Patterico's Pontifications


Fundamentals are fundamental

Filed under: 2012 Election — Karl @ 8:04 am

[Posted by Karl]

Media outlets from Salon to the Wall Street Journal have hyped the uptick in optimism about the economy and Pres. Obama’s job approval number in the latest NBC/WSJ poll, emphasizing the danger it poses to the eventual GOP nominee come the general election.  Salon’s Steve Kornacki summarizes:

By a 37 to 17 percent margin, respondents said they expect the economy to improve in the next year; back in October, they thought it would get worse by a 32-21 margin. And the number of Americans who believe the country is heading in the right direction now stands at 30 percent – hardly a huge number, but a clear jump from the 17 percent who said so in the fall. Overall, Obama’s approval rating is at 48 percent, the highest it’s been in an NBC/WSJ poll since June, when he was still basking in the afterglow of Osama bin Laden’s demise.

Gallup also finds more optimism about the economy, but 49% say they are worse off financially today than a year ago, a near-record high.  Gallup’s version of the right track/wrong track question is at 18% — again up from Autumn 2011, but the lowest recorded for January of a presidential election year.  Americans’ worries about maintaining their standard of living, being able to pay medical bills or losing their job in the next tear are among the highest Gallup has measured in the past 20 years, rivaling the levels seen in 1991 and 1992.  Americans are broadly dissatisfied with the state of the nation’s economy, the size and power of the federal government, and the moral and ethical climate in the country.  Kornacki gets this next bit right, but there’s a kicker:

The numbers are a reminder that a president’s reelection fate is ultimately more dependent on the state of the economy than on what strategy the opposition party employs and which candidate it nominates. If economic anxiety and pessimism are rampant, then winning a second term is a profoundly uphill slog, even if the opposition fields a supposedly weak nominee. But if the public widely believes that conditions are healthy or at least improving, then credit – deserved or undeserved – invariably goes to the White House occupant.

Kornacki must be hoping his readers do not click on his link.  He’s citing Douglas Hibbs, whose “Bread and Peace” model analyzes just how much of post-WWII election outcomes may be explained by peace and prosperity (I have cited Hibbs myself a number of times).  His formula uses only two variables — real disposable personal income per capita and military fatalities in unprovoked wars.  Here are the results through 2008:

Kornacki links to the Q3 2011 update, in which Hibbs calculated that per capita real income growth must average out at 4% or more per year over the last four quarters of the term for Obama to have a strong chance of re-election:

If the US economy gets into robust recovery mode, real income growth could be high enough to secure the President Obama’s re-election. However, the pace of recovery from the 2008 Great Recession remains sluggish, and the famous 2009 book This Time Is Different: Eight Centuries of Financial Folly by Reinhart and Rogoff documents that recoveries from contractions originating with the bursting of speculative financial bubbles are not V-shaped as in garden-variety recessions, but instead are typically prolonged U-shaped affairs lasting 5 to 6 years. The statistical properties of the time path of US per capita real disposable personal income indicate that the chances of year-long quarterly growth rates on the order of 4% or higher are no better than 1/7.

Henry J. Enten gave his own update using the Hibbs model earlier this month:

Wells Fargo experts predict increasing growth of RDPI over the next year.

The problem for Obama is that he already is in such a deep hole that the expected growth (when population growth is taken into affect) is only predicted to be about about 1%, for an overall weighted growth of +0.3% over the presidential term. And this +0.3% growth would forecast Obama garnering 46.8%, which is obviously not enough to win re-election.

Indeed, even after Enten boosts Obama’s number by adjusting for incumbency and divided government, he cannot get Obama to 49%, although that would at least get Obama within the standard error for a modified Hibbs model.  In the real world, the newest figures for Q4 2011 are not much better: real disposable personal income increased at only a 0.8% annual rate, after declining the prior two quarters. On a year-ago basis real disposable personal income declined 0.1%, the only decline ever recorded in a non-recession environment.  That 0.8% rate is the Obama average.

Of course, campaigns matter: Political scientist Lynn Vavreck argues that if the out-party successfully capitalizes on a weak economy or, in times of economic growth, successfully locates another issue to campaign on, then they are expected to win an additional six points — even controlling for the actual state of the economy and casualties in war.  But this underscores the drag the weak economy is on Obama’s odds for re-election.


30 Responses to “Fundamentals are fundamental”

  1. Ding!

    Karl (8cdbad)

  2. Of course, if the Fed prints an extra couple of trillion dollars and floods the economy with them, there will be a burst of economic growth — followed (after the election) by growing inflation and stagnation.

    Using stimulus after stimulus to keep boosting the economy eventually fails in much the same was as doubling your bet after each loss eventually fails at roulette.

    Kevin M (563f77)

  3. First of all 1980, that would only be Desert One, 1952, Korea was not unprovoked, 1960, was a virtual tie,

    narciso (87e966)

  4. Pointing out the economy’s performance under Obama is racist and so is voting for his opponent.

    Enuf said.

    daleyrocks (bf33e9)

  5. narciso,

    Although Hibbs mentions “unprovoked” wars, it looks to me like the results are similar regardless.

    Karl (8cdbad)

  6. When Obama starts his war in Uganda his population will go into negative territory.

    Dohbiden (ef98f0)

  7. Hope Santorum’s daughter is ok.

    Dohbiden (ef98f0)

  8. I recently saw articles indicating that the participation rate is so low that the unemployment rate is ‘artificially’ low as a result. Enten asks, “But what if the decline in unemployment is a precursor to a rise in RDPI?” So, let me ask: when participation rises, as a result of people concluding that things are getting better, is it reasonable to expect that the unemployment rate will rise? Does anyone know how that might affect RDPI? If a decline in unemployment is a precursor to a rise in RDPI, then would an effective rise in unemployment be a precursor to a decline in RDPI?
    Yes, I know this is hypothetical. I am trying to broaden my limited understanding. Thanks. 🙂

    Sue (40062f)

  9. Why do you assume there is a clear connection between personal income and unemployment? Income has all kinds of sources and one doesn’t have disposable income before satisfying debt and delayed necessities. Predicting the relative movement of loosely-coupled and delayed indices seems unlikely to be fruitful.

    Kevin M (563f77)

  10. Of course there is a systematic problem with the model in that only in a free society are the various measures of economic performance in the form of public information, and transparent pricing available.

    Owned housing values first entered the CPI in the early 90s, and now make up 40% of the CPI. Until recently, with a local bottom in home prices, the period from 2008 thru 2010 has seen radically understated Cost of Living rates of inflation published by the Minstry of Truth by 6%, at minimum.

    Another, better known, are the BLS labor statistics that have adjusted unemployment rates downward as a 64% participation rate has fallen to 58%.

    The Fed is another source of economic falsehood.

    When the government cooks the books people can more readily be deluded.

    “Government isn’t the solution, its the [MFn] problem”.

    gary gulrud (d88477)

  11. Re: Comment by Kevin M — 1/29/2012 @ 10:48 am

    I’m not assuming anything. I’m asking, because in Enten’s article he asks the question I quoted: “But what if the decline in unemployment is a precursor to a rise in RDPI?” And he notes that Wells Fargo experts predict increasing growth of RDPI. The link he provides is a 2012 Economic Outlook that includes the statement, “The sluggish pace of job gains should result in only a marginal improvement in personal income.”
    As I said, I am trying to broaden my limited understanding.

    Sue (40062f)

  12. JimPethokoukis: ‘The Obama “we stopped the bleeding” argument gets less impressive every month we move away from January 2009’

    Colonel Haiku (40a276)

  13. For day traders the year ahead is bleak:

    On the other hand, an expert of no less stature than Faber in Switzerland says over the next few to several years the best bet, gold included(your government confiscated privately held gold in the 1930s) is in a business that can be expected to survive global RESET.

    gary gulrud (d88477)

  14. Romney is dubious.

    Dohbiden (ef98f0)

  15. 8. ” is it reasonable to expect that the unemployment rate will rise?”

    Yes, until the historic participation rate is approached in strong growth.

    But since the savings rate is again falling, like 3.7%, while households have not deleveraged, i.e., are still in extreme debt, profit margins should continue to be tight and concomittantly, investment weak.

    Apart from government sponsored fraud don’t expect much change in the numbers.

    Funny al Guardian is worried about us, Britain’s GDP contracted 0.2% last quarter and is bound for worse while its total public and financials debt are 1000% of GDP.

    gary gulrud (d88477)

  16. They will have to pry the keys to my beloved Fiat out of my cold, dead fingers…

    WAIT, I THOUGHT “UNILATERALISM” WAS BAD: California breaks rank again, demands over 15% of cars sold be non-polluting by 2025:

    Colonel Haiku (40a276)

  17. What a bunch of anti-semetic idiots the left are.

    Dohbiden (ef98f0)

  18. They are trying to mandate what cars we can ride? screw that.

    Dohbiden (ef98f0)

  19. 16. Just a couple years ago my ex-brother-in-law paid me back the deductible on my Fiat Sport Coupe he totalled 40 years ago in a 5 mph spin into a tree-lined ditch.

    I’d recently set my PR Milwaukee to Minneapolis via Rochester of 3 Hrs. 45 min. w/ two stops for oil. Can’t do that anymore.

    Life’s heartbreaking setbacks.

    gary gulrud (d88477)

  20. Re: Comment by gary gulrud — 1/29/2012 @ 11:40 am

    Thanks! You’ve given me more to think about.

    Sue (40062f)

  21. ________________________________________

    Given the recent incident of Obama’s prickly response to the governor of Arizona, and similarly poor behavior from Barack aimed at Louisiana’s governor upon meeting him during the time of the massive BP oil spill — in which the huge ego of President “Goddamn America” apparently causes him to take criticism far more personally than appropriate — I can easily imagine this being an accurate description of an outing involving Barry and Bubba:, December 2011:

    According to the Globe, long-standing tensions between Barack Obama and Bill Clinton reached the boiling point during a recent golf outing at Andrews Air Force Base. According to multiple unnamed sources, Clinton has been confiding to close pals that Obama is “the worst President ever” and his presidency is a “sinking ship” that is “taking the Democratic party and the country down with him,” and when Obama confronted him on the comments, Clinton looked him in the eye and said; “Yes, it’s a fact.”

    The Globe reports: “At that point, the source adds, Obama went ballistic and told the ex-Prez; ‘Then you are a racist and no different than the rest of them.'”

    There’s certainly much more to this story than a gossipy accusation from a supermarket tabloid. While the information apparently comes from multiple unnamed sources, it is not in dispute that there is a long history of disgusting and highly politicized accusations of racism against Clinton from Obama’s surrogates over the years.

    …In September of 2009, Clinton even went so far as to defend conservatives against slanderous accusations by former-President Jimmy Carter that racism drives Obama’s opponents: “I believe that 100 percent of those who are opposing him now would be against him if he were a white Democrat.”

    Mark (31bbb6)

  22. 19… Fiat Sport Coupe… nice! But not built to withstand Frozen Tundra winters.

    Colonel Haiku (40a276)

  23. 22. Nailed it. Rear quarter proved to be FeO3 held together by lacquer.

    Closest I got to that again was Honda CX500. Had a Goat way back, but before I new what I had.

    Had a lot of wrecks back in the day.

    gary gulrud (d88477)

  24. I don’t see how this sort of model works if Team R nominates someone who invented the economy-stifling Obamacare and is so proud of it he has a legion of at least one fat blond bimbo jiggling their romneycare passions all over the florida tv

    happyfeet (3c92a1)

  25. So, with all the new MPG rules and this “non-polluting” vehicle (electricity is made by leprechauns?) rule in CA, what do you suppose the new “not a car, really it isn’t” scheme will be that replaces the SUV dodge?

    Kevin M (563f77)

  26. ’64 dark blue Goat was colonel’s first car… bought for $550 in Summer of ’71…

    Colonel Haiku (8348e4)

  27. Sue, Kevin M:

    Kevin is right to point out any link bewteen unemployment and RDPI is going to be complex. I think it’s fair to say that employers will have an easier time keeping wage increases down when there’s a large pool of unemployed.

    Karl (8cdbad)

  28. D’oh, as usual, FOS.

    Dodgers Fan (0ddce0)

  29. Everyone on the web seems to think the unemployment rate is what is important. BS I say. With 60% of us on some form of government assistance and laying around doing nothing while smiling stupidly at a TV screen looking for some medical pot to make us feel that not much is wrong, the Welfare State tells us that exceptionalism and excellence is bad, money is evil, we eagerly accept it so Obama wins and wins big. Dare We threaten the welfare checks wait for the riots to start…….

    Howard Veit (aae302)

  30. It’s all about Obama. Nothing else matters.

    AMartel (88c646)

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