A Snowball's Chance

A Snowball's Chance

A Snowball's Chance

The conventional wisdom debunked.
Sept. 19 1998 3:30 AM

A Snowball's Chance

Clinton's polls and the stock market share a mathematical conundrum.

Impeachment is still a minority taste. In mid-August, 25 percent of adults supported impeachment; by the beginning of this week almost 40 percent did. But why is that number growing at all? The Starr report, Clinton's response, or just the slow sinking-in of the story may all be factors. But opinion polls themselves can change the results of opinion polls. They can even turn a minority view into a majority one without anyone actually changing his or her mind about the rights and wrongs.

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Here's how. Start with a poll indicating that 25 percent of voters think Clinton deserves to be sacked. Three-quarters think he doesn't. But of that 75 percent who don't think he should quit or be impeached, many are disturbed at the thought that he has lost the confidence of so many other citizens, and some will feel that, whatever their own views, the president should go because he has lost the ability to govern effectively. (This argument is already a subtheme among the commentariat.)

How many will feel this way? Impossible to say, of course. If everyone in the country except you felt that Clinton was disqualified on moral grounds, you would almost certainly conclude that he should go on effectiveness grounds alone. If half the country disagreed with you, you might or might not buy the effectiveness argument. If 10 percent of the country favored impeachment, you almost surely would not worry that this made the president ineffective.

Let's suppose that at 25 percent favoring impeachment, one out of 15 of the remaining 75 percent believes that having a quarter of the population wishing him impeached makes the president dangerously ineffective. The next time a pollster comes around, this small group tells him or her they think Clinton should go. Thus the next poll results show that an additional 5 percent of voters now want him out--and the total for ouster is now 30 percent.

Of the remaining 70 percent, one in 14 thinks that 30 percent favoring impeachment is too much for effective governance, and thus the next poll publicizes the news that 35 percent of voters think Clinton should go. If an equal number of pragmatic voters (now one in 13 of the remaining Clinton supporters) think that 35 percent is enough--they'll flip, and the next poll will show that 40 percent of voters think impeachment is warranted. Two iterations later, 50 percent of American voters want to send Clinton to the showers. And that's enough for Congress. Clinton is impeached by a snowball. A majority of Americans now believes he must go, even though only one in four actually believe he deserves to go.

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The dynamic eventually loses steam, of course. The halt comes when there is no one left who wishes Clinton would stay but thinks the current level of impeachment sentiment means he should go. But is the end north or south of 50 percent? We don't know.

This dynamic is perhaps easier to see in the stock market, as explained in a famous passage by John Maynard Keynes. Keynes wrote of:

Those newspaper competitions in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole. ... It is not a case of choosing those which, to the best of one's judgment, are really the prettiest, nor even those which average opinion thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practise the fourth, fifth, and higher degrees.

An example of Keynes' point: Suppose AT&T stock trades at $50. A group of optimistic but thickheaded investors suspects that a share of AT&T is actually worth $100. Most investors are skeptical, correctly divining that future earnings justify a price of only $50. But if some skeptics suspect that optimists will buy AT&T for $100, then these skeptics will buy AT&T and drive the price to, say, $60. The fact that the market newly contains optimists and speculating skeptics moves another group of more conservative skeptics to start buying, driving the price to $70--even though the new group believes the stock is only worth $50. After all, it's OK to buy a stock you know to be overvalued as long as someone else--it doesn't matter whether it's a skeptic or an optimist--will pay even more for it.

The process iterates, bringing more and more investors aboard, until someone gets spooked about finding a speculating skeptic or an idiotic optimist who will continue the game. The result is often a precipitous sell-off. Keynes writes, "The actual, private object of the most skilled investment today is to 'beat the gun,' as the Americans so well express it, to outwit the crowd, and to pass the bad, or depreciating, half-crown to the other fellow."

Keynes believed that this kind of speculation was pernicious. The reason is that it diverts attention from something called "enterprise," by which Keynes means the development of real operating businesses. Can a similar argument apply to the voting example? It is indeed troubling that Clinton could be driven out by voters who don't necessarily deplore his conduct. Something smells rotten about the idea that you must surrender your opinion to your neighbor. The real polity, like the real economy, ought to be what counts.