On Tuesday November 6th America will decide whether to give Barack Obama four more years, or to hand Mitt Romney the keys to the White House. Throughout the months of campaigning intense media scrutiny is honed on particular incidents. From Romney’s incredible 47% comments, to Obama’s disappointing performance in the first debate to the news today that Lindsay Lohan and Jenna Jameson have endorsed Romney, the political media would seemingly have you believe that every moment matters. Economists tend to take a different view. Given the natural advantage handed to the incumbent, most elections where an incumbent faces a challenger appear to be decided by economic fundamentals; not the whims of Lohan or a dodgy debate.
This sort of viewpoint can be described as economic determinism. Originally advanced by Karl Marx, this is the idea that economic laws determine the course of history. Arguments in favour of economic determinism state that it is only natural for most decisions made by people to be shaped by their pursuit of food, clothing or shelter. Translated to US elections, economic determinists believe that when an incumbent like Obama faces a challenger such as Romney, it is the state of the economy that will determine the outcome of the election, not the intricacies of each parties respective campaigns.
Incumbents are notoriously hard to beat – even George W. Bush was re-elected – and when then have been beaten it is almost always because of a poor economy or a foreign policy crisis. Baring an ‘October surprise’ foreign policy seems to be stable for the moment, leaving the economy as the major issue. At a glance this would seem to be terrible news for the Obama campaign. Unemployment has been running high and we are yet to see a substantial economic recovery. Evidence from history, however, shows that the electorate does not crudely judge incumbents in isolation; Obama will be graded on a curve based on the dire economic conditions he inherited. Given this, the news that the US unemployment rate has fallen to 7.8%, its lowest rate since January 2009, is very encouraging for Obama. A recent reported jump in consumer sentiment will also benefit the incumbent’s campaign.
This idea that the politics of campaigns is secondary is also advanced by what is called the ‘Minimal Effects Model’. This model states that presidential campaigns have a highly limited effect on how people vote. Once party loyalties and other factors are taken into account, the minimal effects model argues that not many voters are left for the rival parties to woo. This means that the high profile moments that capture so much attention, such as vice president picks or debate performances, really don’t have as big an impact as people think.
A Yale economist, Ray C. Fair, has correctly predicted 21 out of the 24 elections since 1916 using a method that combines economic growth, inflation and the incumbency effect. What is especially interesting about these methods is that they essentially ignore the candidates themselves, who are almost always the biggest feature in the media narrative of the campaign. The reasoning behind this assumption is that America has a mature two party system and therefore it is sensible to presume that both parties will put forward decent candidates that are well-funded and have good leadership skills. Both parties will have access to pollsters, media adviser, strategists and the like and therefore it is argued that they will roughly cancel each other out. Therefore, the final months of the campaign, usually played out on a grand stage, don’t seem to matter all that much. Candidates leading in the poll by Gallup in late September have triumphed in 14 out of the last 15 elections.
So should the media stop reporting on presidential elections all together and leave the result up to economic fundamentals? Not exactly. Minimal effects can be the difference between winning and losing in a swing state; if that state costs you the election then the minimal effects that swung it one way or the other are crucial, as Al Gore would surely attest to. So whilst economic fundamentals may indeed decide the outcome of the election, it is still in both would be presidents interests to gain as much of a political advantage as possible.
Let us take the upcoming election between Obama and Romney as an example. The economic fundamentals point towards the fact that Obama has done an okay job with the economy. It has not got substantially worse since he was elected, but neither has it got substantially better. Of crucial importance to Obama’s election hopes is that the situation has improved slightly over the span of his first term. For this election it would seem that economic fundamentals do not provide a knock-out blow for either candidate. The economy has not performed well enough to guarantee Obama re-election but it hasn’t done badly enough to ensure that Romney will triumph either. In an election such as this the minimal effects of politics may have a decisive role to play, even if the overall narrative has been shaped by economic fundamentals. Therefore for this election and subsequent ones we are likely to remain glued to who has ‘won’ a debate and eagle-eyed on the hunt for presidential gaffes. We will continue to analyse the vice-presidential pick and the popularity of the would be presidents’ wives. Whilst most US elections between an incumbent and a challenger have been and will continue to be determined by economic fundamentals, every now and then there will be one that is close enough for intricate politicking to matter. November 6th may prove such an occasion.