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Sunday, October 21, 2012

Romney wins by a hair??





I tend to put more stock in the use of models to predict than polling. Most of them seem to show a photo finish, but are trending towards a Romney victory. The polls seem to have a "weather-vane" type of quality to them, more open to manipulation. Granted these models are using data that itself is under question. 

This elections polling data may be clouded by factors like the "Bradley effect". We don't know what the impact of the "Silent Majority" without the benefit of 20/20 hindsight. 

The following data presented by a well-respected Yale economist looks at factors that cause people to vote the way they do historically.   

from the Washington Times:

Yale economist Ray Fair translated this generic observation into a very specific mathematical equation. Mr. Fair says you can predict the outcome of this year's presidential election by looking at only two economic variables: 1) The growth rate of the economy as quantified by the gross domestic product (GDP), and 2) the rate of inflation.

Think about this proposition for a moment. Mr. Fair says that just two economic indicators foretell the next president. Convention speeches do not matter. The choice of a running mate does not matter. The amount of money spent on the campaign does not matter. Even the televised debates are inconsequential. All that count are economic growth and inflation. Sounds crazy, but the model works. Mr. Fair has correctly predicted the outcome of all but one modern election — a track record that political scientists and pundits can only envy.

Also notice the omission from the Fair model of the unemployment rate. Although the persistently high unemployment rate has gotten the most media attention, the GDP growth rate is really the critical determinant of our economic welfare. Strong economic growth lowers the unemployment rate, raises wages and incomes, reduces poverty and even diminishes inequality. So, GDP growth alone really conveys how well the economy is doing. The other variables are redundant.

Mr. Fair predicts Mr. Obama goes into the election with an incumbent's base of 48.39 percent of the popular vote. Then economic growth and inflation come into play, as follows:
GDP growth: For every 1 point of real GDP growth in the first nine months of this year, Mr. Obama picks up an additional 0.672 percent of the popular vote. With GDP growth averaging 1.7 percent, Obama picks up 1.14 points in the popular vote. That takes him to 49.54.

Inflation: Inflation hurts Mr. Obama. He loses 0.684 voter points for every percentage point of inflation during his first term. With average inflation of 2.3 percent, this lops 1.57 points off his vote share. Now Mr. Obama is at 47.97 percent.

Strong quarters: The final ingredient in the Fair model is the number of calendar quarters the economy has grown above the long-term average of 3.2 percent. These are huge pluses for an incumbent, bringing in a whopping 0.990 voter points. Unfortunately for Mr. Obama, he had only two such good quarters in his four years. That brings in only 1.98 percent of the popular vote. That leaves Mr. Obama with only 49.95 percent of the popular vote.

Photo finish: What makes the Fair model so unique is not just its outstanding track record, but also its simplicity. To predict an electoral outcome, all you have to do is plug in a couple of economic numbers and spit out the results. You can "plug and play" this model far in advance of Election Day. Right now, Mr. Fair's math implies a Romney victory in November. But the difference in vote shares is so small — smaller than the standard estimation error — that Mr. Fair himself predicts a photo finish


http://fairmodel.econ.yale.edu/rayfair/pdf/2006chtm.htm






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