Before returning to graduate school to obtain my Master of Public Policy degree at Georgetown, I spent several years working in the financial services sector, where I researched the financial markets in general, and the US equity markets in particular. I saw firsthand the effects the financial crisis of 2008 and 2009 had on investors and their portfolios. Much of my studies have involved how Wall Street and the federal government interact, especially with respect to the Federal Reserve and the Treasury Department. I became interested later in how legislators are affected by Wall Street, but not in the ways we usually think about: campaign contributions and lobbying. What I want to see is whether the electoral fortunes of representatives are actually influenced by how well the stock market actually performs in an election year. Do voters, on average, vote their portfolios as well as their pocketbooks, holding other factors constant?
Much research has been done regarding the effects of macroeconomic conditions on the electoral chances of congressional candidates, in particular incumbents, with mixed results. However, published research thus far has ignored effects of equity market performance on congressional elections. As more and more Americans have become members of the “investor class,” it stands to reason that voters might punish incumbent politicians, in particular those of the current president’s party, for how well their portfolios have performed just as they do when the economy weakens. In other words, are do we ascribe too much of the probability of reelection of incumbent congresspersons to the economy because we don’t account for voter reaction to the stock market?
The question of whether or not there is a “Wall Street effect” of market performance on the electoral chances of incumbent House candidates is substantively important on a few levels. If we assume that incumbents are self-interested with respect to their own reelections, being able to identify effects resulting from stock market performance could lead to incentivizing policies that promote weak market performance by out-party members. Given the trend of divided government with the House of Representatives being controlled by a different party than the president, these effects could lead to out-party incumbent members supporting policies that may in fact be detrimental to market performance which could damage in-party electoral chances while helping their own. In sum, this effect, if it exists, could create perverse incentives for a large group of powerful politicians to encourage weak performing markets. From a policy perspective, it stands to reason that political strategists both on Capitol Hill and in the White House would tend to want to know how to frame the debate with respect to markets in election years. Furthermore, if these effects are shown to exist, future congresses and presidents might reassess their own election tactics in light of available information.
I hope the results of this research add to a colorful and necessary discussion regarding Wall Street and congressional self-interest. I am also looking forward to hearing about the other fellows’ research interests and hope to provide any guidance I can.