John Irons's Blog


Economic News, Data and Analysis

The Economy and U.S. Presidential Elections: Links

So, it’s political
convention season… but I can’t help but thinking of Shakespeare, “…it
is a tale / Told by an idiot, full of sound and fury / Signifying nothing.”

Given the health
of the economy, Al Gore is nearly a sure thing to win in November.

In the next few
weeks I will be examining the role of the economy in presidential elections.
This week I will be providing some links to the most popular election prediction

Vote Equation (Ray Fair)

Fair, a professor
at Yale as been prediction presidential elections for over 20 years. His
equation (with assumptions) prediction gives Al Gore 52% of the two party
popular vote. Assumptions: 4% per capita real GDP growth for first 3 quarters,
2% inflation (15 quarter), 9 quarters above 3.2% real per capita GDP.

and Peace Model (Douglas Hibbs)

Hibbs, a professor
at Göteborg University has another equation. Hibbs assumes a 2.1 percent
annual growth rate of per capita real personal disposable income in the
3rd quarter of 2000 and 1.6 percent in the 4th quarter.  His model
predicts that Al Gore will get 54.8% of the two-party popular vote.

Forecast from The Dismal Scientist

Rather than forecasting
the popular vote, this model uses data at the state level to predict the
electoral count (using fixed effects). As of July, Gore leads 359 to 179.


This site was
set up (by me) for the 1996 election and compares predictions from several
econometric models including Fair, Hibbs, Tufte and my own specifications.
It uses a Java applet to let you enter the economic conditions and then
see what the models predict.

Electronic Markets

A market based
approach to “predicting” elections. Use real money to buy “stock” in candidates.
For the presidential election, they have both a winner take all market
as well as a vote share market. They also have markets for control of the
congress as well as others. The current price (as of July 31) indicates
that Gore and Bush are running about even.


Gallup Poll

Who needs economic
predictions when we have polls? (Well, polls aren’t perfect at predictions,
especially 6 months in advance, take a look at the historical
, including Dukakis’s 17
point lead
in July 1988.)

Want to make some
money? I’d suggest buying Gore in the Iowa market.

but a walking shadow, a poor player

That struts and
frets his hour upon the stage,

And then is heard
no more; it is a tale

Told by an idiot,
full of sound and fury,

Signifying nothing.

– Shakespeare, Macbeth, Act V. Scene V.

More readings

gives Gore a lead: Pocketbook issues favor Democrats
– CBS MarketWatch.

the Economy, Stupid?
– Kiplinger’s

– Christian Science Monitor

Filed under: Economy

Is there anything new about the New Economy?

It’s been about
2 1/2 years since I first wrote about what the term “New Economy” (aka
“New Era”, “New paradigm”) really meant. I intended to do another survey
of some of the new economy concepts; however, after doing a search and
finding over 85,000 web pages on the subject, I knew a survey was a bit
to ambitious.

After some scanning,
I found that my initial impression was probably correct – there are at
least as many definitions of the New Economy as there are people who use
the term. Here are some of the most common components…


The New Economy
includes a sense that technology is not only growing, but also accelerating.
There seems to be a a general feeling that everything is moving
faster – including technology growth. (I recommend Faster
by James Gleick on this general topic). Unfortunately, it is extremely
difficult – if not impossible – to measure technology growth directly,
so it’s hard to evaluate this claim (but see the productivity growth discussion



The world has
increasing become a global market. Expanded trade and financial integration
are much more of smooth processes than it is normally portrayed in the
media, but NAFTA, the european monetary integration as well as regional
crises in Asia often place Globalization in the “New” category.

Internet and
other New industries

The internet
certainly is new – probably the newest thing on this list. Other New Economy
industries often include the biotech, semiconductor, computer, software,
telecommunication, and other related industries. What seems to define a
new economy industry is its reliance on (primarily) the generation of knowledge
or information – or on the tools that aid these industries – rather than
on the actual age of the industry or the companies within the industry.
For example, IBM and AT&T are both considered new economy companies
despite their long histories.

Is this new?

For economists,
none of this is really new. Productivity improvements through trade and
globalization is something that Adam Smith knew about and economists have
been advocating for free trade for decades. Technological innovation –
though less well understood – has been a focus of economic growth for 50
years, and the subject a large and rapidly growing literature. The analysis
of the production of information and of networks is slightly newer and
more complicated than the analysis you’d find in an introductory economics
course – but not unfamiliar to the profession.

So is there
really anything new about the new economy?

What is
new is the relative importance of the new industries in the overall economy.
By itself, this would be a normal state of affairs – industries grow and
shrink all the time. The 2 elements that add a bit more meat, and a lot
more credibility, to the New Economy bones is the recent performance of
the US economy. We’ve seen high rates of growth and low unemployment with
low inflation and an increase in productivity growth (see graph below).
Add to this that it has been almost a decade since the US has experienced
a recession, and we might have something new going on.

So, we have what
seems to be a “cause,” the new economy, and an “effect,” outstanding economic
performance. The only problem is that we can’t seem to pin down a mechanism.
Are computers really leading to higher productivity – if so, why didn’t
we see any effect in the 1980’s? Globalization is not that new and probably
not that important. So what is it?

I have a suspicion
that 30 years down the road, we will fall back on the first component mentioned
above – that technology growth has increased leading to greater productivity
growth, but we will still be a bit in the dark about how and why.

“So far
there is little evidence to undermine the notion that most of the productivity
increase of recent years has been structural and that structural productivity
may still be accelerating.” A. Greenspan, July
20, 2000

Economy: What’s so new about it? Post in the Forum


Remarks by Vice Chairman
Roger W. Ferguson, Jr. At the New Economy
Forum, Haas School of Business, University of California, Berkeley.

Filed under: Economics