IHS Global Insight's presidential election equation predicts a 6-point election victory for Barack Obama, driven by the weakness of the economy. IHS Global Insight and its predecessor companies have estimated equations predicting the outcome of presidential elections for many years, using pocketbook concerns as the key to election outcomes.
It should not be surprising, given the weak state of the economy, that our equation predicts a victory for the Democratic challenger Barack Obama in Tuesday's presidential election, over the incumbent Republican Party's John McCain.
The election equation predicts the percent of the two-party presidential vote going to the incumbent party (the one that holds the White House). It ignores third parties. The key drivers of the equation are:
- Growth in real per-capita disposable income in the four quarters leading up to the election (i.e., the period ending in the third quarter of the election year). Weak or negative income growth hurts the incumbent party.
- Whether an incumbent president is running for re-election (in the model, this helps the incumbent party, unless the unemployment rate is high). This factor is not relevant in this election, since the incumbent George Bush is not running.
- A fatigue factor. If the same party has held the White House for two or more terms, voters are more likely to seek a change.
The equation has predicted the winner of the popular vote correctly in 13 of 15 elections since the Second World War. It was wrong in the close elections of 1968 and 1976. (It also predicted a Gore victory in 2000; although he won the popular vote, he did not win the Electoral College).
On this occasion, McCain's election chances are hurt both by the poor performance of income and by the fatigue factor. Only in one previous postwar election has real per-capita disposable income declined in the four quarters leading up to the election. That was in 1980, when it was down 0.3%. Jimmy Carter, the incumbent president, paid the price and lost heavily to Ronald Reagan. This time, not only is income declining, but it has dropped even more sharply than in 1980. Real per-capita disposable income, based on the advance figures published by the Commerce Department this week, fell by 0.4% from the third quarter of 2007 to the third quarter of 2008. The decline would have been about 0.5-percentage-point worse but for the government's economic-stimulus payments. (Note: we excluded the stimulus payments from the income calculation in our election forecast on the grounds that they do not reflect the underlying trend in incomes). The fatigue factor also hurts McCain, since the Republicans have held the White House for two consecutive terms.
The model predicts a 46.9% vote for McCain and 53.1% for Obama (or to put it another way, a 6-point Obama win). If correct, this would be a similar outcome to the 1992 election, where the Republican incumbent George H. W. Bush received 46.5% of the two-party vote to Democratic challenger Bill Clinton's 53.5%. The economy was the crucial issue in that election, too. Of course, George Bush was running as an incumbent president in 1992, which John McCain is not, so he has tried to distance himself from the present incumbent, George W. Bush, but it is not easy to do so.
The election model is obviously very simple—it takes no account of personalities, national security, or social issues. It takes no account of the fact that a Democrat win would mean the first black president, nor that a Republican win would mean the first female vice president. Nor does the global financial crisis enter into the model—except to the extent that it is tied in with the poor performance of income over the past year.
But although the model is simple, it has a key message, which is that anything that turns voter attention to the 2008 economy is likely to be bad for the candidate of the incumbent party. If John McCain can turn the race in his favor in the last few days, it would be a huge achievement, since the economy has stacked the odds against him.
