Postcards from Old Europe – Are you better off now than you were four years ago?
You might have noticed that there have been no postcards in the past couple of weeks. The reason is quite simple – your author was off enjoying one of the perks of working in Europe (30 days paid vacation during which I managed to get married!).
Today’s title obviously refers to Ronald Reagan’s famous question to the electorate during a debate with Jimmy Carter in 1980. The great communicator lived up to his name by getting the question in right at the end of the debate
Next Tuesday is Election Day. Next Tuesday all of you will go to the polls, will stand there in the polling place and make a decision. I think when you make that decision, it might be well if you would ask yourself, are you better off than you were four years ago? Is it easier for you to go and buy things in the stores than it was four years ago? Is there more or less unemployment in the country than there was four years ago? Is America as respected throughout the world as it was? Do you feel that our security is as safe, that we’re as strong as we were four years ago?
Now I don’t want to go into the latter part of the question but I would like to briefly examine some of the economic aspects raised by the ex President.
Conventional wisdom has it that voters vote their pocketbooks – i.e. that perceptions of economic well-being determine how the electorate votes. This view is summed up nicely by Professor Helmut Norpoth
How universal is economic voting? There are signs that the inclination to vote that way is hard-wired into the brains of citizens in democracies
This makes sense at a very basic level – is it not the epitome of accountability to turf out an incumbent who hasn’t delivered on his promises? The problem with this elegant theory of economic voting is that the actual empirical evidence has been rather varied.
One of the most famous economic models of voting is the Fairmodel which was originally proposed by Ray Fair in 1978 and has been revised quite a few times since then. The main economic inputs in Professor Fair’s model are inflation and GDP growth. Other factors that are factored into the model are how long a particular party has been in office and to which party the incumbent belongs (Republicans have an edge over Democrats in the model).
If you plug in the current economic data you’ll see that President Bush should easily win the election. This is a somewhat surprising result seeing that media opinion polls tell a pretty different story. So what’s up with the Fairmodel? The model is based on the assumption that the party holding the presidency has an advantage over the challenger. This advantage tends to diminish over time. These non-economic factors generate the model’s baseline which is then modified by looking at economic variables.
The model uses inflation and GDP data because history has shown that high inflation and low growth negatively impact a President’s chances of re-election. If we look at current data we can see that inflation is still very low and GDP growth is booming – all factors which should help the sitting President. So why are opinion polls telling us another story?
The current low rate of inflation is pretty much unchanged from the inflation rate experienced by voters during the previous administration. It stands to reason that many voters do not see low price inflation as something which the Bush administration has actually delivered. Even worse: headline-grabbing stories of skyrocketing gasoline and energy prices in general have pumped up the electorate’s perception of inflation – all along the lines of “I’ll see it when I believe it!”. To sum it up: low inflation gives the President points in the model but probably won’t help all that much in the wild.
So what does GDP growth tell us? Change in GDP is usually a pretty good proxy for employment (and personal income). Sadly this relationship has partially broken down over the past few quarters. High rates of GDP expansion have failed to deliver a corresponding boom in employment. During the last year the US economy grew while employment fell – surely this can’t be positive for a President who wants to be re-elected.
The recent strong gains in payroll employment (we have new data out today) have brightened the picture considerably. Voters tend to have short memories so job gains are most valuable if they occur near election day. Research has shown that job growth in an election year has a pretty strong correlation with the incumbent’s share of the vote. If we extrapolate current growth in payroll employment we see that the Bush administration might just manage to recover all the jobs lost during their term in the first three quarters of this year! This should put job growth more in alignment with GDP and thus vindicate the Fairmodel.
But surveys still tell a different story despite the recent strength in employment. I suspect that the reason is that the quality of jobs and jobs losses has changed vs. the past. Temporary layoffs have turned into permanent reductions in employment. Manufacturing employment was hit very hard – a fact that impacted many of the so called battleground states.
In short: running the Fairmodel at the beginning of the year would have yielded a result which didn’t at all conform to traditional analysis of the President’s chances of re-election. This gap has since become smaller as large gains in payroll employment have brightened the picture.
So what does it all mean? I would opine that it is becoming harder to campaign against the sitting President on economic issues since jobs growth has picked up. The Kerry campaign should probably focus on the latter part of President Reagan’s question and ask
Is America as respected throughout the world as it was? Do you feel that our security is as safe, that we’re as strong as we were four years ago?
This might then lead to a 1968 template emerging, in which the candidate from the ruling party was not elected because of public dissatisfaction with the handling of a war in a foreign country – this was contrary to what economic models suggested at that time.
Thank you for reading. I invite you to visit my other home on the web over at CurryBlog for more news and views.