Saturday, August 2, 2008

NEWS: Economic model predicts Obama will win

Three studies say that Democratic presidential candidate Sen. Barack Obama will win between 52 and 55 percent of the popular vote in November, based on current grim economic forecasts. One model has correctly predicted the presidential winner 12 out of 14 times.

Any further darkening in the economic outlook -- many analysts think things will get worse between now and November -- would reinforce that election outcome.

"The economy is certainly not going to be a positive for the Republicans," said Ray Fair, an economics professor at Yale university who built the earliest of the models in 1978.

His model, which assumed tepid U.S. economic growth of 1.5 percent and a 3 percent rate of inflation, predicted the Republican candidate John McCain's share of the vote would be 47.8 percent, handing Obama 52.2 percent.

"It is a decent margin but it is not a landslide," said Fair, who ran the numbers in April. "It would have been much larger if there had been a recession in 2008."

U.S. economic activity doubled in the second quarter to a 1.9 percent annualized pace. But previous data was revised lower to show output contracted 0.2 percent in the final three months of last year, the weakest performance since 2001, and expanded only slightly at the start of 2008.

"It's the economy, stupid!" was a phrase extensively used during Bill Clinton's successful 1992 presidential campaign against George H.W. Bush to remind voters that a recession occurred during Bush's administration.

Fair's model, and a version built by St. Louis-based forecasting firm Macroeconomic Advisers, blend political factors with economics to scientifically nail down the view that voters care first and foremost about their own wallets.

Indeed, opinion polls consistently find that the economy is the most important issue for U.S. voters.

Headwinds
Macroeconomic Advisers' model incorporates whether the candidate is from the incumbent party, approval ratings and the length of time the incumbent party has held the White House to capture the extent voters may have tired of them.

Adding in its own estimates for U.S. economic growth, the unemployment rate and the change in energy prices, it finds that McCain will get just 45 percent of the vote.

"This model has correctly predicted the winning party 12 out of 14 times," Macroeconomic Advisers said.

"The weak current state of the economy, and the sharp rise in energy prices pose a significant headwind to the McCain campaign, if voters weigh these factors similarly to how they have in the past," they said in a note to clients.

The third work is a "Bread and Peace" model devised by Douglas Hibbs, a retired economics professor from the University of Goteborg in Sweden, who remains a senior fellow at the Center for Public Sector Research there.

He finds that U.S. presidential elections are well-predicted by just two fundamental forces: the weighted average per capita growth of real disposable income and the number of U.S. military deaths in foreign combat.

"Average per capita real income growth probably will be only around 0.75 percent at Election Day. Moreover, cumulative U.S. military fatalities in Iraq will reach 4,300 or more," he said in a June update of his model.

"Given those fundamental conditions, the Bread and Peace model predicts a Republican two-party vote share centered on 48.2 percent."

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