What Happened to the Investor Class?

George W. Bush's vision of an "ownership society" is just a faded memory now, but for a time it was central to his economic agenda and to his party's political strategy. On the political side the thinking went like this: The bigger the equity stake that Americans had in the economy -- whether as homeowners, stockholders or business owners -- the more conservative they would become and the more Republican they would vote. Their views on taxes, for instance, would lead to the supply-side position of keeping levies on income as flat as possible and low, preferably down to zero, on capital gains and dividends.

Before, during and after the 2004 elections, this theory of an "investor class" with its own distinct politics looked plausible. Roughly half of American households owned stock, either directly or through mutual funds, and Republican strategists like Grover Norquist saw this group as a possible ticket to a long-term GOP majority. "Every demographic group, including race, gender, age, and income, becomes more Republican with stock ownership," Norquist wrote, and he cited pollster Scott Rasmussen's data that, back then at least, if you owned at least $5,000 in stock you were 18% more likely to be a Republican. Not everyone accepted the theory -- you can get a window into the debate here and here -- but what data there was seemed to back it up. An Investor's Business Daily poll in October 2004 showed Bush beating John Kerry by a much wider margin, 53% to 42%, among self-identified "investor-class" voters than his edge in the general population.


Four years later, IBD polled the same group just before the election and found them almost evenly split, at 47% for John McCain to 46% for Barack Obama. This was no enough for McCain to win, but it still beat his edge in the overall popular vote.


So maybe the investor class is still marginally more Republican than the people at large. But it was less Republican in 2008 than in 2004, and it did not give McCain anything close to the support he needed to win. Investors as a group aren't GOP stalwarts -- certainly not in the way that conservative Evangelicals are. They are more of a bellwether of economic confidence or pessimism, depending on the times. And their shifting party preferences don't seem much different from those of voters in general. They vote their pocketbooks, or more specifically their portfolios. As the 2004 election approached, the stock market had risen steadily for the past three years (gaining about 30% as measured by the S&P 500). Just before the 2008 election, as we all know to our deep and abiding pain, the market fell off a cliff.

And here's an irony for the GOP investor-class theorists: The high number of Americans with stock investments might have done the party more harm than good by striking fear into the hearts of so many millions of voters. By linking its fortunes to wealth of investors, the Republicans may have bet too much on the stock market, an entity that neither they nor anyone else can control or even accurately predict. Just as good times can make Republicans out of more investors, who like the GOP talk of low taxes on fat capital gains, a bad bear market can produce more Democrats who say "never again" to stocks and opt for the sort of safety only government can provide. The way things are going now, 401(k)s may give way to Japanese-style postal savings plans. Remember that the 30s and the political revolution of the New Deal came after a binge of retail stock investing and a boom in home ownership. A happy investor class may be good for Republicans, but a disillusioned investor class is something else.