Predictions About the Future
The news that Q1 economic growth, though extremely low, came in somewhat above recession levels is a good opportunity to once again remind people that the big sources of uncertainty in the general election have to do with objective reality rather than candidate-attributes or campaign tactics. That stuff can matter, but the evidence suggests that it doesn’t matter as much as the fundamentals, and the fundamentals are, in a sense, unknowable.
Certainly if you made me pick, I’d say the economy will continue to be lousy and Iraq will continue to be a mess, and the Democrats will have a big advantage, but neither of those predictions can be offered by me (or anyone else) with any real degree of confidence at this point. And yet those factors will probably determine the outcome in November to a much greater extent than controversies about lapel pins or McCain’s bizarre campaign finance shenanigans.
38 Responses to “Predictions About the Future”
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April 30th, 2008 at 1:00 pm
Buffett (Warren) was on Squawk Box yesterday and he pointed out that anything under about 1% annualized is shrinking per capita since population grows at about 1% annually. So, there’s that.
April 30th, 2008 at 1:06 pm
I’d say the economy will continue to be lousy and Iraq will continue to be a mess, and the Democrats will have a big advantage, but neither of those predictions can be offered by me (or anyone else) with any real degree of confidence at this point.
I wouldn’t go out on a limb about a big Dem advantage, but I’m very confident that the economy will continue to be lousy and Iraq will continue to be a mess. Maybe it depends on your definition of “confidence,” but semantics aside we have truckloads of data and historic precedent. In fact, there are few things outside the realm of hyperbolic point-making (the sun will rise tomorrow) about which we can be more confident.
April 30th, 2008 at 1:08 pm
If you were right, John McCain wouldn’t have a chance in the general, instead he’s currently tied with barack in the polls. Having endless media love excuse almost every “gaffe” he committed and endlessly lauding his pandering as straight-talk has given him a chance to overcome the fundamentals. To a lesser degree, the same thing happened in 04 with Bush.
April 30th, 2008 at 1:13 pm
Oh, yeah, 00 with Bush as well.
Your theory is directly contradicted by the last three elections. Worse, it has nothing to say except that fundamentals are important…except when they aren’t.
April 30th, 2008 at 1:43 pm
Then again the ‘evidence’ is pretty thin, the models we have being based on only a few observed cases with too many exogenous variables to mention. We actually know as about as much about macro economics and counter-insurgency as the effects of campaigning, so I’d throw the effects of the campaign in the unknowable hopper along with the economy and Iraq.
April 30th, 2008 at 1:53 pm
The economy over the next seven months is actually pretty knowable at this point. What matters in terms of how people vote is not even the actual performance of the economy, but the perceived performance. The electorate generally agrees that the economy sucks right now. There is no way that is going to turn around in time for the November election. The process of building confidence in the economy is much slower than that. Maybe in January there was a change. By May, there is no chance at all.
If the Democrats can wrap the economy around John McCain’s neck, he’ll go down in flames.
April 30th, 2008 at 1:54 pm
People’s feelings about the economy tend to lag reality. People don’t feel better about the economy right after it bounces off the bottom. It tends to take some time until people feel better about the economy. Just ask George HW Bush.
April 30th, 2008 at 2:25 pm
A couple of things:
For all sorts of reasons, the GDP number OVERstates the first quarter economy — reliance on things like inventories which affect the numbers positively but don’t do the same for people; an inflation index which many people question as unduly optimistic; and the strong likelihood of downward revision, which unfortunately will get 1/10 the publicity of this initial estimate (much like Hillary’s margin of 9% in PA was buried by “she won by double-digits” initial reports). The point of this (relatively) rosy number was to get the clueless cooing, and it sure worked: Ali Velshi on CNN said, groundlessly, “We’re now further from recession than we were”.
But, as many have already said, it doesn’t matter, because the public hasn’t been fooled for some time and they’re not going to start being fooled now. If I go outside and it feels 15 degrees cooler than yesterday, but my thermometer says it’s the same temperature, I don’t think, I must be wrong — I assume I have a bum thermometer. Especially if the thermometer in question is part of an administration that’s made misrepresentation its standard.
Client #11, you’re wrong in many ways. Current polling means bupkis to the general election outcome — unless you credit Carter’s 58-33 lead over Reagan in Spring ‘80, or Bush I’s 54-34 over Clinton twelve years later. After both conventions you can start looking at polls seriously, but till then, you’re better off looking at the fundamentals (those who did were far less surprised by the outcomes in those two elections, as well as 1988’s, where Dukakis’ 17-point lead made no political sense).
You’re also wrong that the fundamentals were violated in either of the last two elections. No matter how much a disaster Democrats have always thought Bush, in ‘04 he was the incumbent head of a united party with an economy that grew decently in the election year and a war that had not gone fully to hell yet. It was a near thing, but the idea that he should have been so beatable is a Dem fantasy.
And as far as 2000, Al Gore did get the most votes, which is what the fundamentals predicted. Hard to account for chicanery.
And, in any case, this election is far worse for the GOP — worse, in fact, than any election has been for an incumbent party since 1980, or maybe 1932. A cratering economy and an ongoing foreign policy disaster, coupled with a (presuming Obama) charismatic challenger is the out-party dream.
April 30th, 2008 at 2:27 pm
Remember too that this administration is totally committed to cooking the books. Note how often an economic metric that wasn’t as dismal as expected has later been revised for the worse, after the story has run its news cycle course. Note too that the concept of “growth” includes distinctly unhelpful phenomena like rising energy prices. If that’s where the “growth” is, then yeah, this economy sucks big time.
April 30th, 2008 at 2:37 pm
NBER: A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.
http://www.nber.org/cycles/jan08bcdc_memo.html?loc=interstitialskip
We’re in a recession. I’m just sayin’…
April 30th, 2008 at 4:25 pm
Matt, could you just let Barry Ritholz guest-post on economic issues?
He’s ideologically similar to you, and he doesn’t write idiotically uninformed posts like the one you just did.
Seriously, this post is awful.
Among the multiple problems, one criticism I have to back up is the obvious one that per capita is what matters, and we’re shrinking there.
PS: Did you take ANY econ classes when you were in Cambridge?
April 30th, 2008 at 4:31 pm
You should have Paula Abdul do your predictions on the future
April 30th, 2008 at 4:31 pm
You should have Paula Abdul do your predictions on the future
April 30th, 2008 at 4:32 pm
You should have Paula Abdul do your predictions on the future
April 30th, 2008 at 4:56 pm
First of all, keep in mind that the stats on the economy tend to be revised in following months. So since this “growth” in the economy was so small, it could easily be a statistical error – which would mean we ARE in a recession (or will be with two quarters such.)
Second, notice how Matt discusses the economy or Iraq as affecting the election outcome, but neither he nor ANY OTHER DEMOCRAT EVER has discussed what will happen if Bush starts a war with Iran before November, despite the fact that Bush’s Chief of Staff, Josh Bolton, believed that “the Dems will lose over Iran.”
McCain is running on his “war hero” impression and both Clinton and Obama are hawks on Iran. If a war with Iran starts and does not go horribly bad before the election – which is why it’s likely to be started late before the election – McCain and the Republicans get a “war bounce”, while the Democrats look like idiots trying to both “support the troops”, denounce Iran for “starting it”, and then trying to differentiate themselves from McCain. It didn’t work for Kerry, it won’t work for either Obama or Clinton (not that Clinton has any chance of being the nominee anyway.)
And regardless, there is no downside for Bush and Cheney starting the war this year. Doing so in 2006 might have meant losing in 2008 if the war went badly (as it will). Starting one now, however, they can both win the 2008 elections AND tie the hands of whichever administration gets in, thus allowing their oil company and military-industrial complex cronies to continue to profit no matter who gets elected.
Result: I predict an Iran war within the next three to six months – and John McCain as the next President, handily defeating Obama.
April 30th, 2008 at 5:45 pm
For all sorts of reasons, the GDP number OVERstates the first quarter economy — reliance on things like inventories which affect the numbers positively but don’t do the same for people; an inflation index which many people question as unduly optimistic; and the strong likelihood of downward revision, which unfortunately will get 1/10 the publicity of this initial estimate (much like Hillary’s margin of 9% in PA was buried by “she won by double-digits” initial reports).
The 2007Q4 GDP revision was at 0.6%, from the initial 0.6%. I’m not sure how one can make the assumption that the revision will be downward. I’m still shocked at how much some people want there to be a recession. It makes more sense to wait for some more data before jumping on that wagon.
May 1st, 2008 at 5:59 am
The Federal government revised the way inflation is measured in 1983 and 1998, and not surprisingly both revisions resulted in lowering the number in comparison to what had been before.
If today’s inflation rate were measured using the methods that were in place in 1982, the rate would be 11.6%, not the “official” 4.0%. Which would in turn mean the current GDP figures would be solidly negative now. (Go to the economics blog The Big Picture by Barry Ritholtz if you want more info on this issue.
If you think that the method yielding a 4.0% inflation rate is the better measure of reality, then logically the inflation rate during the Carter years was actually much less serious than it was considered to be at the time. You can’t have it both ways.
DDP, there are large numbers of experienced and accomplished economists and CEOs who have concluded that we are in fact in a recession. They have concluded this because there is a mountain of economic data relevant to their own industries and to the economony as a whole that says we are in a recession. Given this, the only people “wanting” something at odds with objective reality (you know, that thing not found on Fox) are those who deny there’s a recession.
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