Pocketbook Predictions of Presidential Elections

Pocketbook Variables are Almost Always Good Indicators of
Electoral Outcomes

By Patrick L. Anderson and Ilhan Kubilay Geckil

Patrick Anderson is the founder and principal of the consulting firm Anderson Economic Group LLC. He has served as the chief of staff of the Michigan Department of State and as a deputy budget director for the State of Michigan. He was an assistant vice president of Alexander Hamilton Life Insurance Co. and a graduate fellow for the Central Intelligence Agency. He holds a masters degree in public policy and a bachelors degree in political science, both from the University of Michigan at Ann Arbor.

Ilhan Kubilay Geckil is an economist with Anderson Economic Group. His work includes economic analysis, business valuation, strategy development, and forecasting. He holds an MA in economics from Michigan State University and a BA in economics from the KOC University in Turkey.

Political scientists have long known that “pocketbook issues” strongly affect the fortunes of presidents and other political leaders. Economists studying this relationship have established that certain economic factors—such as growth in income, inflation, and unemployment—directly affect the votes of the incumbent party in the presidential elections. Other institutional factors, such as the number of terms a party has occupied the oval office, also appear to affect voting patterns. We present a set of simple “rational voter” economic models, which includes economic and institutional factors largely known in advance of the election. Such models typically explain about 75 percent of the variation of the popular vote in presidential elections since 1916. Such time series models, however, are bedeviled by the lack of observations, since presidential elections are only held every four years. To address this weakness, we specify and estimate a model with two methodological improvements. First, we use voting and economic data from the twenty largest states over elections since 1980, estimating parameters using pooled estimation techniques. Second, we improve the specification of the relevant variables, such as unemployment and the incidence of “limited wars,” to more accurately reflect the motivations of contemporary voters. Our pooled state model forecast for 2004 indicates that economic conditions favor a narrow re-election for the incumbent President. We point out how some elections cannot be entirely explained with a rational voter model.

This paper won the Edmund A. Mennis Contributed Paper Award presented at theNABE Annual Meeting, October 3, 2004. PNC Financial Services Group sponsored the award.

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