Using Basic Economics to Predict the 2012 American Presidential Election Results

The Presidential and Congressional Vote Share Equation, developed by Dr. Ray C. Fair at Yale University, uses three economic variables that are significant to both the end result of the Presidential and Congressional elections, although the impact of the variables on the vote share derived from the House equation is somewhat smaller than it is for the Presidential equation.  For the purposes of this posting, I won't get into detail about the equations themselves since they look something like this:

 

 

Interesting, isn't it?

 

Rather than going through the details, I will take a brief look at the economic variables that impact the outcome of both elections and the results of the latest analysis.

 

Here are the three economic variables that impact the vote share calculation:

 

1.) G – The annual economic growth rate of real per capita GDP in the first three quarters of the election year.

 

2.) P – The absolute annual inflation rate in the first 15 quarters of the administration.

 

3.) Z – The number of quarters in the first 15 quarters of the administration in which the growth rate of per capita GDP exceeded an annual growth rate of 3.2 percent.

 

Notice that one of the variables (G) covers a short time horizon while the other two (P and Z) cover the entire period of the administration up to the time of the election.  The last variable, the number of quarters of high growth is the "good news" variable because it measures the number of extreme (in this case, extremely positive economic growth) outcomes that people tend to remember.

 

Here is a look back at elections from 1916 to 2004 showing the actual vote share received by the Presidential candidate (Vp), the calculated vote share (Vp with accent over top) and the difference between the two (Up):

 

 

You can see that, in general, the predictions are historically quite accurate with the difference between the calculated vote share and the actual vote share ranging from +0.3 percentage points to -4.3 percentage points.  Out of all 23 elections, only five (21.7 percent of the total) have an error of 3.0 percentage points or greater and sixteen (69.6 percent of the total) have an error of 2.0 percentage points or less.  I'd say that the accuracy of Dr. Fair's model is rather stunning.

 

Now, let's go forward and look at Dr. Fair's forecasts for both the Presidential and Congressional over the time period from November 2010 to April 2012.  Here is a chart showing his analysis:

 

 

Notice that the value Z, the number of quarters in the first fifteen of the Obama Administration with an annual growth rate greater than 3.2 percent sits at a measly one.  That's not much for voters to remember, is it?

 

Keeping in mind that Dr. Fair states that the margin of error is plus or minus 2.5 percentage points, notice that as the months have passed since the mid-term elections of 2010, the vote share of the incumbent President (Vp) and Congress (Vc) show dropping values with President Obama currently seeing only the slimmest of majorities over his opponent.

 

From Dr. Fair's fascinating analysis, we can see that, unless the economy really booms between now and November 2012, the election will be very, very close.  Since it appears that the American economy is most likely going to soften over the coming quarters following Europe's lead, the 2012 Presidential election could well be a repeat of what Americans experienced with hanging chads in 2000.

 

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