Instead of using the consumer price index (CPI) as a deflator, if we use the change in price of gold in dollars as a deflator, a different picture emerges. Table 9.2 shows the gold-adjusted returns of the Standard & Poor's (S&P) 500 Index with third years beginning in 1975 and the subsequent presidential election result in the following year.
|Year||Third-Year Wealth Effect||Election Result|
|1987||−15.48%||Incumbent successor won|
|1999||20.02%||Incumbent successor lost|
|2007||−20.03%||Incumbent successor lost|
During the period of their study, the third year still has stunning average real returns of 24.76 percent including 2003 in the calculation. But if we include 2007 and 2011, the overall average falls to 16.27 percent. Still, this is more than the 10 percent above the average arithmetic real return of 6.08 percent in that time frame for all years. Much more concerning is the third year average of −10.96% over the last three presidential terms, and the trend: 2.48 percent in 2003, −14.37% in 2007, and −20.99 percent in 2011. This is consistent with the observation of Robert Albertson of Sandler O'Neill & Partners regarding the stimulus packages that we as a nation are now spending five times as much ...