In a few weeks, I'll be re-debuting my 2012 fundamentals based Presidential vote prediction model. It is a re-specification of Douglas Hibbs' bread and peace model that if nothing else will make you think. Until that time (and even after it), I want to throw out some caution on any long term Presidential fundamental (i.e. non-poll based) forecast (including my own).
Currently, three solid models* are out and about in the blogosphere (with many more on a Google Scholar near you).
-The aforementioned Douglas Hibbs Bread and Peace model that utilizes quarter-to-quarter growth rates in real disposable personal income per capita (dpipc) expressed annually and fatalities in "unprovoked, hostile deployment of American armed forces in foreign conflict" over the term**.
model that employs real per capita GDP quarter-to-quarter growth rates expressed annually in the 13-15th quarter of a term, GDP deflator quarter-to-quarter growth rates expressed annually over the 1st-15th quarter of the term, and number of quarters in the first 15 quarters of the Presidential term where the real per capita GDP growth expressed annually rate is above 3.2.
model that uses 2nd quarter election year real GDP growth rate expressed annually, election year's June Presidential net approval (as measured by Gallup), and a dummy variable for number of terms the incumbent party has been in the White House.
Capitalizing on available economic forecasts from Wells Fargo
(as well as from Ray Fair
for his own prognostication), we can get an idea of what each of these models would call for if the election were today.
Hibbs' has the election teetering on the edge with Obama winning 50.05%-49.95% in the two-major-party vote; Fair's has Obama taking 52.5% of the two-major-party vote (down from 55.9% in his November prediction
); while, Abramowitz's sees Obama winning between 53-54%*** of the two-major-party vote.
All three estimates for Obama's vote share are pretty much within each model's (at least +/- 3.5%) margin of error, so the spread between them is more than understandable. Therein lies part of the problem, however.
These models (and my own) are not built for close elections. Yes, sometimes they will do very well in close (53.5% or less for the winner) races (such as in 2004), but sometimes they will have large errors (2000 for Hibbs and Abramowitz and 1992 for Fair) where their winner for the popular vote received at least 3% less of the vote than forecasted. Considering all the models are giving Obama a small majority of the vote, the words "margin of error" cannot be repeated enough.
What about difficulties specific to each model?
Solid as a rock for post-election explanation of election results, the Hibbs model (as with mine) is sensitive to very small changes in real dpipc.
For example, the Hibbs' model utilizing an economic forecast from two months ago would have had Obama winning 50.3%-49.7%. A small change to be sure, but the only difference in Wells Fargo's growth rate of real dpipc forecast was that it was 0.1%-0.2% higher in some quarters (e.g. 2011's quarter 1 forecast of 4.0% to 3.9% now).
Still not worried? September 2010's to November 2010's quarter 1 of 2011 Wells Fargo's forecast for real dpipc changed by 0.6%****.
Thus, it is more than possible that slight (to not so-slight) revisions, especially in the long-term, will be made to the real dpipc forecasts. These possible changes make any Presidential forecast based of this measure of economic strength difficult.
The Fair model is less sensitive to slight shifts to two of its main economic variables (GDP deflator and real per capita GDP). Its greatest issue (besides ad-hoc adjustments
) is the use of an interval variable to express the number of quarters during the first 15 quarters of a Presidential term in which real per capita GDP growth at an annual rate is greater than 3.2%.
Only one such quarter has occurred during Obama's Presidency, but Fair is predicting that there will be 3 more. My issue with this estimation is that I simply do not believe it will happen.
When we adjust Wells Fargo's real GDP growth rate to real per capita***** GDP (which basically takes about 1% off growth), no quarter-to-quarter growth at an annual rate for the rest of Obama's term climbs higher than 2.2%. Even the more optimistic Philadelphia Fed
consensus estimate (when adjusted to per capita rates) gets only to about 2.7% in the best quarter.
And if only one quarter during Obama's term has real per capita growth rate above 3.2%, Fair's model actually shows the Republican candidate winning the election with 50.5% of the two-major-party vote!
The Abramowitz model, on the other hand, actually lends itself the most to a long range forecast, despite its use of Presidential approval in June of election year. Why?
Presidential approval is only a small part of the model with a coefficient for the variable of only 0.107; holding all other variable values constant, we should only expect about a 2% difference in Obama's projected vote percentage if his net approval is -10% vs. +10% (a 20% swing).
The model's utilization of real GDP is also an asset as the forecast for 2012's second quarter real GDP rate expressed annually has held steady at right around 3%, according to Wells Fargo. Even if the actual growth rate ended up being 2%, Obama would only lose about 0.5% off his estimated vote percentage.
The possible problem with the Abramowitz model is that (as Abramowitz, himself, points out) in each of the last four Presidential elections the model has over-predicted the vote of the incumbent candidate by at least 1.85%.
If Obama's net June approval ends up at -5% (very possible), and real GDP growth expressed annually for the second quarter is at 2.9% (per Wells Fargo), a 1.85% error in the negative direction pushes Obama under 51%. Even so, I would say that Abramowitz's model still indicates that Obama is the slight frontrunner.
So what can we take away from this analysis?
Two models based entirely off the fundamentals have the election shaping up to be a 50/50 affair where stump speeches in suburbs of Denver could make the difference. The other model (with a poll variable) contends that Obama is the slight favorite.
I think we can say that the 2012 election is going to be very tight.
*Please visit each writer's link to get full details on their models. They do better job of explaining them than I ever could. If you're still confused, just ask me a question.
**Note that a President gets a one term grace period for wars that his party did not start, so this value is currently 0 for 2012.
***Given Obama's net approval is between -3% and +6%.
****Both of these forecasts were before the extension of the tax breaks to those in the upper income brackets. Evidence
suggests this extension may have negatively impacted real dpipc growth and thus had a negative effect Obama's changes of re-election.
***** Assuming the population grows by 670,000 each quarter. This number was achieved using the average quarter-to-quarter
growth during the four quarters of 2010.