John McCain's stock has been falling steadily since Sept. 15 at Intrade, where you can purchase futures contracts pegged to the outcome of the presidential race. Similar results can be found at the Iowa Electronic Markets, an "educational" venture run by the University of Iowa business school. Although a lot of money is trading hands at the gambling sites, newspapers aren't paying attention the way they did a century ago when Wall Street went gaga for election wagering.
Such daily newspapers as the New York Times, the Wall Street Journal, the New York Tribune, the New York World, the Chicago Tribune, and the Washington Post kept their readers abreast of the latest odds and wildest wagers.
Join me as I board the Way-Way Back Machine …
In a Nov. 8, 1904, story, the Washington Post estimated that $2 million had been wagered in New York City on that year's national and state contests (about $45 million in today's dollars). "A Wall Street firm put up $2,000 at odds of 2 to 1 that [President Theodore] Roosevelt will carry New York, and announced that it had $10,000 to place at the same odds, " reported the Post.
A dispatch from the financial district appearing in the June 5, 1920, Wall Street Journal found that Hiram Johnson was an even-money bet to win the Republican Party's presidential nomination. The line on the rest of the pack: Herbert Hoover, 8 to 1; Calvin Coolidge, 8 to 1; and Warren G. Harding (who took the nomination and the election) 6 to 1.
And in an Oct. 10, 1896, news short, the New York Times reported that:
George F. Baldwin of Chicago, accompanied by two sound-money members of the Stock Exchange, appeared in the trading room of that institution yesterday and offered to bet any part of $15,000 that Tanner, the Republican candidate for Governor of Illinois, would receive 25,000 more votes than Altgeld, the Democratic candidate. Mr. Baldwin also offered to wager large amounts at odds of 3 to 1 that McKinley would be elected President.
In today's dollars, that's close to a $370,000 wager.
The fossil record of newspaper clippings maintained by ProQuest is silent on whether anybody took Baldwin's wager, but if anyone did, he must have regretted it. By Halloween, the Times was recording 4-to-1 odds against John Peter Altgeld, and John R. Tanner trounced him in the election by about 100,000 votes.
News that Wall Street once harbored a robust political market came to me earlier this week from Tina Taylor, a publicist at ProQuest, who forwarded me a batch of clips on the topic culled by the company. I wanted to know more, so Taylor armed me with a ProQuest guest pass and invited me to investigate the archives for myself.
I'd still be prowling the bowels of ProQuest, opening hundreds of PDF files if I hadn't thought to run a Google search on the subject. Everything I ever wanted to know about the history of political markets was in a brief but entertaining paper titled "Historical Presidential Betting Markets" (PDF) by Paul W. Rhode, a specialist in U.S. economic history at the University of Arizona, and Koleman Strumpf, an economics professor at the University of Kansas School of Business.
Rhode and Strumpf, who studied "several thousand newspaper articles," found that election betting was common during most of the nation's pre-WWII history. Markets could be found in most major cities, but New York was its center.
"The scattered available evidence suggests that the New York market accounted from over one-half of the total election betting," they write, and the action peaked in 1916 when $165 million (2002 dollars) was wagered there. "This amount was more than twice the total spending on the election campaigns that year," they add.
The big New York dailies routinely supplied readers with the latest presidential odds in most of the contests between 1896 and 1924. Completing the historical portrait, Rhode and Strumpf write:
In the 1880s, betting moved out of the poolrooms and became centered on the Curb Exchange (the informally-organized predecessor to the AMEX) and the major Broadway hotels until the mid-1910s. In the 1920s and 1930s, specialist firms of betting commissioners, operating out of offices on Wall Street, took over the trade. In the 1890s and early 1910s, the names and relatively modest (four-figure) stakes of bettors filled the daily newspapers, but by the 1930s most of the reported wagering involved large (six-figure) amounts advanced by unnamed leaders from the business or entertainment worlds.
Compiling the historical data and analyzing it, Rhode and Strumpf discovered that markets did a fine job of forecasting elections in this era before scientific polling. "In only one case did the candidate clearly favored in the betting a month before Election Day lose, and even state-specific forecasts were quite accurate," they write.
The accurate results were probably not a fluke produced by easy-to-predict markets. Over the period studied, "Republicans won eight of the elections in the Electoral College and Democrats seven; the party in power won eight, the opposition seven," they write.
Campaign betting was an extraordinarily large business, too.
"For brief periods, betting on political outcomes at the Curb Exchange in New York would exceed trading in stocks and bonds. Crowds formed in the financial district—on the Curb or in the lobby of the New York Stock Exchange—and brokers would call out bid and ask odds as if trading securities," they write.
One criticism of the predictive power of modern election markets such as Intrade is that the bettors are merely parroting the wisdom found in the scientific polls. That criticism doesn't apply to the markets from the last century. Scientific polling didn't arrive until the mid-1930s, so these gamblers—I mean, investors—weren't pinching poll data to make their bets. To borrow James Surowiecki's insight, crowds betting their hard-earned money proved remarkably adept at aggregating political information. (Did the posted odds influence election outcomes? My gut says it's unlikely.)
Rhode and Strumpf attribute the demise of election betting to a number of causes. The law generally looked down on such wagers, and it grew tougher over time. Newspapers started giving less coverage to the wagers as they discovered "ethics." The legalization of pari-mutuel betting on horse races in New York in 1939 provided a much better product for gamblers. And stock exchanges started barring members from gambling on elections.
The final nail, Rhode and Strumpf write, was the advent of the scientific poll, especially Gallup's successful call of the 1936 election, which supplied newspapers with a "ready substitute for the betting odds, one not subject to the moral objections against gambling."
As our culture's moral objections against gambling approach zero, what excuse do daily newspapers have for ignoring the trove of political intelligence contained in its prices posted by Intrade, Iowa, and others? As indicators of future results, how much worse can they be than Zogby? They'd sure make better reading.
Greg Mankiw, FiveThirtyEight, and others are wondering this week if Intrade is out of line because its results aren't lining up with Iowa and Betfair, a U.K. gambling-futures site. Place your bets at firstname.lastname@example.org. (E-mail may be quoted by name in "The Fray," Slate's readers' forum; in a future article; or elsewhere unless the writer stipulates otherwise. Permanent disclosure: Slate is owned by the Washington Post Co.)