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Monday, August 24, 2015

Stocks and Politics

Stock markets are plunging.  Even in the very short run, people will notice, since a majority of Americans own stock.

A sustained drop will have consequences.

As I explained at The Christian Science Monitor last fall, a bear market is very bad news for California:
Even the good news about California is marbled with bad. Yes, we have managed to avoid budget crises in recent years. But one reason is a 2012 tax increase. Another is the state’s dependence on the rich. The top one percent of Californians – those with incomes over a half a million dollars – pay more than 50 percent of the state’s total personal income tax. These people – the kind that the president meets – derive much of their income from investments. If the stock market goes down – as it inevitably will – state revenues will plummet and the budget crises will come back.
If a bear market is the leading edge of an economic slowdown -- very uncertain at this point -- there will be an impact on the next presidential election.  A graph from John Sides and Lynn Vavreck: