March 8, 2012
Beware of economists bearing models, especially if you are the presumptive Republican nominee for president.
Several recent economic forecasters peered into their crystal balls to predict President Obama will win the coming presidential election. The latest comes from two economics at Yahoo Labs, Patrick Hummel and David Rothschild, who told IEEE Spectrum that the Hawaii-born son-of-a-Kenyan will be reelected with 303 electoral votes, racking up wins in 26 states including Ohio and Pennsylvania.
But the deal is not sealed yet, not by a long shot, Rothschild warns. “There are at least three states here, Virginia, Ohio, and New Hampshire, which are within just a few percentage points of flipping over from one candidate to the other,” he said. If they flip, so does the election.
The model looks at a number of variables: presidential approval ratings (Obama’s are trending up), specific economic indicators like unemployment (which is trending down), and state-by-state ideological indicators, such as which party holds the lower house in the state legislature (which has been trending toward Republicans).
But those are not the most important factors in the model. “There is a huge incumbency advantage, and that is coming from a lot of different factors including money, name recognition, and of course it is an indication of past election victories,” Rothschild said.
Of course, if you don’t like econometric models, you can always go with single-factor theorists. Robert Prechter, founder of Elliot Wave International, last month published a study that correlated stock market performance with U.S. presidential election outcomes.
He found stock market performance over the past year and past three years was a far more powerful predictor of re-election outcomes than Main Street-oriented economic variables as unemployment, inflation and economic growth. Why? The stock market is a fairly accurate predictor of the nation’s mood, and when people are feeling good (that is, stocks are up), they vote for the incumbent.
Based on the stock market’s performance so far this year and in the three years since its bottom (It has nearly doubled), President Obama wins in a landslide.