Fundamentals are fundamental
posted at 11:05 am on January 29, 2012 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.