Economics and Electing the
President
The work of Ray Fair
http://fairmodel.econ.yale.edu/
http://fairmodel.econ.yale.edu/vote
2008/index2.htm
http://fairmodel.econ.yale.edu/RAY
FAIR/PDF/2006CHTM.HTM
Presidential Election Links
http://fairmodel.econ.yale.edu/
http://www.apsanet.org/content_58382.cf
m
http://www.douglashibbs.com/Election2012/2012ElectionMainPage.htm
Economic Growth and the United States Presidency:
Can You Evaluate the Players Without a Scorecard?
David J. Berri
Department of Applied Economics
California State University – Bakersfield
Bakersfield, California 93311
661-654-2027
dberri@csub.edu
James Peach
P. O. Box 30001/ MSC 3CQ
Department of Economics
New Mexico State University
Las Cruces, NM 88003
505-646-2113
jpeach@nmsu.edu
ABSTRACT
In several academic papers and a book, Ray Fair (1978,
1996, 2002) has demonstrated a link between the state
of the macroeconomy and the outcome of the
Presidential Election in the United States. Beginning
with the 1916 election, Fair’s model, based on such
factors as economic growth, inflation, and incumbency,
was able to accurately predict the winner in virtually
every election. The purpose of this research is to take
the Fair model back to the 19th century. The question
we address is as follows: Can a version of Fair’s model
accurately predict in an environment where economic
data was not made available to the voter?
LOUIS BEAN (1948)
HOW TO PREDICT ELECTIONS
“Business depressions played a powerful role in throwing the
Republicans out of office in 1874, after 1908, and in 1932, and they
had exactly the same influence in ousting Democrats after the
panic of 1858 and during the economic setbacks of 1894 and 1920.”
“Harding in 1920, McKinley in 1896, and Cleveland in 1884 were
also depression-made presidents. Had the deciding electoral vote
been cast for the candidate who had the majority of the popular
vote in 1876, Tilden too, would have been a depression-made
President.”
THE WORK OF RAY FAIR
Fair, Ray C. 1978. “The Effect of Economic Events on Votes for
President.” The Review of Economics and Statistics (Vol. LX, No.
2):159-173 May 1978.
Fair, Ray C. 1978. “The Effect of Economic Events on Votes for
President: 1980 Results.” The Review of Economics and Statistics
(Vol. 64, No. 2):322-25 May 1978.
Fair, Ray. C. 1996. “Econometrics and Presidential Elections.”
Journal of Economic Perspectives (Vol. 10, No 3):89-102 (Summer
1996).
Fair, Ray C. 2002. “The Effect of Economic Events on Votes for
President: 2000 Update.”
http://fairmodel.econ.yale.edu/RAYFAIR/PDF/2002DHTM
Downloaded Feb 2, 2006.
Fair, Ray C. 2002. Predicting Presidential Elections and other things.
Stanford: Stanford Business Books.
A FAIR MODEL
VOTE=
a1 + a2GROWTH+ a3INFLATION +
a4PARTY + a5PERSON +
a6DURATION + a7GOODNEWS + ε
DEFINING THE VARIABLES EMPLOYED
HTTP://FAIRMODEL.ECON.YALE.EDU/RAYFAIR/PDF/2002D
HTM.HTM
VOTE = Incumbent share of the two-party presidential vote.
GROWTH = annual growth rate of real per capita GDP in the
first three quarters of the election year.
INFLATION = absolute value of the growth rate of the GDP
deflator in the first 15 quarters of the administration (annual rate)
except for 1920, 1944, and 1948, where the values are zero.
DEFINING THE VARIABLES EMPLOYED
HTTP://FAIRMODEL.ECON.YALE.EDU/RAYFAIR/PDF/2002D
HTM.HTM
PARTY = 1 if Democrats are in power, = -1 if Republicans are in
power
PERSON = 1 if the president is running, = 0 otherwise
DURATION = 0 if the incumbent party has been in power for
one term, 1 if the incumbent party has been in power for two
consecutive terms, 1.25 if the incumbent party has been in power
for three consecutive terms, 1.50 for four consecutive terms, and
so on.
WAR = 1 for the elections of 1920, 1944, and 1948 and 0 otherwise
GOODNEWS = number of quarters in the first 15 quarters of
the administration in which the growth rate of real per capita
GDP is greater than 3.2 percent at an annual rate except for 1920,
1944, and 1948, where the values are zero.
Table One
The Accuracy of the Fair Model
1916-2000
Actual VOTE Predicted VOTE
Incumbent Party
received by
received by
Year
Candidate
Challenger
incumbent
incumbent
Error
1916
1920
1924
1928
1932
1936
1940
1944
1948
1952
1956
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
Wilson
Cox
Coolidge
Hoover
Hoover
Roosevelt
Roosevelt
Roosevelt
Truman
Stevenson
Eisenhower
Nixon
L. Johnson
Humphrey
Nixon
Ford
Carter
Reagan
G. Bush
G. Bush
Clinton
Gore
Hughes
Harding
Davis
Smith
Roosevelt
Landon
Willkie
Dewey
Dewey
Eisenhower
Stevenson
Kennedy
Goldwater
Nixon
McGovern
Carter
Reagan
Mondale
Dukakis
Clinton
Dole
G.W. Bush
51.7
36.1
58.2
58.8
40.8
62.5
55.0
53.8
52.4
44.6
57.8
49.9
61.3
49.6
61.8
48.9
44.7
59.2
53.9
46.5
54.7
50.3
50.9
39.2
57.3
57.6
38.8
63.8
55.7
52.5
50.5
44.4
57.3
51.6
61.1
50.2
59.4
48.9
45.7
62.0
51.3
51.7
53.7
48.9
Source: http://fairmodel.econ.yale.edu/RAYFAIR/PDF/2002DHTM.HTM
-0.8
3.1
-1.0
-1.2
-2.1
1.4
0.7
-1.2
-1.8
-0.2
-0.5
1.7
-0.3
0.6
-2.4
0.0
1.0
2.9
-2.6
5.1
-1.0
-1.3
Actual
Winner
Predicted
Winner
Wilson
Harding
Coolidge
Hoover
Roosevelt
Roosevelt
Roosevelt
Roosevelt
Truman
Eisenhower
Eisenhower
Kennedy
L. Johnson
Nixon
Nixon
Carter
Reagan
Reagan
G. Bush
Clinton
Clinton
G.W. Bush
Wilson
Harding
Coolidge
Hoover
Roosevelt
Roosevelt
Roosevelt
Roosevelt
Truman
Eisenhower
Eisenhower
Nixon
L. Johnson
Humphrey
Nixon
Carter
Reagan
Reagan
G. Bush
G. Bush
Clinton
G.W. Bush
SUMMARIZING FAIR: 1916-2000
Only incorrect in three elections: 1960, 1964, 1992.
Average absolute error: 1.5
Results are driven by economic variables with no consideration of
a candidate’s appearance, debating talents, advertisements, or
general campaign skills.
TAKING FAIR BACK TO 1824
New measures of growth and inflation are needed.
Louis Johnston and Samuel H. Williamson, "The Annual Real
and Nominal GDP for the United States, 1789 - Present."
Economic History Services, April 2002, URL :
http://www.eh.net/hmit/gdp/
This data has been updated. Updated data did not change our
general findings.
THE MODELS TO BE ESTIMATED
Model 1
Original Fair Model (1916-2000)
Model 2
Fair Model with new measures of GROWTH and INFLATION
(1916-2000)
Model 3
Fair Model with new measures of GROWTH and INFLATION,
no GOODNEWS (1916-2000)
Model 4
Fair Model with new measures of GROWTH and INFLATION,
no GOODNEWS (1916-2004)
Model 5
Fair Model with new measures of GROWTH and INFLATION,
no GOODNEWS (1824-1912)
Model 6
Fair Model with new measures of GROWTH and INFLATION,
no GOODNEWS (1824-2004)
Table Three
Various Estimates of Fair’s Model
Dependent Variable is VOTE
White Heteroskedasticity-Consistent Standard Errors & Covariance
Model 1
Model 2
Model 3
Model 4
Model 5
Model 6
1916-2000
1916-2000
1916-2000
1916-2004
1824-1912
1824-2004
0.691*
0.457*
0.409**
0.413**
-0.135
0.342
(6.169)
(3.526)
(2.569)
(2.649)
(-0.560)
(1.577)
INFLATION
-0.775*
-0.808*
-0.988*
-0.943*
0.438
-0.191
(3.915)
(4.132)
(5.405)
(5.051)
(0.511)
(0.731)
PARTY
-2.713*
-2.054**
-1.644***
-1.252
0.647
-0.594
(5.434)
(2.644)
(1.946)
(1.363)
(0.344)
(0.580)
PERSON
3.251***
2.145
1.701
1.578
-0.372
1.705
(1.837)
(1.007)
(0.698)
(0.663)
(0.083)
(0.625)
DURATION
-3.628**
-4.238**
-5.216**
-4.519***
1.414
-0.448
(2.517)
(2.410)
(2.315)
(1.968)
(0.611)
(0.208)
3.855
5.268
2.905
2.262
-1.881
-0.835
(1.102)
(0.832)
(0.102)
(0.214)
Sample:
GROWTH
WAR
GOODNEWS
INTERCEPT
R-Square
(1.213)
(1.369)
0.837**
0.539
(2.932)
(1.238)
49.607*
52.871*
57.769*
56.892
48.458
50.889
(19.550)
(15.512)
(18.169)
(17.736)
(10.618)
(15.184)
0.923
0.845
0.828
0.769
0.093
0.116
0.683
8.883*
23
-0.248
0.272
23
-0.020
0.850
46
Adjusted R-Square
0.885
0.767
0.759
F-Statistic
24.000*
10.888*
12.015*
Observation
22
22
22
t-statistics in parenthesis below each coefficient.
* - Significant at the 1% level
** - Significant at the 5% level
*** - Significant at the 10% level
Table Four
The Accuracy of the Fair Model
1824-1912
Forecast Based on Model 3
Year
1824
1828
1832
1836
1840
1844
1848
1852
1856
1860
1864
1868
1872
1876
1880
1884
1888
1892
1896
1900
1904
1908
1912
Incumbent Party
Candidate
Challenger
Jackson
J.Q. Adams
J.Q. Adams
Jackson
Jackson
Clay
Van Buren
W. Harrison
Van Buren
W. Harrison
Clay
Polk
Cass
Taylor
Scott
Pierce
Buchanan
Fremont
Breckinridge
Lincoln
Lincoln
McClellan
Grant
Seymour
Grant
Greeley
Hayes
Tilden
Garfield
Hancock
Blaine
Cleveland
Cleveland
B. Harrison
B. Harrison
Cleveland
Bryan
McKinley
McKinley
Bryan
T. Roosevelt
Parker
Taft
Bryan
Taft/Roosevelt
Wilson
* - did not win popular vote
Actual VOTE
received by
incumbent
57.2
43.8
59.2
58.1
47.0
49.3
47.3
46.3
57.8
31.2
55.0
52.7
55.9
48.5
50.0
49.9
50.4
48.3
47.8
53.2
60.0
54.5
54.7
Predicted VOTE
received by
incumbent
39.8
56.9
58.0
43.7
51.4
58.6
53.5
62.0
55.2
56.4
42.9
48.5
55.9
50.3
50.0
45.1
59.1
61.2
53.7
59.5
49.9
46.8
50.6
Error
17.4
13.1
1.2
14.4
4.4
9.4
6.2
15.7
2.6
25.2
12.1
4.2
0.0
1.8
0.2
4.8
8.7
13.0
5.9
6.3
10.1
7.6
4.1
Actual
Winner
J.Q. Adams*
Jackson
Jackson
Van Buren
W. Harrison
Polk
Taylor
Pierce
Buchanan
Lincoln
Lincoln
Grant
Grant
Hayes*
Garfield
Cleveland
B.Harrison*
Cleveland
McKinley
McKinley
T. Roosevelt
Taft
Wilson*
Predicted
Winner
J.Q. Adams
J.Q. Adams
Jackson
W. Harrison
Van Buren
Clay
Cass
Scott
Buchanan
Breckinridge
McClellan
Seymour
Grant
Hayes
Hancock
Cleveland
Cleveland
B. Harrison
Bryan
McKinley
Parker
Bryan
Taft-Roosevelt
WHY DOES THE FAIR MODEL FAIR
POORLY BEFORE 1916?
Economic data did not exist.
U.S. economy not integrated.
Federal government was not held responsible for the
macroeconomy.
Non-economic issues were more important in the 19th century.
Econometrics and
Presidential
Elections
Larry M. Bartels
OVERVIEW OF THE FAIR MODEL

One of the most interesting aspects of Fair's essay is
the unusually frank and detailed description it
provides of the enormous amount of exploratory
research underlying published analyses of aggregate
election outcomes. What is the relevant sample
period? Which economic variables matter? Measured
over what time span? What does one do with third
party votes, war years, or an unelected incumbent? In
fewer than a dozen pages, Fair raises and resolves
many such questions, as any data analyst must. In
the process, he makes clear how much of what
Leamer (1978) has referred to as “specification
uncertainty” plagues this (or any other) statistical
analysis of presidential election outcomes.
CHOOSING A MODEL

….(Fair’s) choice of model specification seems to
have been guided by goodness-of-fit
considerations rather than by a priori political or
economic considerations. His data set begins in
1916 because “some experimentation . . . using
observations prior to 1916" produced results that
“were not as good.” Gerald Ford is sometimes
counted as an incumbent and sometimes not,
depending upon which treatment “improves the fit
of the equation.” Revised economic data produced
significant changes in several key coefficients,
prompting renewed searching “to see which set of
economic variables led to the best fit,” and so on.
WHAT HAVE WE LEARNED?




What most electoral scholars really care about is what the
relationship between economic conditions and election
outcomes tells us about voting behavior and democratic
accountability.
On that score, what have we learned, and what have we yet
to learn?
The clearest and most significant implication of aggregate
election analyses is that objective economic conditions -not clever television ads, debate performances, or the other
ephemera of day-to-day campaigning -- are the single most
important influence upon an incumbent president's
prospects for reelection.
Despite a good deal of uncertainty regarding the exact form
of the relationship, the relevant time horizon, and the
relative importance of specific economic indicators, there
can be no doubt that presidential elections are, in
significant part, referenda on the state of the economy.
THREE KINDS OF VOTERS…
My own thoughts…

Three voters in the election…





Republicans (vote Republican)
Democrates (vote Democrat)
Independents
The only free agents are independents.
These are voters who care so little, they
don’t join a party. And these are the
voters that matter.
Why the economy? It is the one issue
that matters to the independent.
Politics and football…

Some football coaches believe the run sets up the
pass. Others think the pass sets up the run. Fans,
though, don’t care. You win, you keep your job.
You lose, you lose your job.

Applied to politics… some people believe in smaller
government and low taxes. Others believe in more
government to solve problems.

Independents, though, don’t care. The economy
does well, you keep your job. If not, your fired.
What the politician believes is simply not relevant.