There’s an intriguing theory that the presidential bid of Vice President Kamala Harris was hurt by the performance of the U.S. economy — not because it was too weak, but because it was too strong. I can’t figure out whether I buy it, but it’s definitely worth a think.
The idea is that Democrats win presidential elections when the economy is performing badly, because voters want the strong safety net that Democrats promise. Republicans win elections when the economy is performing well, because voters don’t worry so much about the safety net and care more about low taxes, which they associate with Republicans.
Since the economy was doing well on Election Day, the argument goes, some swing voters who might have swung to Harris’s safety net opted instead for Donald Trump’s tax cuts, and that was the difference in an election decided by just a sliver of the electorate.
The theory is spelled out in a university magazine article, “The Economy Has Been Great Under Biden. That’s Why Trump Won,” by Lubos Pastor and Pietro Veronesi, finance professors at the University of Chicago’s Booth School of Business.
Pastor told me that election pundits make a mistake by assuming that voters think retrospectively and base their decisions on whether the party in the White House has done a good job. There’s some of that, he said, but it’s swamped by voters who think ahead to which party will do what they want in the coming four years. Right now, he said, they’re not too worried about needing the government.
For journalists, pollsters and others to say that people are confused about the economy, thinking it’s bad when it’s not, is “a tad arrogant,” Pastor said. “Our story is not arrogant at all. Our story is deeply respectful of the American voter. Everyone is voting in their own self interest.” In the election this month, he said, they showed that they’re feeling bullish and “willing to take on risk.”
Pastor and Veronesi developed their thesis in 2016 based on presidential elections up until then. He said the thesis has been borne out by the elections of 2016 (when times were good and Trump won), 2020 (when times were bad and Joe Biden won) and 2024 (when times were good and Trump won). Their article expounding the thesis was published in 2020 in the Journal of Political Economy, one of the top five general-interest research journals in economics.
The professors’ explanation of the 2024 results hinges on their assertion that a) the economy is strong and b) voters understand that. On a), they can rightly point out that the unemployment rate remains low and inflation has come down to barely above the Federal Reserve’s 2 percent target for it. On b), they can point to the records posted by the stock market — a good gauge of sentiment — and strong consumer spending. “I cannot get a restaurant booking,” Pastor said.
What about surveys showing that voters were unhappy about the state of the economy going into the election? Pastor dismisses them, arguing that voters’ actions (spending, buying stocks) speak louder than their words. “They express displeasure to the pollsters because they want to tell the pollsters that they don’t like the current regime,” he said. “You should take surveys with a grain of salt.”
Pastor said the thesis doesn’t apply in every election because a lot of the time, voters’ sentiment isn’t intense enough (in either direction) to make a difference. Other times it is. He pointed to three elections — 1932, 2008 and 2020 — when the economy was really bad, negative sentiment was strong and Democrats won.
One drawback of pointing to those three elections as evidence for the thesis, however, is that in all three cases, the incumbent president was a Republican, so the results could just as easily be explained by the conventional wisdom that voters judge parties retrospectively, based on how the economy does when they control the White House. This year’s election was a better test in that the conventional wisdom that voters think retrospectively would have predicted a Harris victory.
Pastor and Veronesi didn’t have elections on their mind when they started their research. They were trying to answer a different question, which is why the stock market does better when Democrats are in office. They concluded it’s not because Democrats do anything that makes stocks go up. It’s that Democrats tend to get elected when sentiment is negative and stock prices are low, so there’s lots of room for them to rise. Republicans tend to get elected when sentiment is strong, leaving little room for stocks to get any higher, Pastor said. Yes, he said, that means you should lower your expectations for Wall Street over the next four years.
Last month I interviewed Robert Gordon of Northwestern University, which is just up the lake from Chicago, about his own model for the economy and elections, which says that the state of the economy is a factor, but not a strong one, in election outcomes. This week I asked him about Pastor and Veronesi’s work. He wrote me that while his model accurately predicts every presidential election since 1956, the Chicago authors’ model misses five of them. As for 2024, he wrote, “they say the Republicans won because unemployment was low and the stock market was strong, whereas I say that the Republicans won because the Democrats were blamed for excess inflation and because the incumbent president’s approval ratings were low. Which do you think is more plausible?”
When I asked Pastor for his response, he wrote, “I don’t think it’s fair” to say that their model misses five elections, since the model doesn’t always make a strong prediction about election outcomes. He said the model does a good job of predicting stock market returns, which was its main purpose. He added, “There is surely room for more than one model of human behavior!”
As I said, Pastor and Veronesi have an intriguing theory, one that has passed muster with one of the top economics journals and seems like it could account for this year’s election results. But Gordon’s alternative explanation makes sense, too. And there are other theories. I would love to hear from readers on this one.
The Readers Write
On “How Elon Musk’s and Vivek Ramaswamy’s government-slashing spree could backfire,” I wonder if either of them has ever spent an hour and a half on hold trying to get through to Social Security or the Internal Revenue Service. That doesn’t sound like overstaffing to me.
Kay Beaudrie
Sneads Ferry, N.C.
The Republican playbook since the early 2000s has featured defunding of governmental institutions until they can no longer meet their mission. Then those same Republicans say, “See, the government can’t do its job, you need to farm it out to the privates.”
Ken Hine
Santa Fe, N.M.
Customers of cars and air travel are free to walk away if price and quality are not acceptable. In contrast, users of government services such as defense and street cleaning can’t walk away. So governments resort to replacing performance-based managerial rewards by rule-based bureaucracies. Musk and Ramaswamy would be well advised to not assume that measures of efficiency used in business also work in government.
Shyam Sunder
New Haven, Conn.
The writer is a professor emeritus at Yale School of Management.
The Department of Government Efficiency does not exist, so at a minimum it should be referred to as the “proposed Department of Government Efficiency.” More accurately, it should not be referred to as a department at all. The president-elect has intimated that it would sit outside the government. Please do not normalize their confused and obfuscating approach to the English language — or governing!
Stacy Dutton
Philadelphia
Don’t be a backseat driver. Let things play out; maybe it won’t work, maybe it will.
Gene Chollick
Astoria, N.Y.
Quote of the Day
“All successful revolutions are the kicking in of a rotten door. The violence of revolutions is the violence of men who charge into a vacuum.”
— John Kenneth Galbraith, “The Age of Uncertainty” (1977)
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