Economy May Not Influence Election As It Has in Past

By Lori Montgomery
Washington Post Staff Writer
Sunday, August 31, 2008

Home prices are plummeting, food and energy costs are sky high and, for many families, disposable income is stagnant or falling. Economic forecasters say conditions are the worst they've seen in a presidential election year in nearly three decades.

That should spell big trouble for the party in control of the White House, and the Democrats should be waltzing to victory, history suggests. But so far it hasn't turned out that way, even though voters by a wide margin name the economy as the most important issue in the campaign. As the presidential contest enters its final months, public opinion polls show Sen. Barack Obama (D-Ill.) locked in a tight race with Sen. John McCain (R-Ariz.).

Economists who say economic conditions can be used to explain the outcome of almost every presidential election since at least the 1950s are perplexed.

"Historically, the economy seems to matter. And given the state of the economy, it should be giving Obama an edge," said Chris Varvares, president of Macroeconomic Advisers, a St. Louis firm whose forecasting model found that Obama should trounce McCain by nearly 10 points in November.

Indeed, certain economic factors are so negative that, according to Varvares's model, 2008 should be one of the few years the economy "rises to the level of being a deciding factor." But, he said, the polls "certainly show something different."

Although the economy has not fallen into recession, which is generally defined as a significant decline in economic activity lasting more than a few months, there has been plenty of bad news. The nation has been shedding jobs, pushing the unemployment rate to 5.7 percent last month, the highest in four years. Record oil prices drove gasoline prices over $4 per gallon just as people began planning their summer vacations. And, depending on the projections, real disposable income is recording its weakest annual growth in an election year since at least 1980, when President Jimmy Carter lost the White House to Ronald Reagan during a national economic malaise.

Forecasting models by Macroeconomic Advisers and Global Insight, a Massachusetts forecasting firm, suggest that stagnant disposable income is "the key economic variable that should be hurting the Republicans," said Nigel Gault, chief U.S. economist for Global Insight. Gault predicts that per capita disposable income will decline in the current quarter, making this year "only the second time since World War II that we'll be going into the election with real disposable income having fallen" from the previous year, he said.

That should leave McCain fighting "a real uphill battle," said Gault, whose model shows Obama winning by 7 points.

That battle should be even tougher because McCain is seen by many political analysts as weak on the economy. His camp has committed a handful of public relations blunders. In July, adviser Phil Gramm seemed to dismiss the sluggish economy as a "mental recession." More recently, McCain was ridiculed for failing to recall the number of houses he owns.

To be sure, the polls could be wrong and Democrats could win by a big margin in November. In the meantime, however, the tight race has led some economic forecasters, political scientists and frustrated Democrats to conclude that factors other than the economy must be weighing more heavily than they have in the past.

One possibility is that the economy is not actually all that bad -- that, this year, it's not "the economy, stupid," as Bill Clinton's campaign famously put it in 1992.

Ray C. Fair, a Yale University economist who created the first economic forecasting model for U.S. presidential ballots in 1978, predicts electoral outcomes by using different economic data, such as inflation and the number of quarters of "good news" -- when the economy grew by 3.2 percent or more -- in the previous four years. His latest update shows Obama winning narrowly, by less than 3 points.

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