Economic model

Detailed Campaigns

One of the complaints about the Republican Convention that will surely be repeated when the Democrats gather in Charlotte is that newly uttered proposals sound great but lack sufficient detail to be evaluated seriously. Who is going to do precisely what to Medicare? How much of what government services are going to be cut? It may be useful to look at a comparative example to ponder how more information could change the nature of campaigns. In the Netherlands each party provides excruciatingly detailed party platforms. No-one expects that voters will weed through all of this. The information needs to be translated into something more directly useful to voters. There has been a proliferation of on-line programs (and apps) similar to Project VoteSmart that help voters make choices based on answers to a set of policy propositions.There are at least four popular general ones (here is one in English ) and there are also more targeted programs for the elderly , kids , cannabis lovers ,...

Our Most Widely Ignored Public Intellectuals

Why don't those in power listen to economists Joseph Stiglitz and Paul Krugman?

(Flickr/World Economic Forum/Taekwonweirdo)
A prophet, says the Bible, is not without honor save in his own country. As the most prestigious economic dissenters of this era, Joseph Stiglitz and Paul Krugman form a category of two: astonishingly prescient, widely read, and largely ignored by those in power. Both won Nobel Prizes for their early virtuoso technical economic work. Stiglitz’s research, starting in the late 1960s, showed that markets do not follow the standard economic model of efficient competition, because a buyer or seller often has access to privileged information. Stiglitz enriched the well-established idea that transactions have hidden costs or benefits to the wider society. These “externalities,” he demonstrated, are not exceptional but pervasive. This insight applied particularly to the environment, where transactions are so often free to the polluter and costly to the planet. Krugman, in the late 1970s, did pioneering research challenging the orthodox conception of international trade. Where most economists...

How I Think About Presidential Elections Forecasts

(Flickr / Derek A)
Nate Silver’s newest critique of presidential election forecasting models has been making the rounds. He was kind enough to publish my response to his critique late last week while I was traveling, so I want to highlight it now. The essence of my response is this: Undoubtedly these forecasting models could be improved in various ways. I agree with several of Nate’s specific criticisms. (Thus, contra Jon Bernstein , I don’t think I’m “giving the models a pass.”) The models—despite their limitations—rarely predict the wrong winner, so the lay consumer of these models will not be grossly misled most of the time. By lay consumer, I mean someone interested enough in politics to care who wins the presidential election, but not much interested in “mean squared error” and other commonplaces of the “nerdfight.” Most political science knowledge about the economy’s role in elections, the effect of campaigns, and voter behavior does not come from forecasting models. There is no easy way to...

How to Forecast an Election

(Wikipedia)
In a long and detailed post, Nate Silver argues that “fundamentals”-based models—which rely on information about the economy and foreign affairs—are mostly inaccurate when it comes to forecasting elections. It’s hard to excerpt the post, which you should read, but here is a key passage: The “fundamentals” models, in fact, have had almost no predictive power at all. Over this 16-year period, there has been no relationship between the vote they forecast for the incumbent candidate and how well he actually did — even though some of them claimed to explain as much as 90 percent of voting results. His broader argument—which, presumably, will be detailed in his forthcoming book—is that accurate election forecasting requires modelers to take “horse race” polls into account. When you include presidential approval ratings and other related data, the odds of an accurate prediction increase dramatically. The question of how to forecast an election is fascinating, and I look forward to what...

Actually, Iowa is Extremely Representative in Terms of its Economy!

We are once again pleased to welcome back Professor Michael Lewis-Beck of the University of Iowa, with the following guest post suggesting that Iowa – far from being atypical in terms economic conditions – is actually the most “representative” state in the country in this regard! Before every presidential campaign, there is intense discussion over whether Iowa should retain its “first in the nation” status, in terms of the presidential nomination process. Often media commentators argue that it does not deserve this status. The current front page comments by A.G. Sulzberger ( New York Times, December 18, 2011, p.1 ) are illustrative, asserting Iowa “is an odd staging ground for an election that is often said to be all about jobs and the economy,” since the Iowa economy is decidedly atypical. But is this assessment objectively so, when a comprehensive systematic battery of economic indicators for the American states is examined? Is Iowa an outlier, a decidedly unrepresentative American...

Obama Wins...If Election Was Today

We are pleased to welcome professors Charles Tien of Hunter College and Michael Lewis-Beck of the University of Iowa with what we hope will be a regular feature on The Monkey Cage over the next 12 months: their current “nowcast” of the 2012 presidential election. In contrast to the usual election forecasting approaches, we offer nowcasting . An election nowcast predicts what would happen if the election were held “now” (Lewis-Beck, Nadeau, Bélanger, 2011). Thus, the nowcast acts as an invaluable early warning device, signaling what will come to pass unless things change. The nowcast comes from a relevant statistical model, whose parameter estimates are held valid across current moments. That is, the model (with its fixed constant and slope values) predicts the election outcome based on current (changing) X values, as the final contest approaches. Nowcasting, then, is dynamic, and election predictions may be issued on a quarterly, monthly, or even daily basis, with updates until the...

Thinking With Models

Scott Page at University of Michigan is offering a free graded course on ‘thinking with models.’ We live in a complex world with diverse people, firms, and governments whose behaviors aggregate to produce novel, unexpected phenomena. We see political uprisings, market crashes, and a never ending array of social trends. How do we make sense of it? Models. Evidence shows that people who think with models consistently outperform those who don’t. And, moreover people who think with lots of models outperform people who use only one. Why do models make us better thinkers? Models help us to better organize information – to make sense of that fire hose or hairball of data (choose your metaphor) available on the Internet. Models improve our abilities to make accurate forecasts. They help us make better decisions and adopt more effective strategies. They even can improve our ability to design institutions and procedures. In this class, I present a starter kit of models: I start with models of...

I have a theory

I have a theory about the nerd fight over political science forecasting models . So far, the debate has touched on a number of very interesting issues , but the thrust is whether political scientists are “too confident” in the models that predict the outcomes of elections on the basis of the economy, or whether there is room for the campaign to “matter.” The conclusion, which most reasonable people seem to agree on, is that of course there is room for the campaign to matter, but the fight continues over what that means about the importance of the economy. But I think the main source of conflict is a different perspective on why one might run these models in the first place. (And some political scientists may share that perspective.) Political scientists are not in the business of predicting the future. (I never thought journalists were, either.) Forecasting is good because it keeps us honest. Predicting outside the sample ensures you are not inventing an ad hoc explanation. But models...

Forecasting Elections with Real-Time Economic Data

This post is jointly written with Anton Strezhnev , a very bright Georgetown undergraduate. One of the challenges in forecasting elections is that economic data are often inaccurate when first released. Some of the adjustments are substantial. Just to illustrate this point, the image below ( source ) shows the change from original issue to current estimate in a composite index of economic performance: the Chicago Fed National Activity Index (CFNAI). The magnitude of some of these adjustments could potentially affect forecasts in what the models predict to be a close election . Moreover, there is serial correlation in the direction of the errors. So, if you are rooting for Obama you may think that the more recent positive adjustments mean that Obama has a slightly better chance than the models predict. If you are a forecaster, the serial correlation may allow you to better predict adjusted values. Economists have long recognized that the use of real-time versus ex post adjusted values...

The Economics Public Sphere

Mark Thoma, live at SSRN … economics lost communication with policymakers and practitioners leaving room for all sorts of “charlatans and cranks” to fill the void. In doing so, academics ceded important ground to think tanks aligned with one party or the other, to self-appointed economic experts, to business economists maximizing profit rather than public knowledge, and to a media that doesn’t always comprehend the economics that underlie a particular issue. Even in cases where there actually was fairly wide agreement among academic economists about a particular policy proposal, the public debate in the media did not convey that economists were largely united on the issue. There is another cost of disengagement as well. As academic economists severed ties with those who apply economic models to real world problems, the feedback from the users of models to those in academics who create them diminished. Because of this, the questions that academic economists ask drifted away from the...

The President’s Fate May Hinge on 2009

Incumbent Party’s Expected Vote Margin = 1.14 −.83 × (Years in Office) +4.51 × (4th-Year Income Growth) +1.66 × (3rd-Year Income Growth) −1.04 × (2nd-Year Income Growth) −2.34 × (1st-Year Income Growth) Most of the ingredients in this recipe for success at the polls are very familiar to students of American presidential elections. The incumbent party tends to do less well the longer it has held the White House. Robust income growth in the year of the election provides a huge boost to the incumbent’s electoral prospects. Income growth in the preceding year matters much less. The final two terms in this model are more surprising. Income growth in the second year of a president’s term is negatively (albeit weakly) related to his party’s subsequent electoral fortunes, while income growth in the year of his inauguration has a strong—and statistically reliable—negative effect. If true, this is very good news for Barack Obama, because the year of his inauguration, 2009, was one of the worst...

Home Is Where The Property Taxes Are Mad High

Matthew Yglesias on Pamela Johnson , who owns a storefront in D.C.'s Northeast H Street corridor and is upset about the streetcar being built: The question is why, exactly, is she upset? According to the article she’s upset because her property tax bill has tripled, which is putting her at risk of losing the building she owns in a tax sale. But doesn’t this mean her building has tripled in value? Ceteris paribus, I’d rather pay less property tax than more. But having your investment in a building appreciate is better than having it decline in value and then you get a tax break. At the same time, it seems like we should take Johnson at her word that some feature of this situation is making her worse off. But I wonder what it is, exactly. If you buy low and then wind up needing to sell high because you can’t cover the property tax out of your income, it seems to me that you’re still coming out ahead. At a minimum, it’s hard to see how she could have been better off had the city not...

Why Can't All of America Be More Like Mississippi?

Imagine if Scott Walker had run for governor of Wisconsin on the following platform: "Let's make Wisconsin more like Mississippi and Alabama!" Think he would have won? As Ed Kilgore explains , that's just what he's doing -- and what an entire movement is trying to do. Here's the theory: It is based on a theory of economic growth that is not only anti-statist but aggressively pro-corporate: relentlessly focused on breaking the backs of unions; slashing worker compensation and benefits; and subsidizing businesses in order to attract capital from elsewhere and avoid its flight to even more benighted locales. Students of economic development will recognize it as the "smokestack-chasing" model of growth adopted by desperate developing countries around the world, which have attempted to use their low costs and poor living conditions as leverage in the global economy. And students of American economic history will recognize it as the "Moonlight and Magnolias" model of development, which is...

CBO Defends Positive Assessment of the Stimulus.

Yesterday, the Congressional Budget Office released a report examining the effects of the 2009 stimulus bill on the economy. According to the CBO's analysis, the stimulus increased GDP between 1.7 and 4.5 percent, lowered unemployment between .7 and 1.8 percentage points, and increased the number of people employed to between 1.4 million and 3.3 million. Not bad! More interesting, though, is that the independent wonks felt the need to add an extensive appendix defending their analytical methods. Many critics of fiscal stimulus point out that much of the information we have on the efficacy of the program comes from macroeconomic models, since gathering the data necessary to know how the program works empirically would be nearly impossible (the CBO does use data provided by the recipients of stimulus money, but those only provide a snapshot of one section of the program and don't include second-order effects of the law). Since the bulk of the CBO's analysis comes from economic modeling...