A REPUBLICAN INVESTMENT STRATEGY
A year ago, Richard Nadler wrote in our pages (Stocks Populi, March 9, 1998) about the massive expansion of the stockholding class and about the possible political consequences of that expansion. As the number of Americans involved in capital markets, and the extent of their involvement, increased, he speculated, so would the constituency for free markets. Interestingly, changes in the demographic profile of investors during the '90s mirrored changes in the composition of the Republican electorate. (The puzzling uptick in the Republicans' share of voters over age 60 in the last election, for instance, coincided with the end of the historic pattern in which investors began to draw down their assets around that age.) But it remained frustratingly difficult to determine whether stockholding was an independent variable affecting political behavior or merely a proxy for other factors such as income, race, or sex.

There isn't much evidence on the question. But in a forthcoming paper for the Cato Institute, Nadler presents some evidence for the independent-variable thesis. He draws on a January survey of the public by Rasmussen Research that broke down the results among 6,400 respondents to two simple questions-party affiliation and stance on a capital-gains tax cut-not only by race, sex, etc., but by whether the respondent owned more than $5,000 in stocks, bonds, and mutual funds.

Unsurprisingly, owning a portfolio increased a person's likelihood of favoring a capital-gains tax cut from 45.9 to 65.7 percent, and increased support was found among 43 of the 44 demographic groups. More strikingly, the likelihood of being a Republican rose from 27.1 to 37.9 percent, and this effect obtained among 42 of the 44 groups. Among married men without portfolios, for instance, the Republican-Democrat breakdown is 31.8 to 33.2 percent; among married men with portfolios, it's 41.3 to 28.6: a 7.1 percent swing to the Republicans. Among people making between $20,000 and $40,000 a year, portfolio ownership made for a 7.8 percent swing in favor of the GOP. Among blacks, there was a 15.1 percent swing. Outreach, anyone?

In his NR article, Nadler argued that Republicans' interest probably lay in promoting policies that appealed to the new investors as a constituency and that increased the width and depth of the class. In the same issue, Ramesh Ponnuru used this point as one argument for a Republican tax policy that moved incrementally toward a universal IRA in which people could invest toward homeownership, their children's education, health expenses, and their retirement with no taxes on the accumulating balances. This turns out to be wrong.

As Nadler reports in a draft of the Cato paper, Gallup surveyed investor-class preferences on taxes for PaineWebber in April 1997. Investors favored a capital-gains tax cut, of course, with support rising along with portfolio size. President Clinton's tax credit for college was also popular, especially among small investors and young investors. But universal IRAs, with 82 percent support and 10 percent opposition among investors, were more popular than either the capital-gains tax cut or targeted credits with both small and large investors. Incrementalism turns out to be unnecessary; these investors are ready to dispense with intermediate steps like education savings accounts and go for the full-blown policy. If Republicans offer this constituency nothing but opposition to Clinton's USA Accounts, however, they will be throwing away support that should naturally be theirs.

A final thought: There have been increasing murmurings on the social Right that maybe all this prosperity isn't such a good thing. Let us only note that much of our current prosperity is bound up with the expansion of the investing class; and that in their economic behavior and their self-reports of their motives for this behavior, these new investors are displaying frugality, a long-term orientation, and a concern for their children and parents. Investors are more likely to be married, homeowners, have a stake in the community, etc. If we still place any value whatsoever on bourgeois virtues, we should be not just exploiting this trend but celebrating it.