Economic Misery and Presidential Elections
Many factors influence voters as they decide how they will vote. The economic policies advocated by candidates and political parties are important factors in these decisions. No matter what policies a presidential candidate may propose, however, an incumbent candidate is often blamed for or credited with how well the economy is doing, whether or not the incumbent’s policies were actually the cause of the condition in question. Many voters base their decisions narrowly on how the nation’s economy is affecting them at the time. Therefore, in a presidential campaign in which an incumbent is vying for re-election, certain key measures of economic performance can help to predict the election outcome. This lesson shows how two economic measures, the Misery Index and the growth rate in real GDP per capita, can be used to make predictions about presidential elections.
POLITICAL CONCEPTS: Misery Index, Voting and elections
This lesson was originally published in CEE's Focus: Understanding Economics in Civics and Government. Visit CEE's store for more information on this publication and how to purchase it.
- Identify economic conditions likely to influence voter opinion.
- Examine economic data to make predictions about presidential elections.
Tell the students that in a future class period they will be considering economic factors that influence the outcomes of presidential elections. In order to do this as accurately as possible, they will need to collect information from someone who is of voting age (18 years or older).
Give each student a copy of Activity 1. Assign the students to collect the information called for from one person of voting age. Set a due-date for completion of the task, and clarify the directions as necessary. The person from whom the information is collected does not need to be a member of the student’s household. Parents, guardians, relatives, neighbors, co-workers, friends—all can serve as subjects for this interview. And even if the next presidential election is far off, it is important that the interviewees identify the issues that are, will be, or have been most important to them when considering which candidate to support for president. This activity is not intended to determine whether or not a person has voted in an election (or for whom she or he voted). Instead, it is designed to help students identify issues that are important to adults of voting age.
Collect the students’ completed forms from Activity 1 and organize the responses for use during a forthcoming class period. As you review the responses, highlight common answers and central tendencies that stand out. When you resume work on the activity with the class, write these common answers on the board, with notations to show the number of times each was mentioned in responses to Activity 1.
Call on the students to comment on the election issues you have listed on the board. How many of these are economic issues?
(Answers will vary, but several economic issues [e.g., unemployment, inflation, the federal budget deficit, income inequality, tax policy, Social Security, trade policy, etc.] will likely appear on the list. Other issues [e.g., the environment, immigration, energy, and educational policy] also have economic implications.)
By reference to the economic issues listed, emphasize the point that the state of the economy weighs heavily in voters’ minds as they decide which candidate to support. Quote the old political adage, “People tend to vote their pocketbooks.”
Ask the students: Do you think the economy is in good shape today? (Accept any answer.) Press further: What data do you use to support your answer?
(Many answers are possible, but be sure to steer the discussion toward measures of the unemployment rate, the inflation rate, and real GDP as important determinants of the current state of economic activity. As necessary, explain that GDP is a measure of overall production, inflation measures the percentage change in average prices, and the unemployment rate captures the percentage of those who are working or wish to work but cannot currently find a job.)
Display Slide 1. Use it to explain that some economic indicators are especially important in predicting election results. In particular, growth in real GDP per capita—growth in the value of final goods and services produced per person—is an important indicator of whether an incumbent president (or the candidate from the incumbent party) will be reelected. The growth in real GDP per capita is found by dividing real GDP for each year by the country’s population and then finding the percentage change from one year to the next. A second indicator, the Misery Index, also can be used to predict an election result. In any given year, the Misery Index is the sum of the inflation rate and unemployment rate. As the name of the Misery Index implies, high rates of unemployment and/or high inflation rates can cause economic misery. Economic misery usually means trouble for incumbent candidates.
Divide the class into groups of three or four students. Distribute a copy of Activity 2 to each student. Briefly review the columns in the table. (Note: You may wish to update the table with current data. If you do so, note that this table uses annual data. Updated data can be found easily by going to https://research.stlouisfed.org/fred2/ . The FRED website is provided by the Reserve Bank of St. Louis and gathers economic data from various sources in one place. For unemployment figures, use LNS14000000. For CPI figures to calculate inflation, use CPIAUCSL. For real GDP per capita, use series A939RX0. As noted above, the annual growth rate of real GDP per capita can be computed by calculating the percentage change in the levels of this series, using “chained dollars,” from one year to the next). Note: The term “chained dollars” is now frequently found in tables of macroeconomic data. This term comes from a procedure known as “chain-weighting,” which is a means by which statistical agencies convert economic data to “real” measures. Therefore a reference to “chained dollars” implies that the data are expressed in real, inflation-adjusted form (using constant prices instead of current prices). In most cases, it is unnecessary for students to know this, other than its use to differentiate between nominal and real measures.
As you review the columns in Activity 2, ask:
- What year since 1957 had the highest unemployment rate? (1982)
- What year had the highest inflation rate? (1980)
- What year had the highest Misery Index? (1980)
How does this compare to the Misery Index now? (Use current data.)
Distribute a copy of Activity 3 to each student. Ask the students, working in their groups, to complete Part I of Activity 3, using information provided in Table 2.
(Answers: 1960, Kennedy, Lose; 1964, Johnson, Win; 1968, Nixon, Lose; 1972, Nixon, Win; 1976, Carter, Lose; 1980, Reagan, Lose; 1984, Reagan, Win; 1988, Bush, Win; 1992, Clinton, Lose; 1996, Clinton, Win; 2000, Bush, Lose; 2004, Bush, Win; 2008, Obama, Lose; 2012, Obama, Win.)
Since the rest of the sheet depends upon correct answers, check the students’ answers. As necessary, explain which party was the incumbent and who won each election.
Tell the students that they will now try to predict who will win a presidential election. More than that: They will try to create a rule that can be used to make such predictions. They will begin by considering an example. Display Slide 2 and discuss the rule that it proposes: “The incumbent party usually wins if the growth rate of real GDP per capita is greater than 0% during the year of the election.” Call on the students to check this rule against Table 2. How well does the rule stand up to the data?
(Not particularly well. While it predicts correctly all seven of the incumbent wins, it is incorrect on five of the seven losses that were actually registered. It yields a correct prediction for a loss only in 1980 and 2008; it incorrectly predicts a win for actual losses in 1960, 1968, 1976, 1992, and 2000. Overall, the rule correctly predicts only 9 of 14 elections.)
Tell the students, working in groups, to complete Part II of Activity 3. Clarify the task as necessary. They must try to create two rules. One rule should be based on the real GDP per capita growth rate, the other on the Misery Index. You should provide a hint to speed the process: Tell the students that people often compare their situation in the election year to how they were the previous year. If the students have trouble coming up with these rules, show them the first two rules in Slide 3 and have them copy these rules to Part II of Activity 3.
Call on the students, group by group, to share their proposed rules with the class. Ask the class to decide which of the proposed rules work the best. Be sure that the students base their evaluations on how successfully each proposed rule does in fact predict winners. Also, the students should reject any rules that are not based on economic reasoning. While many such rules have been suggested from time to time—for example, picking winners by reference to the score of the Washington Redskins’ last home game—any successful rule should be based on acceptable economic theory.
If you have not already shown the students the first two rules in Slide 3, display them now. Ask:
- How well does the real GDP per capita growth rule in Slide 3 predict election outcomes? (The rule is correct in 11 of 14 elections. It is incorrect for the years 1968, 1976, 1992)
How well does the Misery Index rule in Slide 3 predict election outcomes? (The rule is correct in 12 of 14 elections. It is incorrect for the years 1976 and 1992.)
Continue the inquiry. Ask: Given the first two rules in Slide 3, which elections were the most difficult to predict?
(The 1976 and 1992 elections. Non-economic factors probably mattered a great deal in the 1976 election. The incumbent was Gerald Ford, who had been appointed by President Nixon. President Nixon, who had earlier resigned as a result of the Watergate scandal, was ultimately pardoned from criminal prosecution by President Ford. It was not a good time for a candidate to be associated with the Nixon administration or the Republican Party. A sluggish economy and George Herbert Walker Bush’s reneging on a promise helped to do him in. “Read my lips, no new taxes” haunted Bush after he ultimately introduced taxes and his own party revolted. The presence of fiscal conservative Ross Perot as a successful third party challenger gave Bill Clinton the plurality.)
Turn to the last rule in Slide 3: the Guaranteed Loss Rule. Note that not all losses would have been predicted by this rule. Nevertheless, whenever the rule’s two conditions have been met, the incumbent party has always lost (in 1960, 1980, 2000 and 2008). An incumbent party is in trouble when the Misery Index has increased and real output per person has slowed in an election year.
- Will these rules continue to perform well? If the timing is appropriate, ask the students to use the Misery Index rule and the Real GDP per Capita Growth Rule to predict the outcome of a forthcoming presidential election.
Use the following questions to review the lesson:
Based on the data you have examined in this lesson, do you believe that economic conditions have a strong impact on presidential elections?
(The answer should be yes; the economy usually does influence presidential elections.)
Is the incumbent party necessarily to blame for poor economic performance in the run-up to an election, or is it necessarily responsible for good economic performance?
(Answers will vary. Conventional wisdom holds that the President receives too much credit when the economy is doing well and shoulders too much blame when the economy is performing poorly.)
There is no extension activity.
The misery index is the sum of the
- inflation rate and the growth rate of real GDP.
- unemployment rate and the growth rate of real GDP.
- inflation rate and the unemployment rate.
inflation rate, the unemployment rate, and the growth rate of real GDP.
Inflation was the highest in
- the late 1960s and early 1970s.
- the late 1970s and early 1980s.
- the late 1980s and early 1990s.
the late 1990s and early 2000s.
Which one of the following growth rates is most likely to be lowest for the U.S. economy?
- Growth rate of nominal GDP
- Growth rate of nominal GDP per capita
- Growth rate of real GDP
- Growth rate of real GDP per capita
Assume that you are the president of United States. You are coming up for reelection next year. A bill that significantly increases government spending for projects across the country is awaiting your signature. While the increase in government spending will lower unemployment for the next year or two, you fear that it also will lead to significantly higher inflation in two years’ time. Given what you know about the correlation between the Misery Index and election outcomes, should you sign the bill?
(The students should note that by signing the bill, the president increases his or her probability of reelection. The policy, while reducing unemployment, will come at a cost of inflation in the future. To evaluate the policy overall, the students need to weigh the benefits of lower unemployment and reelection against the prospect of higher inflation in the future.)