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For this week's Rich Girl Roundup, Rich Humans McKynna and Jake wanted to know: "Will the election impact our finances? How much does the president actually affect our money?" So we're attempting to talk it out in the most nonpartisan way possible, and digging into some of the listener feedback we received after our episode on private equity.

Rich Girl Roundup is Money with Katie's weekly segment where Katie and her Executive Producer Henah answer your burning money questions. Each month, we'll put out a call for questions on her Instagram (@moneywithkatie). New episodes every week.

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Our show is a production of Morning Brew and is produced by Henah Velez and Katie Gatti Tassin, with our audio engineering and sound design from Nick Torres. Devin Emery is our Chief Content Officer and additional fact checking comes from Kate Brandt.

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Mentioned in the Episode

• “How Does the Stock Market Perform in an Election Year?” from Nick Maggiulli

• “Presidents & the US Economy” (2014) from Alan S. Blinder and Mark W. Watson

• “Presidents Have Less Power Over the Economy Than You Might Think” from the New York Times

• “How Much Can a President Impact the Economy?” from the Philadelphia Inquirer

• “Why funding America’s governments could have a global impact” from the Altantic Council

• “The Economic Theory That Explains Why Americans Are So Mad” from The Ezra Klein Show with Annie Lowrey

• “Ep 202: Ideological Shaping of What’s Possible” by Citations Needed

• Our previous episode on “How Private Equity is Making Your Life Harder”

• Pete Stavros of KKR on Employee Ownership

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Katie:

Welcome back Rich Girls and Boys to the Rich Girl Roundup weekly discussion of The Money with Katie Show. As always, I'm your host Katie Gatti Tassin, and every Monday morning, my executive producer Henah and I are going to use this segment to talk through your questions, interesting money stories that you submit to us or that we see in the news and more casual financial topics. I also believe today we're going to be talking about some reader feedback, some listener feedback. Here is a quick message from our sponsors.

Alright, so before we get into it, this week's upcoming main episode is about something that you probably wouldn't normally think you would hear coming out of my mouth, which is that you might actually be saving too much. So last year we covered the ideal save rate and basically the point at which you're going to reach diminishing returns if you're working really hard at trying to balance future concerns versus present concerns. So we'll link that in the show notes.

But one of the interesting pieces of the puzzle that we don't often talk about, particularly when we are dealing explicitly with early retirement is social security and I'd say the “great wealth transfer” more broadly. So we will think through all the other ways that you might end up with some extra cash money in your hands later in life and just how much I'm going to estimate that you are probably overshooting the amount that you need to save. It's probably going to make you feel pretty good. So with that said, onto the roundup Henah, what is our question today?

Henah:

First I should say I'm really excited for that episode because I edited it this morning and I felt tremendously better about my own life.

Katie:

Oh good. I'm so thrilled.

Henah:

Now I'm like coast fire. I don't need to save it all. Just kidding, just kidding. This week's question came from two different people, McKynna and Jake. One person asked how will the US election (dun, dun, dun) impact the average person's finances and how much do presidents actually impact the economy? So if you're listening to this, we are just four and a half months away today from the presidential election, but there are obviously other election days across the US for other positions that you need to be aware of. So I'm actually really curious to hear what you think about this, Katie, because I know that you brought the facts.

Katie:

Well, I tried, I did do some digging because I was actually curious about this myself. I had some assumptions about how the president might impact the economy, and I'll say that one of the most long, long-term consequences I think we're learning about presidential elections is actually more so like supreme court consequences because the people that are appointed to the Supreme Court are done so by the president. Obviously the president is a partisan position and the Supreme Court justices, while technically impartial, are partisan animals. That's how they achieve that post in life.

Henah:

God, I'm so mad at you. You took exactly what my first talking point was. At least we're aligned.

Katie:

Oh dang. Feel free to add on. But it is something that I learned in, I think it was media law in college. It was a class that I really—

Henah:

Not Schoolhouse Rock like me?

Katie:

It was a class that I really enjoyed actually learning about media law. But one of the things that we learned was about the Supreme Court and obviously in recent years we've seen how that impacts things in a big way because these appointments are for life. And so if you can get a lot of Supreme Court justices in for your side of the aisle, that has massive impacts on the country at large, but then downstream of that, the economy.

So I think that with that piece of the puzzle aside, I think that the actual consensus around how much who's president actually impacts the economy while they are president is generally agreed upon to be not very much.

So I'm going to cite a couple different pieces of evidence here. The first is something that Nick Maggiulli published a couple weeks ago where he plotted S&P 500 returns since 1950 and he found that in election years of which there have been 18 since then compared to 56 non-election years, there was actually no real difference in average US stock performance beyond what appears to be a trend of a dip in the seven to 10 days following the election results. But by end of year it kind of washes out. That was interesting.

He also found that with a specific nod to the two candidates that we have right now, that the market reacted more favorably to Biden's election in 2020. It was up with a 7% increase in the following month compared to Trump's in 2016, which still saw a 4% increase after Trump was elected, which actually was kind of shocking at the time because everyone thought the stock market was going to crash after he got elected because it was so unexpected and just it was shocking at the time, but that's not what happened. The market did react favorably to that as well, and the stock market saw overall higher gains under Trump than Biden over the duration of their respective terms. But what was really fascinating is that depending on what you're looking at, the different, I'll say overviews of stock market performance under different presidents and whether you have a Republican or Democratic president is really, really interesting.

There was a Princeton paper from 2014 that finds there's more economic growth under Democratic presidents than Republicans all the way back to Truman. This is true, but the authors of that study, Alan Blinder and Mark Watson attribute it to the fact that Republican presidencies tended to align with increases in the price of oil globally, which can lower demand for goods. So I thought that was fascinating. And I guess more broadly to the question of how much “whose” president is going to impact the economy, it kind of seems like it depends on what specifically is plaguing the economy.

And at the present moment it seems we are suffering from supply side inflation. There's not enough goods and services to meet the demand for them, which the government has very little direct control over. So you'll often hear that the government can impact monetary policy. Technically the president doesn't do that. The Federal Reserve is supposed to be apolitical in that way. They can set interest rates, but that's a very blunt tool that doesn't really directly impact the economy in the way that we might need right now.

Yeah, and I think that you can look at both of our candidates now and see how things could change in your personal financial situation as a result. So a quote from Nick's piece was Biden's focus on raising taxes on the wealthy and eliminating the step-up basis rule could slow rising wealth inequality but might also lead to lower asset prices In the short term, Trump's emphasis on extending tax cuts and imposing import tariffs could benefit consumers in the short term, but may also contribute to a growing national debt. So you have these pros and cons with both, but I guess the TLDR and the long and short of everything that I read was basically like, yeah, you can quibble at the margins about how much the president impacts the economy, but it's actually kind of hard to know how much the president themselves or their policies are actually impacting things versus unrelated. We live in a global economy, so there are forces much bigger than the president that are acting on it.

Henah:

Well, that brings a couple of things to mind for me is there's actually this piece I found that echoes essentially what you said, it's from 2017 and it said “Presidents Have Less Power Over the Economy Than You Think”, but to your point about downstream effects, I mean Roe v Wade in your example of Supreme Court justices…

Katie:

Exactly,

Henah:

That has a direct effect on the economy and working moms and working women.

Also, I know you made the point about the Fed, but the president is also the one who appoints officials to the Federal Reserve, which means that they do kind of have some bias usually going into monetary policy and what they think about these things. So I do think that's another downstream effect.

But I found this piece that was in the Inquirer, the Philadelphia Inquirer, and it was ironically written by Mark Zandi who we just had on the show from Moody's Analytics, and he had said that the financial policies under both Biden and Trump helped to weather the massive blow from Covid. And so in that sense they did have a ton of influence in making sure that the economy did not totally implode at the time.

But also I think to your point about tax cuts versus ramping up taxes that has a direct impact on your tax dollars, which are then available for social safety nets and infrastructure or the national debt. And so it kind of brought to mind for me this idea that we should also be focusing way more on local and state level initiatives because your city is going to decide what your property taxes and that will also help fund these schools in your community. And we also saw how specific local governments addressed covid differently from one another or how they approached community care.

So there is this article in, it was by the Atlantic Council that was saying that local government is where the vast majority of Americans interact with public institutions and is where they could have the most influence, which to me is kind of an obvious statement, but it just reminded me reading this that they said schools, transportation, housing, all of these social services are funded and administered through the local government. So they might get support from a federal level, but I think that it's also really important to think beyond just the presidential election. And on top of that, I did read a couple pieces saying that you want to focus more on Congress, the ones that are passing and enacting things totally. Obviously the president can use executive power, but in my Schoolhouse Rock video of the three branches of government talking…

Henah:

I do remember that Congress has a lot of sway in what we end up doing.

Katie:

So do you want to sing it?

Henah:

I do not because I don't remember all of the words.

I think a lot of people are also just cynical at this point about engaging in voting for a nationwide election. And so I would also encourage them to redirect that energy to local if they're at that point where they don't feel like it's going to make a difference.

Katie:

Yeah, absolutely. I think that that's a really strong point. It reminds me a little bit of, we included a short quote from a recent Ezra Klein and Annie Lowrey conversation in the newsletter a couple of weeks back where they just had pointed out the fact that when we talk about the American economy, it's not talking about the German economy, it's like talking about the economy of the entire European Union. This is such a massive country and the federal government for all of its power, it does have less of a day-to-day impact on the quality of your specific life than your local and state government does. And so I think to your point about the focusing on the local elections and focusing on impacting the community that you live in is a really salient one. And beyond that, I think we often think about the trickle down impact of legislation…

Henah:

We need a Reagan drop. Hold on.

Katie:

The local government example or point brings up to me the concept of trickle up politics. A lot of this stuff starts at the local level. So if you wait until it's already escalated to the federal level to start trying to impact it, it's kind of gone too far and that you can really start to make these changes at the local level that then will down the line have an impact in the quote higher up. That's industry term, the higher ups.

But I do think that in general, what I was reminded of reading in particular Nick's assessment, which was pretty impartial, I think it felt like a pretty fair judgment of the two candidates like economic policy and what might happen as a result. It just reminded me of the four year election cycles within a two party system. You are really not incentivized as a politician to take the long view because you are always going to be judged by what happened while you were president, not what your policies wrought in the long term.

I think the counterpoint to this or maybe the example that I would point to is like, no, but look at what happens when you do take the long view is like an FDR and the New Deal and really investing in American infrastructure and social programs, things of that nature. I'm not sure how popular a lot of it was at the time. I know that originally social security was called socialists and people were like, hell no. Obviously now getting rid of it would be very politically unpopular. So it's like the willingness to risk being unpopular in the short term because it's what's best for the country in the long term is something that I think our system directly disincentivizes that type of decision making.

Henah:

A hundred percent. And I'm thinking of this conversation that you and I had and you actually just had it again with Caro Burke who's coming on the show, is this idea that I think you had said, do you feel like anything's going to happen by you not shopping at Amazon and whatever? I said, yeah, but I have to believe that a better world is possible. I have to believe that I can make a difference in what I'm doing. I think that's the same thing here.

I think some of the people who've run for office do promote themselves on the idea of hope and then it barely quickly turns into a, well, how are they going to do this in four years? You do need time to make sure that these things change and that they change for the better. And so I think this idea of you saying you can't make these shortsighted decisions if you're really playing the long game, you also have to believe that a better world is possible and you have to have to do that. And that's really hard to come by when you have to run every four years.

Katie:

A hundred percent and when trust has already been so fractured. I think that that's one of the biggest differences the American public's trust in our government is so low and honestly deservedly so in some ways.

Henah:

But is it trust in your federal government? Do you have low trust in your local government is my question.

Katie:

I think people don't have any clue what's going on in their local government, which is why I think it's really important that you brought that up. I don't think people really are as tuned in. We're so aware of everything that's happening at the federal level that it's easy to overlook the things that are literally closer to home. There's a great episode of citations needed about the revolving door between high ranking government official positions and high level positions at the corporations that they're supposedly employed by the government to regulate and how again, follow the money, it all comes back to incentives and how these systems incentivize people to behave.

And so that I guess is where I feel maybe two ways that sound conflicted on the surface, which is we need hope and we need to be able to imagine a better future. And also it makes total sense that we don't trust our government based on what's happened in the past and what's happening right now. And so I think that in that sense, maybe the solution is what you've positioned here, which is like, well, where can you have an impact? You can have an impact at the local level, that's where you should focus your energy and start there.

Henah:

But also it just feels less overwhelming. I think when you start at the local level, you don't feel as cynical or jaded because maybe there are things you can do that make a difference at home. And so I don't know. I think it's good to end on this note of hope and trying.

Katie:

Okay, so moving on to feedback. We wanted to talk about some feedback that we got to our private equity episode. One thing that actually, Henah, I don't think I've shown you this one yet. I have a friend who works in healthcare private equity, and they had interesting feedback for me where they were just like, this was very eye-opening to hear. She was like, I wasn't aware of a lot of the things that you were talking about. And I think that she went to a very prestigious Ivy League business school and she was like the things that they teach you in school about what the private equity firm that you're going to be working for, what they stand for and what they do and the positive changes they're making, they don't really talk about any of this. And so I thought it was interesting.

I actually expected to get a lot more negative feedback from people that work in private equity, but that wasn't the case. I did hear from one person that works for KKR that was like, I actually love KKR. I really believe in the work that we're doing who kind of planted that flag of, I think that you guys made a lot of valid points. However, at the same time, I still really love this PE firm that I work for, which they didn't really go into detail, so fair. Maybe they just really enjoy the work. But there was one email that we got from someone that works in a small PE firm who is like, I think this is a distinction worth making. So why don't you walk us through that.

Henah:

I do have a funny story to start us off with, which is that when I was in Tuscany, we went to a wine tasting and we met this couple there and they were Canadian and you're just talking. And I said, oh, I work in personal finance, blah, blah. And the guy looks at me, he goes, I don't think you're going to like what I do. And I was like, oh, what is it? He's like, I work in private equity. And I was like, oh. And he was like, yeah, he's like, but we're one of the good ones. And I was like, okay. But that's what they all say. We were joking about it.

Katie:

Did he say which firm?

Henah:

He didn't, but I feel like I could have figured it out because he said he was like from Toronto and it was one that's buying up real estate or something. And I was like, okay, well there's only Toronto's not that big. I could probably figure this out. And obviously now I know his name, but it was just hilarious, the immediate reaction of himself being like private equity whispers under the table.

Katie:

That's interesting. That is very interesting that he preempted that.

Henah:

He didn't know that. I don't think he knew the show or had listened to the episode. There's no way that he was like, oh, this chick probably has views on pe. But so that was funny. Yes, we had someone write in from a smaller firm. They said, I saw the recent private equity episode, so I had to give that, listen on my commute, I work at a private equity firm. They said, your podcast painted a very depressing picture of PE one that honestly I think can be very fair.

But I wanted to send a message because I think you'd like to hear a more hopeful version. This person said, I always tell people I couldn't do private equity anywhere else. We are not perfect but aspirational. And we're a really small firm of 15 people where we buy small businesses where it usually ends with a happy story.

I'm not saying we have the best outcomes in the world because of it, but at the end of the day even we mess up sometimes. But unlike most deals in that universe, we often don't use debt in our deals. We're typically buying businesses that are small and not skilled. So we get the joy and actually growing them and taking bets on hiring new teams. And my absolute favorite part of the job is the thank you notes I've received after we sell a business from even the lowest level ranking employees, because we try to do it the right way. We tend to roll equity over into the next deals.

So we're actually more of a long-term mindset when we own businesses, we're generous with our teams, we provide coaching, et cetera, et cetera. And it said basically a big fan, but I wanted to stick up for these smaller firms that do try to make a positive impact to make you less depressed about this industry and the fact that there's never been more money in private equity than now. So yeah.

Katie:

Fair point. Yeah, thanks for writing in. It did give me a little bit of hope. It was nice to know that there are people out there that are in the field that are trying to do it as they put it the right way. Long-term mindset, not using debt, not just trying to turn a quick buck and leave the carcass on the side of the road. Thought that was really, really encouraging.

Same with the episode that we linked in the newsletter a couple of weeks back. We can throw it in the show notes too. Interview with Pete Stavros, who is pretty high up at KKR, who really believes—

Henah:

Are you sure it's not Paul?

Katie:

I am sure it's not Paul. I made that mistake and someone from KKR replied and said, it's Pete. I was like, ah f***. Both my editor and my fact checker were both out of office that week at the same time. I'm sorry. So you girl needs a fact checker.

The interview literally made me cry. I was shocked. I was going into it being like, this is about to be some corporate jargon filled, make you feel good while we're screwing you over propaganda. And it was actually really moving and it was kind of, he's an advocate for what I believe in, which is employee ownership and how employees having equity in the work that they're doing is a step towards, and—

Henah:

That's why I'm still working here.

Katie:

Labor-owned means of production.

Henah:

This is a long con, you guys. Unfortunately we do get two stories that did make me think less nicely about the industry, but I feel like they're worth sharing.

Katie:

Oh, okay. Yeah. I mean a lot of the comments that week were like, PE is ruining the healthcare sector. A sector that is already terrible is getting worse because of this.

Henah:

That was one that said, listening to this episode made me think of one of our local hospitals, a few owned and run by Ascension. It used to be owned by nuns I believe, and was phenomenal. And since Ascension has taken over, it is a total dumpster fire, awful care, awful staffing, awful pay, just horrible across the board. And it looks disgusting inside, not somewhere you want anyone to be. And they said they started looking into it online and that it all made sense. How do we change this, et cetera. And it also reminded me, someone emailed us about the recent return to work movement and they realized that the company they work for, the building that they work in is owned by PE as well.

Katie:

It's like they work for a firm that is owned by a private equity company that also owns the commercial real estate they work in. So they're like, oh, I know why you're trying to make us go back to work. You fricking own the building, you get the rent.

Henah:

Yeah. Which left me feeling, ooh, you always got to follow the money as you said, and look at the deeper details. It's similar to the one bad apple ruins the bunch thing that I said in the previous episode, which is like some of them are really bad and then some of them, these smaller firms are really trying. And maybe my Canadian friend is at one of those. I don't think so. He said it's in real estate, but I dunno.

Katie:

He said, I'm one of the bad guys, but we're here to make pasta, so let's be friends.

Henah:

The way he sighed told me everything I needed to know.

Katie:

Alright, well that is all for this week's Rich Girl Roundup, and we will see you on Wednesday to talk about if you are saving too much and where you might be able to loosen the reins a little bit.