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Economics and Electing the President. The work of Ray Fair. http:// / http:// / vote2008 / index2.htm http:// / RAYFAIR /PDF/ 2006CHTM.HTM. Presidential Election Links

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the work of ray fair
The work of Ray Fair

Presidential Election Links


Economic Growth and the United States Presidency:

Can You Evaluate the Players Without a Scorecard?

David J. Berri

Department of Applied Economics

California State University – Bakersfield

Bakersfield, California 93311


James Peach

P. O. Box 30001/ MSC 3CQ

Department of Economics

New Mexico State University

Las Cruces, NM 88003


  • In several academic papers and a book, Ray Fair (1978, 1996, 2002) has demonstrated a link between the state of the macroeconomy and the outcome of the Presidential Election in the United States. Beginning with the 1916 election, Fair’s model, based on such factors as economic growth, inflation, and incumbency, was able to accurately predict the winner in virtually every election. The purpose of this research is to take the Fair model back to the 19th century. The question we address is as follows: Can a version of Fair’s model accurately predict in an environment where economic data was not made available to the voter?
louis bean 1948 how to predict elections
Louis Bean (1948) How to Predict Elections
  • “Business depressions played a powerful role in throwing the Republicans out of office in 1874, after 1908, and in 1932, and they had exactly the same influence in ousting Democrats after the panic of 1858 and during the economic setbacks of 1894 and 1920.”
  • “Harding in 1920, McKinley in 1896, and Cleveland in 1884 were also depression-made presidents. Had the deciding electoral vote been cast for the candidate who had the majority of the popular vote in 1876, Tilden too, would have been a depression-made President.”
the work of ray fair1
The work of Ray Fair
  • Fair, Ray C. 1978. “The Effect of Economic Events on Votes for President.” The Review of Economics and Statistics (Vol. LX, No. 2):159-173 May 1978.
  • Fair, Ray C. 1978. “The Effect of Economic Events on Votes for President: 1980 Results.” The Review of Economics and Statistics (Vol. 64, No. 2):322-25 May 1978.
  • Fair, Ray. C. 1996. “Econometrics and Presidential Elections.” Journal of Economic Perspectives (Vol. 10, No 3):89-102 (Summer 1996).
  • Fair, Ray C. 2002. “The Effect of Economic Events on Votes for President: 2000 Update.” Downloaded Feb 2, 2006.
  • Fair, Ray C. 2002. Predicting Presidential Elections and other things. Stanford: Stanford Business Books.
a fair model
A Fair Model




defining the variables employed http fairmodel econ yale edu rayfair pdf 2002dhtm htm
Defining the variables employed
  • VOTE = Incumbent share of the two-party presidential vote.
  • GROWTH = annual growth rate of real per capita GDP in the first three quarters of the election year.
  • INFLATION = absolute value of the growth rate of the GDP deflator in the first 15 quarters of the administration (annual rate) except for 1920, 1944, and 1948, where the values are zero.
defining the variables employed http fairmodel econ yale edu rayfair pdf 2002dhtm htm1
Defining the variables employed
  • PARTY = 1 if Democrats are in power, = -1 if Republicans are in power
  • PERSON = 1 if the president is running, = 0 otherwise
  • DURATION = 0 if the incumbent party has been in power for one term, 1 if the incumbent party has been in power for two consecutive terms, 1.25 if the incumbent party has been in power for three consecutive terms, 1.50 for four consecutive terms, and so on.
  • WAR = 1 for the elections of 1920, 1944, and 1948 and 0 otherwise
  • GOODNEWS = number of quarters in the first 15 quarters of the administration in which the growth rate of real per capita GDP is greater than 3.2 percent at an annual rate except for 1920, 1944, and 1948, where the values are zero.
summarizing fair 1916 2000
Summarizing Fair: 1916-2000
  • Only incorrect in three elections: 1960, 1964, 1992.
  • Average absolute error: 1.5
  • Results are driven by economic variables with no consideration of a candidate’s appearance, debating talents, advertisements, or general campaign skills.
taking fair back to 1824
Taking Fair back to 1824
  • New measures of growth and inflation are needed.
  • Louis Johnston and Samuel H. Williamson, "The Annual Real and Nominal GDP for the United States, 1789 - Present." Economic History Services, April 2002, URL :
  • This data has been updated. Updated data did not change our general findings.
why does the fair model fair poorly before 1916
Why does the Fair model fair poorly before 1916?
  • Economic data did not exist.
  • U.S. economy not integrated.
  • Federal government was not held responsible for the macroeconomy.
  • Non-economic issues were more important in the 19th century.
overview of the fair model
Overview of the Fair Model
  • One of the most interesting aspects of Fair's essay is the unusually frank and detailed description it provides of the enormous amount of exploratory research underlying published analyses of aggregate election outcomes. What is the relevant sample period? Which economic variables matter? Measured over what time span? What does one do with third party votes, war years, or an unelected incumbent? In fewer than a dozen pages, Fair raises and resolves many such questions, as any data analyst must. In the process, he makes clear how much of what Leamer (1978) has referred to as “specification uncertainty” plagues this (or any other) statistical analysis of presidential election outcomes.
choosing a model
Choosing a Model
  • ….(Fair’s) choice of model specification seems to have been guided by goodness-of-fit considerations rather than by a priori political or economic considerations. His data set begins in 1916 because “some experimentation . . . using observations prior to 1916" produced results that “were not as good.” Gerald Ford is sometimes counted as an incumbent and sometimes not, depending upon which treatment “improves the fit of the equation.” Revised economic data produced significant changes in several key coefficients, prompting renewed searching “to see which set of economic variables led to the best fit,” and so on.
what have we learned
What have we learned?
  • What most electoral scholars really care about is what the relationship between economic conditions and election outcomes tells us about voting behavior and democratic accountability.
  • On that score, what have we learned, and what have we yet to learn?
  • The clearest and most significant implication of aggregate election analyses is that objective economic conditions -- not clever television ads, debate performances, or the other ephemera of day-to-day campaigning -- are the single most important influence upon an incumbent president's prospects for reelection.
  • Despite a good deal of uncertainty regarding the exact form of the relationship, the relevant time horizon, and the relative importance of specific economic indicators, there can be no doubt that presidential elections are, in significant part, referenda on the state of the economy.
my own thoughts

Three voters in the election…

    • Republicans (vote Republican)
    • Democrates (vote Democrat)
    • Independents
  • The only free agents are independents. These are voters who care so little, they don’t join a party. And these are the voters that matter.
  • Why the economy? It is the one issue that matters to the independent.
My own thoughts…
politics and football

Some football coaches believe the run sets up the pass. Others think the pass sets up the run. Fans, though, don’t care. You win, you keep your job. You lose, you lose your job.

  • Applied to politics… some people believe in smaller government and low taxes. Others believe in more government to solve problems.
  • Independents, though, don’t care. The economy does well, you keep your job. If not, your fired. What the politician believes is simply not relevant.
Politics and football…