Tuesday, September 16, 2003
"When it comes to predicting presidential elections, the pace of economic growth clearly matters. The stock market matters. Inflation matters. Local economic conditions matter. Incumbency matters. War matters. But statistics on payroll employment and income inequality matter only to guilt-ridden multimillionaires, partisan journalists and political speechwriters."
Okay. So how do you explain G. H. W. Bush's loss in 1992? 3%+ GDP growth for 3 quarters leading up to the election. Low and declining inflation. Stock market up over 40% from the market low in 1990. The power of incumbency. Victory in war at low cost in money and lives lost. Why'd he lose? The conventional wisdom is: the economy, stupid. But there were only two stand-out economic indicators that were negative: a high deficit, and (relatively) high unemployment. These are the very indicators that supposedly don't matter according to guys like Alan Reynolds.
Assume the statistical discrepancy between the two figures Reynolds focuses on is due to temporary and/or self-employment. To the extent that this reflects under-employment, will this make people feel good about the recovery, or lousy? My bet is: lousy. And more amenable to "economic security" arguments from Democrats - pitches for more government-provided health insurance, for example.
Reagan won in 1984 in spite of huge deficits because voters associated those deficits with the dramatic economic recovery (readily contrastable with both the depth of the 1981-2 recession and the late-Carter "malaise" years) and with the Reagan military buildup (which the public largely supported). The Bush pere deficits were caused largely by the economic slowdown and the Savings and Loan crisis. The recovery felt anemic to many people, and even people who were doing okay were worried about the fact that we'd been running large deficits for a decade (I know; I was one of them). So two things that aren't supposed to matter - unemployment and deficits - got traction.
Now we've got large deficits again and significant under-employment, if not widespread unemployment. Will they matter? Question 1: what are we getting for these deficits? If the economy stages a robust, obvious recovery, people will give Bush - and his red ink - some credit for that. If he can convincingly tie the deficits to the war, or to "homeland security" spending, people will give him credit for that. But if people believe he spent the money on pork and entitlements (which is largely the case), my bet is Congress gets the credit for that (all incumbents, both parties) and Bush gets the blame for the deficits. And if people believe he spent it on guys like Dick Grasso, then yes, I think the Democrats can get traction with "income inequality" arguments.
If economic forecasts determined elections, Al Gore would now be President, because *everyone* running such models said he would win in a walk. They don't, and he didn't (yes, he won the popular vote - but in a squeaker; these models were predicting a 5% victory margin or thereabouts).