Yale Economic Model Still Predicts Bush Landslide in November

Yale - Fairmodel Presidential Equation ^ | February 14, 2004 | nwrep

[nwrep]

The highly accurate "Presidential Vote Equation" created by Ray Fair, a Yale economist, continues to predict a Bush landslide victory in November, despite several recent polls showing a decline in President Bush's popularity.

The model is updated every quarter with the release of quarterly economic statistics by the government.

The latest update to the model was made on February 5, 2004 based on data for the 4th quarter of 2003.

The model prediction is as follows:

Presidential Vote Equation--February 5, 2004

The predictions of GROWTH, INFLATION, and GOODNEWS for the previous forecast from the US model (October 31, 2003) were 2.4 percent, 1.9 percent, and 3, respectively. The current predictions from the US model (February 5, 2004) are 3.0 percent, 1.9 percent, and 3, respectively. In the previous forecast 2003:4 was predicted to be a GOODNEWS quarter, but it turned out not to be. For the current forecast 2004:1 is predicted to be a GOODNEWS quarter, so the total number of GOODNEWS quarters is the same at 3. The prediction of GROWTH, the per capita growth rate in the first three quarters of 2004 at an annual rate, has increased to 3.0 from 2.4 for the previous forecast. Given that the coefficient on GROWTH in the vote equation is 0.691, an increase in GROWTH of 0.6 adds 0.4 to the vote prediction.

The new economic values thus give a prediction of 58.7 percent of the two-party vote for President Bush rather than 58.3 percent before.

This does not, of course, change the main story that the equation has been making from the beginning, namely that President Bush is predicted to win by a sizable margin.

*********************************************************************

The equation, based on Ray Fair's economic model has an excellent correlation percentages of two party popular votes. The only times it has significantly deviated from the November election results was in 1992 due to the presence of a strong third party.

The equation has worked as follows since 1916:

                          Table

                Presidential Elections Since 1916

    Party                                            Actual                      Predicted
     in                                            Vote  Growth Infl. Good     Vote
    Power                                    Share  Rate  Rate  News   Share
1916  D  Pres. Wilson beat Hughes           51.7   2.2   4.3   3    50.7
1920  D  Cox lost to Harding                36.1 -11.5  16.5   5    38.9
1924  R  Pres. Coolidge beat Davis          58.2  -3.9   5.2  10    57.9
1928  R  Hoover beat Smith                  58.8   4.6   0.2   7    57.3
1932  R  Pres. Hoover lost to F. Roosevelt  40.8 -14.9   7.1   4    39.2
1936  D  Pres. F. Roosevelt beat Landon     62.5  11.9   2.4   9    64.3
1940  D  Pres. F. Roosevelt beat Willkie    55.0   3.7   0.0   8    56.0
1944  D  Pres. F. Roosevelt beat Dewey      53.8   4.1   5.7  14    52.9
1948  D  Pres. Truman beat Dewey            52.4   1.8   8.7   5    50.5
1952  D  Stevenson lost to Eisenhower       44.6   0.6   2.3   6    43.9
1956  R  Pres. Eisenhower beat Stevenson    57.8  -1.5   1.9   5    57.3
1960  R  Nixon lost to Kennedy              49.9   0.1   1.9   5    51.1
1964  D  Pres. Johnson beat Goldwater       61.3   5.1   1.2  10    61.2
1968  D  Humphrey lost to Nixon             49.6   4.8   3.2   7    49.6
1972  R  Pres. Nixon beat McGovern          61.8   6.3   4.8   4    59.8
1976  R  Ford lost to Carter                48.9   3.7   7.7   4    48.6
1980  D  Pres. Carter lost to Reagan        44.7  -3.8   8.1   5    45.6
1984  R  Pres. Reagan beat Mondale          59.2   5.4   5.4   7    61.4
1988  R  G. Bush beat Dukakis               53.9   2.1   3.3   6    52.4
1992  R  Pres. G. Bush lost to Clinton      46.5   2.3   3.7   1    50.9
1996  D  Pres. Clinton beat Dole            54.7   2.9   2.3   3    52.7
2000  D  Gore lost to G.W. Bush             50.3   3.5   1.7   8    50.8

[Rokke]

"Correct me if I'm wrong... but doesn't this model err in predicting a GHW Bush victory in 1992? (50.9% Predicted [win] vs. 46.5% actual [loss])"

They attribute the difference to the inclusion of a strong third party candidate (Perot). My question is, what quarter are these results taken from. The quarter just prior to the election or sometime earlier.

[Nick Danger]

You're forgetting that under Reagan in one of those months we had almost one million jobs added to the economy... an unprecedented number. We have to see a number like that soon or perhaps this will be the first time such a model has failed.

You are forgetting that you live in a country where the press wants you to think that the current President is a bad guy.

For instance, you recall that under Reagan, there was a month in 1983 when almost 1 million new jobs opened up. And you think we're still waiting to see that under Bush. But we're not. That happened in January, 2003. Employment increased to 137,447,000 from 136,459,000 the month before. What, you didn't hear about that? The one million new jobs in a month during the Bush Administration? I can't imagine why that was never talked about in the media. It must have been an oversight.

[AntiGuv]

You should be aware that the statistics offer wildly different views.

Mmm, yes. That's basically what I was saying.....

Anyhow, about your other point, the confidence levels, right/wrong direction, and approval rating figures on the economy adequately answer the question of how many people are content with their sense of their personal economy, and so I don't have any need to ask the people I or YOU know what they think. This is especially true since it's a safe bet that the people I and YOU know are wildly unrepresentative of the nation as a whole.

I do not prefer ignorance, and therefore I would prefer to end this discussion. Take care.

[AntiGuv]

If it does fail, this would be the third time the Yale Economic Model has failed. In 1960 it predicted a slight Nixon victory and in 1992 it predicted a Bush reelection. It also predicted Gore would get a majority, but that doesn't count since the Model is supposed to predict merely the popular vote (and was actually quite close in 2000).

This would be the first time it fails so dramatically, however, in the event that it does indeed fail.

[Rokke]

Which quarters figures are used to make the final prediction?

[Schattie]

No I haven't heard that but if it's true that's good. Do you have a URL?

[AntiGuv]

The third quarter of the election year: from July to September of 2004 in this instance.

[Nick Danger]

Do you have a URL?

Sort of. What you have to do is go here, and then choose the top line "Total, 16 years and over", and "seasonally adjusted." Then scroll down and hit the "Retrieve Data" button, and then you get to pore over a table of numbers looking for a month in which the # employed went up by a million.

[Schattie]

Interesting... although I wonder why that was never reported. If you look at the footnote it seems like it might have been a change in how population is noted.

[raloxk]

that is a pretty significant drop in the unemployment rate during 1983. Check BLS.GOV, September 1983 has the all time record for number of jobs created in one month. 1.1 MILLION

[Nick Danger]

while I could say that the Carter recession beginning January 1980 ended in July 1980, I would be dissembling if I ignored the second dip. Try again.

Why is it "dissembling" to ignore the second dip in the 1980's, but not dissembling to ignore the second dip in 2002? The NBER declares an "end to the recession" two months after the Atta Boys kill 3,000 people and toss the travel and entertainment business into the toilet, and you'd like us to think that we should expect economic performance to behave the way it always has after the NBER declares an end to a recession. No one knows how 9/11 impacted the economy, or by how much. We can see the effects on travel and tourism, but what were the secondary effects? We can guess (business travel down, trade shows and conferences in the tank, all kinds of stuff) but it would take God to really sort it out.

Whatever the effects were, to assign them a value of zero, as you are doing, is virtually certain to be a fairly large mistake.

[raloxk]

yes, it predicted GHW Bush would win in 1992. The model breaks down with a strong 3rd party run

[raloxk]

the quarters used to make the final prediction are the first 15 quarters of a president's term

[Nick Danger]

Check BLS.GOV, September 1983 has the all time record for number of jobs created in one month. 1.1 MILLION

OK, we'll wait for you to catch up.

[rebel_yell2]

There has been fraud in previous elections and the model has still performed.

[rebel_yell2]

First, you assume that this is the most important explanatory variable in the model. Second, you believe that the establishment survey is accurate during a recovery. Third, you believe that the establishment survey will not show significant job growth during the period between now and November. Perhaps we should check your assumptions . . . ?

[rebel_yell2]

Give this man a cigar!!! If the future deviates significantly from past data, forecasts can be way off. Just ask the principals of Long Term Capital Management, who included a couple of Nobel Laureate Economists.

[Nick Danger]

Can you comment on the divergent government reports on unemployment?

The Bureau of Labor Statistics does precision guesswork. They'll be happy to tell you the unemployment rate down to a tenth of a percentage point. And they probably get close, or at least as close as humans know how to make those things.

I hope no one believes that they actually run around and count noses every month. It's a sampling thing. They take surveys of employers, and they munge the data with some statistical algorithms to (hopefully, but never exactly) correct for sampling bias and other errors. Then they adjust for seasonal factors, like H&R Block's huge rise in employment in March and April, followed by a huge layoff on April 16th; and of course the Christmas Winter Festival stuff.

In recent years, people operating as independent contractors instead of employees have become a big deal. The BLS has no clue how much of that there is. I probably look to them like one of those guys who quit his job and then gave up trying to find a new one, so they longer count me among the "employed." Meanwhile, I'm making money, growing my business, and having more fun than I have had in a long time.

The point of all this is that they have to guess about a lot of things. And depending on which guesses they include or do not include, the unemployment rate could be up or down by a point-and-a-half. It's not that they are "wrong," it's just that no human knows what the right number is,. The BLS is as good a group of guessers as anybody else has.

I don't think it is true, as you suggest in #39, that using your friends and acquaintances as your sample has more "real world validity" than what the BLS does. They use a sample too, and theirs is a lot bigger than yours, and is expressly designed to capture regional variations, seasonal effects, specific-industry effects (9/11 happens, people stop travelling, airlines go into the tank, it all pops out 2 years later as layoffs concentrated in cities with big aircraft manufacturing plants.) No humans are perfect, but those guys do know what they are doing.

What really matters from a "what do we do now?" standpoint is not whether unemployment is 5.9 or 5.7 per cent, but whether it's going up or down. So long as the BLS picks a methodology and sticks with it, such that whatever errors they have are in the same ballpark from month to month, we can use their percent change data with reasonable assurance that it's "close enough for government work."

[raloxk]

I think that per capita GDP growth is the most important variable in the survey.

[WOSG]

Have you overlooked the fact that the economy's recovery was decidedly weak due to several highly unusual factors:
1. 9/11 aftermath, especially in sectors like travel.
2. post-bubble stock market and corporate scandals in 2002, viz. worldcom and enron.
3. iraq war uncertainty, right up to march 2003.

Check the stock market - it followed that trajectory with a classic 'triple bottom' that dips on each of the above fears.

This 'perfect storm' has held growth back in 2003 and 2002. the recession was over for 28 months, but the recovery has been stifled. Then we fixed all of the above and had a bonus: tax cuts in may 2003. Since June 2003, we've been on track. Nick says wait six months ... he is right. January 2004 onwards, look at job growth. It is just beginning.