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Saturday, August 21, 2010

Midterm Election Predictions

I often make predictions concerning the upcoming elections, so I thought I better get around to doing it before the outcome becomes obvious:

With regards to the midterm elections, I think there is little doubt that the Democrats will lose seats in both the Senate and the House; the party in control of the White House almost always does.  The bigger question, however, is whether the Democrats will lose control of one or both houses.  My sense is that unless things change dramatically between now and November, the Democrats will lose control of the House, but they will hang on to the Senate although just barely.

While Democrats will undoubtedly lament losing (and Republicans will undoubtedly celebrate gaining) control of one or both chambers, a divided government will probably boost Obama's reelection chances in 2012 because the government will most likely be more efficient (e.g., less likely to engage in pork-barrel spending), the stock market will probably rise, and Americans, for whatever reason, seem to prefer presidents who battle with an intransigent congress in order to get things done.  

As to the first point divided government is often the best brake on out-of-control spending. As Stephen Silvinski of the libertarian think tank, the Cato Institute, pointed out, government spending is much lower when neither party controls both the legislative and executive branches of government.  To quote just a portion of his article:
Since 1965, government has grown slower in periods of divided government than in periods of united government. On average, united government tends to lead to a 3.4% annual increase in federal spending in real per capita terms—over double the growth under divided government: 1.5%.
When you look at the data in terms of how fast government grew in relation to the economy, the results still favor divided government. The average yearly increase in government above and beyond GDP growth is 25 times faster when one party has a monopoly over both the legislative and executive branches than it does when gridlock is present.
This was exemplified by the Bush administration. For all his rhetoric about small government, in the first few years under George Bush, federal spending increased not just on defense but on education and other social services at a far greater rate than it did under Bill Clinton (see Micklethwait & Wooldridge, The Right Nation: Conservative Power in America, p. 140). Thus, while President Obama may lament his lack of ability to spend what he wants when he wants (not that he really could in his first two years), a more efficient government should benefit him in the long run.

A rise in the stock market would probably benefit President Obama as well. While I personally think that the market will rise between now and 2012 regardless of whether Republicans win the House or not, the market will probably rise higher and at a quicker rate if the Republicans do (I heard one stock market sage--I can't remember who--remark that the market will rise immediately if the Republicans won the House in November). And, of course, a rise in the stock market tends to lead to increases in consumer confidence, which in turn benefits the economy, and sitting presidents almost always get reelected when the economy is humming along.

Americans' preference for embattled presidents probably has its roots in our love of underdogs. It also helps to have another party that you can blame for the Country's troubles.  either way, having to go toe-to-toe with a Republican-controlled House will probably do Obama good.  As Gene Healy (also from the Cato Institute) notes:
Ironically enough... the embattled Obama might have a better shot at a successful presidency. Divided government tends to boost the president's approval rating.
It's no accident that the few modern presidents who left office with high popularity — Eisenhower, Reagan, and Clinton — had to battle a Congress controlled by the opposition. We tend to like the guy better when he doesn't have a free hand.
No doubt Obama's pulling for... a Democratic majority in 2010. But if he knew what was good for him — and for the country — he'd silently root for divided government.
So, will President Obama be reelected in 2012?  Too early to tell at this point (although I think he has a pretty good chance), but if you're interested in the "science" of predicting presidential elections, you may want to check out Ray Fair's book (aptly titled), Predicting Presidential Elections and Other Things. He also has a website that he maintains regularly that predicts upcoming elections (right now, he's predicting that the House vote will be close but currently favors the Republicans).

Update:  A good friend of mine who works as an investment banker (and has a pretty good sense of what will happen in the economy) believes that in two years, GDP will be "bumping along" (his words) at 2% and unemployment will be still quite high (8% officially; unofficially much higher). If he is correct, President Obama will have a difficult time getting reelected. Let's hope the GOP nominates someone worthy of being President.

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