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It’s Still Hard for People to Get the Fundamentals Right

- September 18, 2012

Alas, this topic is becoming a series.

Jonathan Martin:

bq. Unemployment is over 8 percent. Nearly 60 percent of Americans, according to a new poll, believe the country is on the wrong track. The number of people on food stamps is at a historic high and the median net worth of American families is at a 20-year low.

bq. If it was true that winning elections is mostly a matter of numbers — as some political scientists and campaign operatives like to argue — Barack Obama’s reelection as president should be close to a mathematical impossibility. For much of this presidential election cycle, Republicans were counting on precisely this.

bq. But 2012 is proving that politics isn’t just about numbers, and some traditional leading indicators look as if they are losing their predictive power.

Kevin Grier looks at GDP growth for the last 6 quarters and argues:

bq. In recent times, the incumbent party will, on average, lose with such a low growth rate in the second half of the cycle. Why do I care about this? Well, I want to question the idea that the economy is helping (or at least not hurting) Obama. I want to question the assertion that campaigns don’t matter because the economy is everything.

Which Tyler Cowen tweets approvingly, writing:

bq. The economy is in fact worse for Obama than the new very recent conventional wisdom has been suggesting.

Several responses to this:

First, I wish Martin had at least quoted some political science or some forecasting model or something.  Anything, really.  Because otherwise the evidence for this assertion is terribly lacking.

Second, to say that the economy might be slightly or somewhat favorable for Obama is not to that “campaigns don’t matter because the economy is everything.”  That’s not what most political scientists think.  I’ve said this many times.  Here’s one link.

Third, on the empirics.  Grier’s analysis takes one statistic (GDP growth) and looks at one time period (last two years of the term), and compares winners and losers.  There’s nothing unusual about this approach.  My own foray into forecasting also looks at GDP growth and a somewhat arbitrarily defined time period (first two quarters of the election year).  There is heuristic value in doing this and some theoretical basis too — GDP is a good overarching measure of the economy, more recent trends in the economy matter more than earlier trends. Typically, these decisions do not matter a huge deal, since by the election year most economic indicators are pointing in the same direction.

But that is not true in 2012, where different economic indicators are pointing in different directions.   So there is good reason not to privilege any one indicator and to look at a range.  One person who did this is Nate Silver, and he finds that the economy is slightly favorable for Obama:

bq. In general, values of the index below 2.0 point to cases where the incumbent president will actually have become the underdog. The economy was quite terrible by the point in 2008 and getting worse, and it was a complete disaster in 1980. Meanwhile, in 1992 when Mr. Bush lost, the economy would have looked quite poor to voters based on real-time data. With the economic index now at 2.5 percent, Mr. Obama is just above this break-even point, but not by much.

Another comprehensive approach is that of Robert Erikson and Christopher Wlezien, whose forecast model is based on the index of leading economic indicators (weighted so that more recent growth counts more heavily) plus the polls.  Their forecast, summarized here, is that Obama wins with about 52-53% of the vote.  I asked Wlezien what would happen if they did a forecast based only on the index of economic indicators, and not the polls, and he reported that they would get a similar result.

Now, there is reason to believe that Obama is not going to get 52 or 53% of the two-party vote.  But I think a broader review of the evidence suggests that the economy is, on balance, slightly favorable for him.   Certainly it does not make his reelection a “mathematical impossibility.”  Neither does it make him a shoe-in.  Which is why the campaign matters.

[Errata: This post originally suggested, insultingly, that Kevin Grier was Michael Munger.]