Predicting Elections With the Economy: More Art Than Science

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# Predicting Elections With the Economy: More Art Than Science

When it comes to presidential elections, is it really the economy that matters?

"It's the economy, stupid" has become accepted wisdom in the 20 years since it guided Bill Clinton’s 1992 campaign, reminding staffers to focus on this issue over all others. And in fact, there's a huge volume of economic research to back up the assertion; various mathematical models use the performance of the economy to predict vote totals, often successfully.

But things aren't so simple, for two reasons. First, it's usually not the actual state of the economy, but how voters perceive it that can sway them to pull one lever or another in the voting booth. In 1992, the economy was already on the upswing, well into a period of recovery and growth, when Clinton made President George H.W. Bush a one-termer. But most voters didn't recognize that yet.

The second reason that voters should beware of economic research cited by talking heads: No matter how sophisticated, the mathematical models have major limitations, and those limitations are too often ignored. Predictions are presented as a lot more authoritative than the authors of them intended.

Take the observation that no incumbent president since Franklin Roosevelt has won a second term when unemployment was higher than 7.2%. That's often presented as a Mt. Everest-size challenge for President Obama, since almost no one believes that unemployment -- now 8.5% -- will be anywhere close to 7.2% on Election Day.

But a closer look reveals that the maxim is pretty useless, because the data set used -- the 10 times that an incumbent has run for election since Roosevelt -- is simply too small. The critical threshold is based on a single outlying data point: the 7.2% unemployment rate when Ronald Reagan won reelection by a landslide in 1984. If that one case is excluded -- not an unreasonable move in statistical terms -- the “rule” would be that presidents aren’t reelected if the unemployment rate is over 5.4%, the next-highest rate at which an incumbent was returned to the Oval Office and clearly a very healthy jobless rate. There just aren't enough data to draw a reasonable conclusion.

Likewise, the change in unemployment during a president's first term doesn't help forecast election results. Richard Nixon was first elected by a razor-thin margin when unemployment was 3.4%, and then reelected by a landslide in 1972, when it had risen to 5.3%. Jimmy Carter delivered a drop in unemployment, from 7.8% to 7.5%, but voters gave him the boot.

There are more sophisticated models to predict election results from the state of the economy, using changes in gross domestic product during the incumbent's first term and in the months just before Election Day, for example. Another method looks at gains in per capita, after-tax income. Some combine multiple elements. But in addition to the small data set problem, they often share some other shortcomings: