Is the fate of the Senate hanging on the outcome of stock and bond markets? Turbulent markets are shaking investors’ confidence and putting the economic management of the Obama administration under a microscope. Will it affect Democrats in November? James Pierson at Real Clear Politics writes:
The stock market correction may prove to be the last nail in the coffin for Democrats as we look ahead to the elections in less than three weeks. Voters, long feeling the effects of slow income growth, will be scanning their retirement accounts in the coming days and calculating how much of their wealth has flown out the window in just the past few weeks. In an investor society millions of people follow the markets on a daily basis, and exchange views and worries colleagues, friends, and family members. It will not take long for anxiety about the stock market to translate into decisions to send a message to the party in power on election day.
The economist Ray Fair of Yale University has put together a reliable model that predicts the two party share of the congressional vote on the basis of a few economic variables, inflation and GDP growth prominent among them. Up until a few weeks ago, his model was predicting a more or less even split between the two parties in the national popular vote that would translate into something close to a stalemate in Senate and House seats gained or lost. The polls up until recently, while leaning in a Republican direction, have remained stubbornly close in most Senate races — within a range of from 1 to 5 points. The results from Professor Fair’s models are generally consistent with these poll results — at least up to now.
But his model does not take into account surges and declines in the stock market, primarily because there has been little evidence in the past that the performance of those markets has much to do with election outcomes. That is a point well taken. But things are different today. For one thing, many more people than in the past own IRAs, 401k’s, and investment accounts of different kinds. They are precisely the kinds of people most likely to turn out in midterm elections. In addition, the stock market “correction,” if that is what we should call it, is taking many people by surprise. Few saw it coming. Moreover, as it is taking place in the final weeks of the campaign, it provides additional election ammunition for the Party out of power –much as the financial crash of 2008 aided Barack Obama and his party during that election campaign.
