Friday, June 25, 2004

More bread makes incumbents winners 

You can depend on the StarTribune for a misleading headline. Here's the one used in this morning's paper:
Economy slows, thanks to ballooning trade deficit
So did the economy contract? No. The first quarter GDP figure revised by the Commerce Department came in at a growth rate of 3.9%. Mostly the change was due to more consumers buying imports than domestic goods. The P in GDP is product, and when we are buying less product from domestic producers GDP falls, even if we are buying the same amount of stuff and feeling just as good as we did otherwise. And real gross domestic purchases, which measures what people bought regardless of where it was made, accelerated slightly. (And it's not a mirage, since savings as a share of GDP also went up in the quarter.)

The numbers behind the GDP revision are still strong. Corporate profits up 32% year over year. Disposable personal income -- what people actually have to spend after the government takes its tribute -- grew strongly last quarter. Many models of economic effects on presidential elections use disposable personal income rather than GDP. Douglas Hibbs' Bread and Peace model is one poignant example. Using his model and the pre-2000 parameters, the healthy growth rate of real disposable income at 3.2% per year so far should lead to Bush receiving 56-57% of the two-party vote share, even including the deaths of American soldiers in Iraq to date.

So if the papers start discussing how the "slowing economy" is going to lead to a Kerry victory, don't bet the farm. Indeed, if you go to the Iowa Electronic Market, Bush's vote share contract is trading at around 53-54%. 'bout right.