A correspondent--probably someone who hates me--sends me a piece from National Review:
Larry Kudlow on the Stock Market, Investor Class, George W. Bush, and John Kerry on NRO Financial: [T]he stock market itself has become a leading indicator of presidential elections. One rule of thumb... is that a flat or down market in the 10 months preceding an election can spell defeat for the incumbent. In 1992, the broad-based S&P 500 was essentially flat, and... George H.W. Bush was defeated. In 2000 the index declined, and... Al Gore lost in a cliffhanger.... [I]n both 1988 and 1996 the S&P rose more than 10 percent, signaling victory for... Bush and... Clinton. Where are we today? Stocks... are signaling a close call. Year-to-date, the S&P is higher by 1.5 percent.... However, since mid-August the S&P is up 6.2 percent.... It’s still possible that stocks are calling it for Bush.
Let's look at the data!... Stock market: 1988: +11%... 1992: +4%... 1996: +17%... 2000: -3%. Incumbent party vote shares: 1988: 55.9%... 1992: 46.5%... 1996: 54.7%... 2000: 50.3%.
Let's apply the tools of statistics! We have four data points.... Let's run a regression analysis.... We discover that the predicted incumbent share of the two-party vote is 49.1% + 0.31%(10-Mo. Stock Market Gain).... We also discover that the standard error of the slope coefficient is 0.21%--we cannot have any confidence at all that this equation is telling us anything.... We ignore this warning that we should shut down the operation and calculate the predicted George W. Bush share of the two-party vote anyway.... We find that, with a 10-mo. stock market gain of 1.5%, the prediction is that George W. Bush will win 49.6% of the two-party vote (and John Kerry will win 50.4%).
Nope. The stock market is not "calling it for Bush."
Why does National Review publish such dreck?
Posted by DeLong at October 29, 2004 03:19 PM | TrackBackWell, at least they have enough nostalgia for reality to at least try to fake a scientific approach...
Posted by: Tom Marney at October 29, 2004 03:25 PMAhhh, to quote St. Ronald, "Facts are stupid things."
I suspect that he would have thought regression analysis stupid as well.
Alas.
Posted by: LarryB at October 29, 2004 03:39 PMWhy isn't Rupert Murdoch broke?
Why isn't Rush Limbaugh in jail?
Why isn't Dick Cheney in an insane asylum?
I don't remember seeing regression analysis in My copy of the Bible.
Posted by: masaccio at October 29, 2004 03:52 PMActually, doesn't this regression only tell us what % of the vote Bush will get and what % Bush will not get. It doesn't tell us what Kerry specifically will garner, i.e., it doesn't take account of third parties.
In 1992 and 1996 we had Perot, and in 2000 and 2004 we've had Nader.
I'm too lazy actually to do the math, but it would seem if Nader gets more than 1.3% of the vote, then Bush will win.
And, yes, I know the electoral throws all this out the window.
Brad, I have some great news for you! Larry Kudlow has a new blog here. Now you can get your daily dose of Kudlownomics right on the Web.
Aren't you lucky?
Posted by: Brian at October 29, 2004 04:26 PMBrad, I have some great news for you! Larry Kudlow has a new blog:http://lkmp.blogspot.com/2004/10/laffer-optimism.html
Now you can get your daily dose of Kudlownomics right on the Web. And what's more, he's got links to all of the good stuff, such as the Drudge Report, Don Luskin, The Washington Times, Econopundit, and Mickey Kaus.
Aren't you lucky?
Posted by: Brian at October 29, 2004 04:29 PMWhy do they do it, Brad? Because they hate America.
Posted by: Melanie at October 29, 2004 04:30 PMIsn't FDR the only president to be reelected when the market was lower than when he took offce? Bye bye Bush.
Posted by: me at October 29, 2004 04:56 PMWisconsin? I suppose so. If Bush and Kerry split in Florida and Ohio, then Wisconsin becomes the deciding state and Wisconsin is leaning to Bush.
Here's a data point. The great bull market of the 1990's ended the same week Candidate GWB announced his tax plan to the electorate.
Kudlow can regress that up his ass.
The coward Cramer needs to be replaced by someone who will interrupt Kudlow's small-toothed little laugh with a kick in the nuts.
I volunteer.
Posted by: John Thullen at October 29, 2004 05:45 PMIt's a fun game, isn't it? Elections from the time we consider the modern political period (i.e. from after WW2) are such a small set, that you can find any number of apparently strong commonalities between winners and losers. Tall candidate vs. short candidate? Why, the tall candidate has usually won. That means that being tall must be the big factor that helps. Go Kerry! Incumbent vs. challenger with respect to the stock market from ten months ago? Go Kerry, maybe! The guy who wins Missouri wins the election? Go Bush! The guy who wins Ohio wins the election? Go Kerry! Maybe!
Posted by: Julian Elson at October 29, 2004 05:56 PMNational Review publishes such dreck because it's their job to support Our Leader, and when it comes to finding positives about Our Leader, dreck is about as good as it gets.
Posted by: DaveL at October 29, 2004 07:20 PMHowdy Brad...
The answer to you question would roughly be...because Larry Kudlow is a partisan hack!
Ding ding ding!
These Friedman worshippers are going to ride their ship all the way to Davey Jones' Locker.
Posted by: Patrick at October 29, 2004 08:45 PMI have written Larry Kudlow so many times about his Cracker Jack Box prize economic theory that he sent me false e-mail down messages. He could not find the truth with a global positioning sattelite, clairvoyance and direct assistance from God.
Posted by: William M. at October 30, 2004 01:20 AMBrad, I'm curious as to where you got those incumbent party votes shares. As I see it, we had:
1988: GHW Bush - 53.4%
1992: GHW Bush - 37.5%
1996: WJ Clinton - 49.2%
2000: AA Gore - 48.4%
Also, the electoral college votes do not come to your proportions.
Are you including House/Senate/Governor votes also, or what? I just want to make sure I understand your analysis correctly. (Don't worry, I'm not some Freeper who's trying to pick apart your post.)
Posted by: PB at October 30, 2004 01:45 AMBrad, I'm curious as to where you got those incumbent party votes shares. As I see it, we had:
1988: GHW Bush - 53.4%
1992: GHW Bush - 37.5%
1996: WJ Clinton - 49.2%
2000: AA Gore - 48.4%
Also, the electoral college votes do not come to your proportions.
Are you including House/Senate/Governor votes also, or what? I just want to make sure I understand your analysis correctly. (Don't worry, I'm not some Freeper who's trying to pick apart your post.)
Posted by: PB at October 30, 2004 01:45 AMBrad, I'm curious as to where you got those incumbent party votes shares. As I see it, we had:
1988: GHW Bush - 53.4%
1992: GHW Bush - 37.5%
1996: WJ Clinton - 49.2%
2000: AA Gore - 48.4%
Also, the electoral college votes do not come to your proportions.
Are you including House/Senate/Governor votes also, or what? I just want to make sure I understand your analysis correctly. (Don't worry, I'm not some Freeper who's trying to pick apart your post.)
Posted by: PB at October 30, 2004 01:46 AMBrad, what numbers are you using for the popular vote proportion for the incumbent party? Your numbers do not match up with any that I've seen in election results tables. Are you also using House/Senate/Governor races, or what?
Posted by: PB at October 30, 2004 01:48 AMPB - he specifically noted he was working from "two-party," so the numbers are adjusted to exclude Perot and Nader.
Since Badnarik is at least moderately likely to finish ahead of Nader, two party is not unreasonable for the 2004 election.
Posted by: Ken Houghton at October 30, 2004 05:27 PM1.5% return and he says this is good news? It's less than the risk-free rate and it's less than when daddy Bush ran for reelection. And daddy Bush did not do so well either. The regression was a nice touch but any quick read of his numbers should have deterred NRO from running this.
Posted by: pgl at October 30, 2004 06:28 PMNext Kudlow will spin this (and we have to get this all the way from Australia):
..
INVESTORS and traders lean to the Republicans, but the Dow is sending a signal that George W. Bush is going to lose office.
Since 1904, the incumbent has failed to win re-election if the Dow falls by 0.5 per cent or more in October. This October, the Dow has fallen 0.52 per cent.
Jeffrey Hirsch, who edits the Stock Trader's Almanac, told The Australian that the "Dow industrials, probably the best financial barometer out there, is saying that George Bush isn't going to get four more years".
..
http://www.theaustralian.news.com.au/common/story_page/0,5744,11246338%255E643,00.html
Better watch out Australia! You might not get any contracts in Iraq for the next 2 months with this kind of reporting. Or worse yet you might get kicked of the coalition of the coerced.
Posted by: Rajesh at October 31, 2004 10:39 AMNext Kudlow will spin this (and we have to get this all the way from Australia):
..
INVESTORS and traders lean to the Republicans, but the Dow is sending a signal that George W. Bush is going to lose office.
Since 1904, the incumbent has failed to win re-election if the Dow falls by 0.5 per cent or more in October. This October, the Dow has fallen 0.52 per cent.
Jeffrey Hirsch, who edits the Stock Trader's Almanac, told The Australian that the "Dow industrials, probably the best financial barometer out there, is saying that George Bush isn't going to get four more years".
..
http://www.theaustralian.news.com.au/common/story_page/0,5744,11246338%255E643,00.html
Better watch out Australia! You might not get any contracts in Iraq for the next 2 months with this kind of reporting. Or worse yet you might get kicked of the coalition of the coerced.
Posted by: Rajesh at October 31, 2004 10:41 AMKudlow knows two things. The first is a two-part thing. His bosses and his viewers/readers want him to say that Bush will win. Will win requires can win, so Kudlow hedges himself by saying Bush can win, given what stocks are doing. His read on what stocks are doing is based on reducing a data history that shows the incumbent needs a certain amount of gain from stocks, and dumbs it down into any positive gain.
This stuff is really pretty easy, once you stop trying to get it right. The right answer is X. Find a way to show how the facts get you to X. Then, you're done.
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