By Brad Schiller
Excerpt from the LA Times:
The basic premise of economic modeling for election outcomes is that people vote their pocketbooks. Or, as Bill Clinton put it: “It’s the economy, stupid” (which may not sound terribly reassuring to his wife). If the economy has been good, people don’t seek out change; they are content with the party in power. On the other hand, if the economy isn’t delivering the growth and jobs that people expect, they want a change in leadership — a different party in the White House.
From this perspective, it doesn’t really matter who the candidate of either party is — much less their gaffes or their crude language or their bankruptcies or their reputed dealings with Vladimir Putin’s Russia. All that matters is whether voters want a change or not. And that depends on how well the economy has been performing under the outgoing administration; in this case, the Obama administration.
For the last, agonizing six months, the airwaves and newspapers have been filled with political prognoses. Every commentator claimed special insight into how voters would cast their ballots and why. Most of them were wrong, of course. And according to economic theory, completely irrelevant. None of the political factors the pundits cited ad nauseum even enter the best economic models.
The most famous model was constructed by Yale economist Ray Fair, who argues that people’s sense of how well the economy is performing depends on two key variables: GDP growth and inflation.
If GDP growth is robust, job creation will keep up with the population and workers will be happy. If inflation is restrained, consumers will be happy. So a combination of robust growth and restrained inflation will make voters feel happy about the economy. Happy voters will vote for the incumbent party — and vice versa.
Simply put, Clinton lost because the economy under President Obama did not perform well enough to meet Fair’s thresholds of happiness. Economic growth was anemic for nearly all of the last eight years. As a result, job creation lagged far behind the records set during other post-recession recoveries.
In the Fair model, GDP growth in the three calendar quarters prior to the election is critical: That’s when voters are especially attuned to how the economy is performing. And on that count, Clinton lost a lot of votes; GDP growth was a paltry 0.8 % in the first quarter of this year, 1.4 % in the second and 2.9 % in the third. This sluggish growth hardly inspired confidence in the economic policies of an Obama/Clinton team, and it seems Clinton couldn’t talk her way out of this performance.
Read more at the LA Times.