Timing of Cause and Effect with Presidential Elections

People naturally assume that when there is a cause and effect relationship that the cause must come before the effect. However, with presidents coming into office this can be a little peculiar. For example, 7 states had seceded and formed the Confederate States of America by Feb 1861 and Lincoln's inauguration was later on March 4th 1861. Lincoln's election had a big impact on history before he was even in office.

Another example is gun sales going up in 2008 even though Obama did not take office till Jan 20, 2009. Interviews with gun buyers make it clear that they were buying in anticipation of Obama's probable election and also after he was elected on Nov 4th but before he was in office on Jan 20th. They think that Obama may make it harder to get a gun so it makes sense to buy a gun before he has a chance to change the law.

The stock market is famous for anticipating the future. But when it went down right before Obama's election almost everyone seemed to blame Bush, since, "Obama had not done anything yet". However, this is not really accurate, as Obama had made his views, opinions, and plans well know through his books, speeches, and voting history. So it is very possible that the market understood what Obama would do and that it would be bad for American stocks even before Obama was in office.

I think that when future historians write about this time they will cite Obama's election as the trigger (not the cause) for the current economic troubles even if people now don't.

Vincent Cate
Sept 12, 2009

Update Fri July 9, 2010

Nobel prize winning economist Edward Prescott has said a similar thing. It is being called the Obama Shock and ridiculed by other economists. But others are calling Obama the Great Jobs Killer or saying Obama is repeating FDR's mistakes. When taxes go up in California or New Jersey it results in companies, people, jobs, and money all leaving the state. The same is true between countries. Once it is clear that Bush's tax cuts are going to expire and spending and taxes are going to go up, then rational owners and investors will start doing things differently. In the same way that gun sales anticipated Obama's presidency, the economy can as well. Not all the trouble is Obama's fault, but he is at least the final straw and making things worse.