# Dubya and the Dow

According to *Wall Street Journal* White House reporter Bob Davis, the stock market's decline isn't *necessarily* good news for Dubya:

**[T]here is no evidence that stock-market declines, even large ones, affect presidential politics. It takes much broader economic changes--escalating inflation, sagging incomes, spiraling unemployment--to affect voters. So, in politics, as in economics, the central question is whether the stock-market fall presages deeper economic problems.**

As Chatterbox writes this, the stock market seems to be rallying somewhat from last week's big drops in the Nasdaq and the Dow, so this may all be moot. (If you aren't reading this item within seconds of its posting, you might want to click here for an update.) Still, Chatterbox was intrigued to learn that back in 1987, Democratic pollster Mark Mellman found *no difference* in the results of a presidential-preference poll taken the day before and the day after the stock-market crash. Back then, Democrats (including, no doubt, then-candidate Gore) briefly hoped they might benefit in the 1988 election from the crash. "Isn't this exciting?" Rep. Ed Markey enthused to Chatterbox, then a congressional reporter for *Newsweek*, when Chatterbox phoned him that fateful day. Chatterbox's then-*Newsweek* colleague Mickey Kaus used the Markey quote to lead a hilarious *Newsweek* cover story explaining why the cities of Washington and New York hate each other, but Markey's *Schadenfreude* was directed just as much against GOP smugness about the "seven fat years" of economic growth under Reagan. In this instance, though, Markey's hopes were dashed: The economy stayed robust, and Mike Dukakis, who beat out Gore for the Democratic nomination, lost to Dubya's daddy. (For the record, Markey's hopes that Washington would eclipse New York were dashed, too.)

But don't a lot more people own stocks now? Yes, *but*, Davis reports. If you factor out mutual funds and retirement accounts, "where investors are less likely to be affected by market swings," the percentage of families owning stock is about the same as it was a decade ago. On the other hand, Davis points out, stock-market swings get more media coverage now than they used to, and therefore pose a greater risk of affecting "voter psychology" than they did in 1987.

In his analysis, Davis relies heavily on the work of Ray Fair, a Yale economist who has devised a mathematical formula to predict outcomes of presidential elections. Like Davis, Chatterbox is inclined to think that economic determinism is the best way to predict who will win a presidential election. *Unlike* Davis--the only member of a book group Chatterbox belonged to several years ago who managed to get all the way through * War and Peace*--Chatterbox lacks the diligence (or, possibly, the brains) to make head or tail of Fair's mathematical equation. Here it is, lifted from an unpublished November 1998 paper of Fair's that's available on the Web:

*V = a _{1} + a_{2}I + a_{3}I*DWAR + a_{4}g3*I + a_{5}p15*I*(1-DWAR) + a_{6}n*I*(1-DWAR) + a_{7}DPER + a_{8}DUR*

(*V* is the *"*Democratic share of the two-party presidential vote"; *I* is "1 if there is a Democratic incumbent at the time of the election and -1 if there is a Republican incumbent"; *DPER* is "1 if a Democratic incumbent is running for election, -1 if a Republican incumbent is running for election, and 0 otherwise"; *DUR* is "0 if the incumbent party has been in power for one term, 1 for Democrats and -1 for Republicans if the incumbent party has been in power for two consecutive terms, 1.25 for Democrats and -1.25 for Republicans if the incumbent party has been in power for three consecutive terms, 1.50 and -1.50 for four consecutive terms, and so on"; *DWAR* is "1 for the elections of 1920, 1944, and 1948, and 0 otherwise"; *g3* is "growth rate of real per capita GDP in the first three quarters of the election year [annual rate]"; *p15* is the "absolute value of the growth rate of the GDP deflator in the first 15 quarters of the administration [annual rate]"; and *n* is the "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.")

According to Fair's 1998 paper, this could be simplified for the 2000 election to:

*V = .423 + .0070g3 - .0072p15 + .0091n*,

which apparently was a fancy way to say the Republicans had a slight edge on the 2000 presidential race based on what economic indicators said at the end of 1998. But since the economy grew faster than Fair expected at the end of 1998, this equation now says Al Gore will be the next president--assuming growth doesn't drop back to the levels predicted 17 months ago.