May 30, 2016


Ray Fair: The Economy is Tilting Republican (Conversable Economist, 5/19/16)

Ray Fair is an eminent macroeconomist,  as well as  a well-known textbook writer (with Karl Case and Sharon Oster) who dabbles now and again in sports economics. Here I focus on one of Fair's other interests: the connection from macroeconomic to election outcomes, a topic where he has been publishing an occasional series of papers since 1978. With time and trial-and-error, Fair has developed a formula where anyone can plug in a few key economic statistics and obtain a prediction for the election. A quick overview of the calculations, along with links to some of Fair's recent papers on this subject, are available at Fair's website.

Fair's equation to predict the 2016 presidential election is

VP = 42.39 + .667*G - .690*P + 0.968*Z

On the left-hand side of the equation, VP is the Democratic share of the presidential vote. Given that a Democrat is in office, a legacy of economic growth should tend to favor the Democratic candidate, while inflation would tend to work against the Democrat. On the right-hand side, G is the growth rate of real per capita GDP in the first 3 quarters of the election year (at an annual rate); P is the growth rate of the GDP deflator (a measure of inflation based on everything in the GDP, rather than just on consumer spending as in the better-known Consumer Price Index); and Z is the number of quarters in the first 15 quarters of the second Obama administration in which the growth rate of real per capita GDP is greater than 3.2 percent at an annual rate.

Obviously, some of these variables aren't yet known, because the first three-quarters of 2016 haven't happened yet. But here are Fair's estimates of the variables as of late April: G=0.87; P=1.28; Z=3. Plug those numbers into the formula, and the prediction is that the Democratic share of the two-party presidential vote in 2016 will be 44.99%.

Fair offers a similar equation to predict the 2016 House elections. The formula is

VC = 44.09 + .372*G - .385*P + 0.540*Z

where VC is the Democratic share of the two-party vote in Congressional elections. Plugging in the values for G, P and Z, the prediction is 45.54% of the House vote for Democrats.

History always repeats itself, as turning on another Bush will cost us this election and credit for a Peace Dividend.

Posted by at May 30, 2016 7:56 AM