economy

by David Korten

The financial crisis has put to rest the myths that our economic institutions are sound and markets work best when deregulated. Our economic institutions have failed, not only financially, but also socially and environmentally. This, combined with the election of a new president with a mandate for change, creates an opportune moment to rethink and redesign.

President-elect Obama has promised to grow the economy from the bottom up. The real need, however, is a bottom-up transformation of our economic values and institutions to align with the imperatives and opportunities of the 21st century. It involves a five-part agenda: clean up Wall Street, play by market rules, self-finance the real economy, measure what we really want, and convert to debt-free money.

Doing Better With Democrats? Some Revealing Statistics…

If history is any indication, the stock market could make some nice gains in 2009. At least perhaps we might regain some of the losses experienced over the past year.

From 1926 through the end of August 2008, the S&P 500 rose 9.2% annually, after inflation, under Democrats compared to a 4.6% increase under Republicans. And that’s not counting the market’s most recent breakdown.

A 2000 study completed by two finance professors at UCLA, "The Presidential Puzzle: Political Cycles and the Stock Market," looked closely at stock market performance under Democrats and Republicans compared to the performance of safer, three-month Treasury bills. Over the 72-year period from 1927-1999, the S&P 500 yielded an 11% return a year on average under Democrats versus three-month Treasury bills.

Under Republicans, the S&P 500 returned just 2% more than three-month T-bills over the 72-year period.

The study also compared the performance of two portfolios during a Democratic and a Republican administration – a "value-weighted portfolio" that ranks all stocks in the index according to their total market value and an "equal-weighted portfolio" that ranks all stocks equally.

Democrats prevailed again. On average, the value-weighted portfolio returned 9% more under Democrats than Republicans, and the equal-weighted portfolio returned 16% more during Democratic rule over the 72-year period.

So, while the prevailing assumption on Wall Street is that Republicans – with lower taxes and less regulation – are better for stocks, the data says otherwise. Will these statistics hold true for Barack Obama’s presidency?