“When President Harding died suddenly one night in August 1923, Coolidge, then vice president, looked around and decided that stability was the most important factor in the Harding-Coolidge transition—important to the people, and important to the economy. Harding’s last months had been clouded by scandal, and Coolidge wanted no more disruption. So he had kept on Harding’s cabinet, including those he liked—Andy Mellon, at Treasury—as well as others, like Hoover. Coolidge’s transition plan had been a success, at least insofar as the most precise measure of such things, the stock market, was concerned. The Dow Jones Industrial Average had stood at just below 88 the Friday before Harding died, and it was just below 89 a week later.”

That’s from Amity Shlaes’s The Forgotten Man, a history of the Great Depression. What jumps out at me here is the reference to the Dow as “the most precise measure of such things.” That is, the Dow, a stock index designed some forty years earlier to give a picture of the relative strength of the US economy, is taken to be the most precise available measure of public views about the government.

Stocks are still, of course, used as a proxy in this context. In this Freakonomics podcast, for example, economist Justin Wolfers talks about the natural experiment offered by the 2004 presidential election, when people thought John Kerry had won for a few hours, until it turned out that the exit polls were off and George W Bush would get a second term—in that case, he was studying market movements in response to a presumed change in which party held the presidency. 

In other words, it's not surprising that during the Coolidge transition, the DJIA was considered the most precise measure available. However, people continuously debate why the Dow (or any other index), given the idiosyncracies of its composition, is given so much weight. So you might wonder why nothing else was cited--approval ratings (which are often cited with regard to the JFK-LBJ transition), or some other economic indicator  that would reflect the impacts of a political change on a broader swathe of people—the unemployment rate, perhaps.

At the time, however, neither of the two suggestions above would have worked. Gallup didn’t start tracking presidential approval ratings until the late 1930s, and as Shlaes notes later, the federal government didn’t keep systematic unemployment numbers--it was mostly left to the states--until the 1940s. So this raises a historical question that I wouldn’t know how to answer: to what extent did the existence of the DJIA , in the absence of some metrics that might have competed with it, give rise to the political importance of the Dow more generally?

Somewhat relatedly: the House voted this week to get rid of the Census Bureau's American Community Survey, a move that even the Wall Street Journal considers extreme. More from Bloomberg BusinessWeek.

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