Speaker 1: Welcome to Bloomberg Opinion. I'm Vonnie Quinn. This week, even
Speaker 1: though it's sort of a dead heat in terms of
Speaker 1: what the polls say, we still could have fifty three Republicans.
Speaker 1: We could still have fifty two Democrats, three Democrats even.
Speaker 1: Jonathan Bernstein on the mid terms in the final furlong,
Speaker 1: and later Stephen Wim on what political sciantists have discovered
Speaker 1: about the correlation between mid term voting patterns and economic conditions.
Speaker 1: But first, we still have some ways to go, and
Speaker 1: incoming data since our last meeting suggests that the ultimate
Speaker 1: level of interest rates will be higher than previously expected.
Speaker 1: The Fed chaired your own Powell There Bloomberg Opinions. Jonathan
Speaker 1: Levin joins to discuss a possible Fed tilts this week. Jonathan,
Speaker 1: two of the statements that jumped out to most analysts
Speaker 1: were the fact that the chair sinks the path to
Speaker 1: a soft landing is narrowing, and that the terminal rate
Speaker 1: may be higher than we previously thought. Well, I think
Speaker 1: it's an undeal. It will be higher than we previously thought.
Speaker 1: I think palace task here was to thread the needle.
Speaker 1: He needed to prepare markets of the fact that he
Speaker 1: was going to slow the pace of rate increases, potentially
Speaker 1: at the next meeting in December, but almost certainly by
Speaker 1: the time the first meeting rolls around in three without
Speaker 1: letting the financial conditions loosen. And so the key to
Speaker 1: all of that was a stroke of communications genius. He
Speaker 1: did that at the same time that he said that
Speaker 1: we are probably taking the terminal rate higher. Maybe we're
Speaker 1: talking about five five and a quarter percent instead of
Speaker 1: four seventy five. But as a tool for communicating, I
Speaker 1: really thought that it was a stroke of genius pairing
Speaker 1: the higher end point with the ratcheting down of the pace. Well,
Speaker 1: it's redundant to point this out, but we'll have November, December,
Speaker 1: and January data before the January three first meeting. Will
Speaker 1: that data be enough to show activity reacting to the
Speaker 1: FEDS increases? Possibly? So I think the FEDS reaction function
Speaker 1: at this point becomes a combination of things. They have
Speaker 1: left some room in the language where they say we
Speaker 1: are conscious of the long and variable legs, but we
Speaker 1: are also reacting to the data as it comes in.
Speaker 1: So that allows them to say a higher inflation print,
Speaker 1: for instance, does not automatically lock in seventy five basis
Speaker 1: points and vice versa. A lower inflation print should not
Speaker 1: lead the market to interpret this idea that maybe they're
Speaker 1: going to do nothing or they'll immediately switch to five
Speaker 1: basis points. So what would happen in that scenario if
Speaker 1: the NBER came out somewhere in all of this and
Speaker 1: said the economy is in recession. It seems like J.
Speaker 1: Powe is preparing us for this idea that they're going
Speaker 1: to keep pushing ahead. I thought it was interesting. He
Speaker 1: talked again about how they think about risk management, and
Speaker 1: he sounded much more concerned about this idea that they
Speaker 1: may take their foot off the breaks of the economy
Speaker 1: here and then inflation shoots back up, and then you're
Speaker 1: in a bad position. The inflation expectations may have become
Speaker 1: unanchored at that point, and it becomes a lot more
Speaker 1: difficult to get inflation back where it needs to be.
Speaker 1: All the other hand, he said, we have the tools
Speaker 1: to address a market downturn if we go there. He
Speaker 1: seems to be suggesting that his tools work a lot
Speaker 1: better for an overshoot on the upside with the policy
Speaker 1: rate than an undershoot that is doing too little well.
Speaker 1: He acknowledged the FED could be done with hikes before
Speaker 1: inflation hits two percent? What data points do you think
Speaker 1: would allow them the leeway to be done? And I
Speaker 1: think the key thing Nick Timorrose over at the Wall
Speaker 1: Street Journal brought this up. A very simple way to
Speaker 1: think about Taylor rules is just is the policy rate
Speaker 1: above some forward looking measure of inflation expectations. So when
Speaker 1: you see the policy rates sort of comfortably above where
Speaker 1: we think inflation is heading, then that will probably think
Speaker 1: that it has the dial set just right. How concerning
Speaker 1: was that the FED chair thinks the path to a
Speaker 1: soft landing is narrowing? Yeah, I mean you've got to
Speaker 1: think that that's just an acknowledgement of reality. Right, So
Speaker 1: the median expectation among economists survey by Bloomberger is that
Speaker 1: there's something like a sixty percent chance that the economy
Speaker 1: goes into a recession in the next twelve months. I
Speaker 1: think that economists generally get flak for their misrate and
Speaker 1: predicting recessions, but I'd like to remind people they're usually wrong.
Speaker 1: Insofar as they fail to predict recessions. They very very
Speaker 1: rarely call a recession that does not occur, Chilling, Jonathan
Speaker 1: Chilling sufficiently restrictive. Are we definitely talking about something with
Speaker 1: a five handle? Now? Yeah, I think that's clearly the case.
Speaker 1: And I think that that's pretty consistent with the framework
Speaker 1: that we talked about earlier, whereby, in a very basic
Speaker 1: understanding of how Taylor rules work, you want to see
Speaker 1: the policy rate above inflation. I think a slightly more
Speaker 1: elegant way of thinking about the same thing is to say, again,
Speaker 1: not where is inflation right now, but where is inflation heading?
Speaker 1: And are you going to see that policy rate cross
Speaker 1: that path of inflation at some point? That's obviously moving target,
Speaker 1: but the Fed is hoping to hit it. It was
Speaker 1: interesting to see the market reaction because clearly not everything
Speaker 1: the Fed chair said was priced in. We did see
Speaker 1: a sell off inequities. We also saw yields on the
Speaker 1: two year rising. What have the market not priced in
Speaker 1: for the two years? It's fairly understandable, right, we're now
Speaker 1: pricing in something perhaps a lot closer to five percent,
Speaker 1: maybe five and a quarter, maybe even a little higher
Speaker 1: than there. But it's not a huge change in expectations. Right.
Speaker 1: On the other hand, I think it's really hard to
Speaker 1: make the argument that stocks were well priced heading into this,
Speaker 1: I think a lot of people could have made a
Speaker 1: reasonable argument that bonds were maybe not cheap, but fairly priced. Box.
Speaker 1: On the other hand, I mean, man, you've really seen
Speaker 1: equity risk premiums come in quite a bit in this
Speaker 1: little rally recently, and as we get past earning season,
Speaker 1: which you know, in sort of a strange way, has
Speaker 1: been a little bit of a tailwind for equity, is
Speaker 1: it really seems like you're going to see some of
Speaker 1: that deflate again. You've actually written about the past with
Speaker 1: off landing running through earnings, so I guess you have
Speaker 1: that to look forward to. Yes, yes, indeed. So the
Speaker 1: point of my recent column is that C suite executives
Speaker 1: seem to be doing a rather elegant job, not unlike J.
Speaker 1: Pal himself, in slowly, slowly guiding expectations down into a
Speaker 1: sort of recessionary mind frame. And in a sense, if
Speaker 1: you're J. Pale, that's exactly what you want to see.
Speaker 1: You're really really trying to avoid this cascade of negative
Speaker 1: sentiment that could itself catalyze a recession. In this environment,
Speaker 1: you want to see as at prices slowly come down,
Speaker 1: but you really want to avoid that financial accident. Um Opinions,
Speaker 1: Jonathan live In More Next on Lumber Opinion, I'm Vonny Quinn. Well,
Speaker 1: the mid terms are finally upon us. Can't love your
Speaker 1: country only when you win. Democracy is on the ballot
Speaker 1: this year. I sup with Bloomberg Opinions Jonathan Bernstein to
Speaker 1: get the state of play just a few days out. Jonathan,
Speaker 1: let's start with the Senate. Obviously, polls changing by the day,
Speaker 1: by the hour, but it looks a lot closer than
Speaker 1: it did just a couple of weeks ago. Well, it's
Speaker 1: look close the whole time. It was sort of close
Speaker 1: with a little tilt of the the Democrats six weeks ago.
Speaker 1: Six weeks before that, it was close with little tilts
Speaker 1: of the Republicans. Now it looks like we just don't know.
Speaker 1: And it's seat by seat. There's several seats that could
Speaker 1: go either way, and so we can't even say, ah, well,
Speaker 1: if Pennsylvania goes to the Republicans, then we don't know
Speaker 1: the answer. There's about five or so seats that are
Speaker 1: still up for grabs, which means that even though it's
Speaker 1: sort of a dead heat in terms of what the
Speaker 1: polls say about who will have the majority. We still
Speaker 1: could have fifty three Republicans. We could still have fifty
Speaker 1: two Democrats, three Democrats. Even there's a lot of uncertainty.
Speaker 1: We just have to wait. Now. Do we know yet
Speaker 1: what voters are going to vote upon? Oh? I think
Speaker 1: that it looks more or less like what we thought
Speaker 1: from the beginning, which is that it's going to be
Speaker 1: a good year for Republicans because there's a Democrat in
Speaker 1: the White House. In mid terms, the normal reaction is
Speaker 1: to vote against the party that has the presidency, and
Speaker 1: in particular, if the president is unpopular, which Biden remains,
Speaker 1: then that puts the Democrats even farther behind the eight ball.
Speaker 1: Part of that has to do with the economy. People
Speaker 1: have a perception the economy is terrible. If you look
Speaker 1: sort of at the formula for what's supposed to happen,
Speaker 1: if we have a president at around approval, you would
Speaker 1: expect the Republicans to win a large number of House
Speaker 1: seats and certainly take at least the one seat they
Speaker 1: need to get the Senate majority. It looks right now
Speaker 1: possible that Republicans will get the sort of forty to
Speaker 1: forty five seats that the fundamentals would predict, but more
Speaker 1: likely they're going to fall short of that, and they
Speaker 1: could fall quite a bit short of it. So why
Speaker 1: is that happening? I think it still seems likely that
Speaker 1: abortion is the thing that's driving Democrats to have only
Speaker 1: a bad year instead of a terrible year. We have
Speaker 1: to wait and see just how many young people and
Speaker 1: suburban women come out and vote as well. We don't
Speaker 1: know what those are exactly. Pennsylvania, it's an interesting Senate race.
Speaker 1: Probably at this point it's just a question of you know,
Speaker 1: they all have their turnout machines working their best to
Speaker 1: get voters to the polls in the last minute, and
Speaker 1: they'll do their best at that. You know, every candidate
Speaker 1: who has a decent chance is advertising now, whether it's
Speaker 1: directly or through support from one of the party committees
Speaker 1: or from a superpack or something like that. So that
Speaker 1: tends to sort of cancel each other out. And yet
Speaker 1: President Biden is dumping their old day Saturday along with
Speaker 1: Barack Obama. Don't fall from that, okay, dope, And Donald
Speaker 1: Trump is also going to be in the state. They're
Speaker 1: obviously putting a lot of time and effort into Pennsylvania.
Speaker 1: Will it be a disaster for the party that doesn't win.
Speaker 1: Pennsylvania matters a lot because it has both a very
Speaker 1: contested Senate seat and also has very contested gatorial seat.
Speaker 1: It's true, on the one hand, we don't expect the
Speaker 1: last minute campaigning to shift vote very much, but that's
Speaker 1: because both parties do the last minute campaigning. If only
Speaker 1: Republicans campaigned in Pennsylvania over the last forty eight hours,
Speaker 1: then perhaps that would help them a lot. But it's
Speaker 1: sort of a zero sum game because both parties go
Speaker 1: full out, and they both go full out in all
Speaker 1: of the relevant districts, whether it's seats that originally leaned
Speaker 1: one way or the other. At this point they know
Speaker 1: which close races are and all of those are going
Speaker 1: to be fully funded and have surrogates and have all
Speaker 1: the other resources that a party can put into it.
Speaker 1: And that's why the last minute stuff sort of canceled
Speaker 1: each other out because there's so much of it on
Speaker 1: both sides. Michigan is a fascinating I mean, there's so
Speaker 1: many fascinating ones, but Michigan is particularly fascinating guests because
Speaker 1: a it's so close and be yours enough of Liz
Speaker 1: Cheney endorsing Elisa's Latin. Does that make a difference? You know,
Speaker 1: I think that there's very few endorsements that make a
Speaker 1: big difference in the end. Liz Cheney also endorsed the
Speaker 1: Democrat in the Ohio Senate race. The only endorsed that
Speaker 1: I've seen that might move a few votes because it
Speaker 1: was so unexpected is in Oklahoma, where there's a surprisingly
Speaker 1: competitive race. Former Republican and Sooner football star J. C.
Speaker 1: Watts has endorsed the Democratic candidate for governor in what's
Speaker 1: expected to be a surprisingly close race. So maybe because
Speaker 1: that was sort of unexpected and you know, it would
Speaker 1: make some difference. But the truth is in a Michigan
Speaker 1: House race, in Ohio Senate race, people who would be
Speaker 1: listening to Liz Cheney have already made up their minds
Speaker 1: long ago. Yeah, that's such a good point. Georgia, does
Speaker 1: it go to a runoff? My bet and I don't
Speaker 1: bet on politics and bet on horses. Um, I would
Speaker 1: guess that Georgia certainly seems like it's headed for a runoff.
Speaker 1: And that's very interesting because just as we had two
Speaker 1: years ago, it's very possible that control of the Senate
Speaker 1: could come down to a runoff in Georgia, and even
Speaker 1: if it doesn't, one would suspect that, you know, it
Speaker 1: could change the race in all kinds of different ways
Speaker 1: to have it coming once the rest of the Senate
Speaker 1: is already set, assuming that it is, it could take
Speaker 1: weeks to decide some of these races. Well, that's the
Speaker 1: other question. I mean, Nevada is also both candidates polling
Speaker 1: identically now, so whoever comes into the runoff with the
Speaker 1: lead traditionally has having advantage, especially if it's a challenger.
Speaker 1: But whether that's true in a situation where you know,
Speaker 1: all of a sudden, the race would be even more
Speaker 1: nationalized than it is, especially if we know the control
Speaker 1: of the Senate is at stake. What are your thoughts,
Speaker 1: Jonathan on whether the polls button is hit after Tuesday
Speaker 1: night and we have to wait many days, many weeks
Speaker 1: for many of the outcomes. Yeah, I think that's how
Speaker 1: the system is set up, and we should all be
Speaker 1: very aware of it, depending on which state it is.
Speaker 1: Even sometimes within the state it takes longer to do
Speaker 1: the votes for sometimes for very good reasons. You know,
Speaker 1: in some states they accept ballots that are postmarked by
Speaker 1: election day well, that takes some time. In Pennsylvania. Notoriously,
Speaker 1: the Republican legislature is not allowed pre opening and pre
Speaker 1: preparing ballots that come in. The absolutely ballots to be
Speaker 1: ready to be counted in advance, and so that means
Speaker 1: that they have to start sorting them in all that,
Speaker 1: which takes time, not until after the polls closed, which
Speaker 1: means we won't find out about Pennsylvania right away. And
Speaker 1: this is in the normal proceedings. Do you imagine that
Speaker 1: there will be people contesting results and that there might
Speaker 1: be you know, sort of election denial going on again,
Speaker 1: it seems likely. I think Bloomberg comes something like two
Speaker 1: sixty five Republican candidates who are supporting the false idea
Speaker 1: that election was decided by fraud. Presumably some of them
Speaker 1: are going to yell fraud if they lose, even if
Speaker 1: they lose by quite a bit. We saw that the primaries.
Speaker 1: We saw some Republican candidates lose Republican primaries in Republican
Speaker 1: states and still refused to conceive. And it used to
Speaker 1: be you needed something, some kind of irregularity, something that
Speaker 1: looked funny at least, And now that's not true. They
Speaker 1: are ready to say then because Donald Trump pioneered this,
Speaker 1: that normal regular accounting procedures must have been fraudulent if
Speaker 1: you lose. And we also should be careful because we're
Speaker 1: also going to see from both sides legitimate election challenges
Speaker 1: because that happens also not because of terrible fraud or
Speaker 1: anything like that, but because sometimes there are things that
Speaker 1: the parties can legitimately claim went wrong and they can
Speaker 1: go to court and try to determine it. And one
Speaker 1: of the things for us as observers to do is
Speaker 1: to make sure we can say, oh, yes, that's normal,
Speaker 1: going to court the way you do it normally, But
Speaker 1: then others are, wow, this is something that is really
Speaker 1: a threat to democracy. What happens, Jonathan, If Republicans have
Speaker 1: their best case scenario, what do they get to do
Speaker 1: for the next two years? You know, it's a great question.
Speaker 1: Republicans are post policy party. They have been running, for example,
Speaker 1: on inflation. They don't have a policy agenda on inflation.
Speaker 1: They've been running on crime, which is mostly a state
Speaker 1: and local issue anyway, but a lot of federal candidates
Speaker 1: have been running a crime They don't have an agenda
Speaker 1: on crime. Their main agenda on crime appears to be
Speaker 1: if you look at their commercials and their rhetoric that
Speaker 1: they are against defunding the police forces. But Democrats, except
Speaker 1: for a handful of them, aren't for defundings. In fact,
Speaker 1: Democrats at the congressional level have sent tons of money
Speaker 1: to local police forces in the last two years. So
Speaker 1: you know, exactly what Republicans would do differently is very
Speaker 1: hard to tell. The main things we have to worry
Speaker 1: about are that Republicans would take anti democratic measures and
Speaker 1: would promote chaos. So you know, we have to worry
Speaker 1: about the possibility of a government default over the debt limit.
Speaker 1: We have to worry about a shutdown once it's time
Speaker 1: to pass new appropriations bills, so that kind of thing
Speaker 1: we have to worry about. We have to worry about
Speaker 1: the possibility they're going to start impeaching the president, the
Speaker 1: vice president, cabinet members over nothing, So that's a concern.
Speaker 1: Other than that, you know, the parties have proved time
Speaker 1: and again that they are capable sometimes of getting a
Speaker 1: lot done during divided government, but this Republican Party, I'm
Speaker 1: not so sure, doesn't seem very likely. Do we need
Speaker 1: to be worried about violence at all? Jonathan, you know,
Speaker 1: you hope not. You also hope that police forces, that
Speaker 1: the FBI are working on it. There was a warning
Speaker 1: earlier about the possibility domestic terrorism. You know, we had
Speaker 1: the attack on Nanti Closi's house. Just recently, We've had
Speaker 1: other situations and we've seen, you know, some very inflammatory
Speaker 1: rhetoric coming almost not I wouldn't say exclusively from Republicans,
Speaker 1: but mainly from Republicans, and you know, we do have
Speaker 1: to worry about that, certainly after what we went through
Speaker 1: in the last General Action. Yeah, Jonathan, So that the
Speaker 1: day comes and the results start rolling in, or at
Speaker 1: least the early returns. What states are you watching most closely?
Speaker 1: Obviously you're watching all of them, I know that, But
Speaker 1: what once a you're mosting forward to watching. Well, I
Speaker 1: guess the thing that that I'll try to keep an
Speaker 1: eye on. In particular, in addition to majorities in Congress
Speaker 1: and the governor's is some of these lower profile races
Speaker 1: that could be very important, including the secretary of state
Speaker 1: races in states where we have some you know, election
Speaker 1: deniers um who have made some very extreme comments may
Speaker 1: have been nominated by Republicans and it's just not clear
Speaker 1: if we could guarantee free and fer elections going forward.
Speaker 1: So that's something that obviously is a little bit is
Speaker 1: quite a bit scary, I would say, and I'll be
Speaker 1: watching that in particular, Jonathan, when the history books are
Speaker 1: written eventually, do we look back at this period as
Speaker 1: a turning point? Do these mid terms change anything about
Speaker 1: the nature of politics and how it's conducted in the
Speaker 1: United States? You know, I think that we have to wait.
Speaker 1: You know, I've been listening a bunch of things that
Speaker 1: are quite frightening, and they are legitimately frightening. It's also
Speaker 1: possible that candidates can back off. It's possible that some
Speaker 1: of the candidates who have been saying the most extreme
Speaker 1: things once they're in office, um, may calm down and
Speaker 1: basically behave themselves as normal conservative politicians. Nothing wrong with
Speaker 1: conservative politicians, not a threat to democracy. It's the radicalism
Speaker 1: that is. And we don't know yet to what extent
Speaker 1: we could be fighting against radicalism at multiple state and
Speaker 1: local and federal levels, and to what extent that we'll
Speaker 1: just get republican policy, which you know, was normal, regular
Speaker 1: parts in politics again as opposed to sort of crazy
Speaker 1: parts in politics. But I guess it's it goes in
Speaker 1: psychos right, other than I We've had this throughout history
Speaker 1: where things get whipped up and suddenly there's a period
Speaker 1: of normalcy or quote unquote normalcy, and then suddenly there's
Speaker 1: a period of insanity again. It just it happens a lot. Well,
Speaker 1: if you look at the history of it, you know,
Speaker 1: violence in American policies is nothing new. You know, we
Speaker 1: had up through the Civil War slavery who was inherently violent.
Speaker 1: In the full century after the Civil War, we had
Speaker 1: a violent white supremacy aligned with a political party, the
Speaker 1: Southern Democrats, with the agreement from other Democrats and from
Speaker 1: Republicans in most cases to look the other way. And
Speaker 1: historians and political scientists looking at America through nineteen often say,
Speaker 1: we think of it as a democracy, but really was it,
Speaker 1: especially in parts of the country. Maybe somewhat in some
Speaker 1: parts and some whatnot in others. And we'll say, well,
Speaker 1: you know, American doxy really only dates back to the sixties.
Speaker 1: And then we had a wave of left wing violence
Speaker 1: in the late sixties and early seventies which was very destructive,
Speaker 1: a lot of people killed um and that did not
Speaker 1: have the sport of political party now this wave of
Speaker 1: violence very well may be alive with a political party,
Speaker 1: and that seems to be what the January System Commission
Speaker 1: is telling us about what happened on January six. We
Speaker 1: don't know yet how close the ties were, but ties
Speaker 1: between the Republican Party, the White House, Donald Trump, and
Speaker 1: some of these paramilitary groups and so you know, yeah,
Speaker 1: that's very scary, and we don't know how it would
Speaker 1: turn out. It's tempting to think, well, it's cyclical, we'll
Speaker 1: go through a bad phase and the end again like
Speaker 1: Captain in the early seventies. But we don't know that
Speaker 1: it could get worse. Numer opinions Jonathan Bernstein more next
Speaker 1: on Lumberg opinion. I'm Vonnie Quinn. Conventional wisdom would have
Speaker 1: it that voters or swayed at the ballot box, typically
Speaker 1: by economic issues more than anything else. Political science, however,
Speaker 1: says hold that thought research on past elections suggests that,
Speaker 1: at least when it comes to mid term elections, local
Speaker 1: issues and individual candidates have a bigger influence. Bloomberg Opinions.
Speaker 1: Stephen Mim, history professor at the University of Georgia, looked
Speaker 1: at the data. So Stephen received wisdom is that voters
Speaker 1: often vote their pocketbook. At this time, there is a
Speaker 1: question mark over how much role is going to impact turnout,
Speaker 1: and it seems to be changing by the day. But
Speaker 1: tell us a little bit about pocketbook issues and how
Speaker 1: much they actually impact mid terms. So pocketbook issues obviously
Speaker 1: play a huge role in presidential election, but in the
Speaker 1: mid terms their role has always been a bit more
Speaker 1: ambiguous in a long time ago, and by that I mean,
Speaker 1: you know, over a hundred years ago, if you had
Speaker 1: looked at mid terms and the economy and tried to
Speaker 1: figure out if there was a relationship between the president
Speaker 1: and party and his or hurt while it would have
Speaker 1: been his members in Congress, and whether they suffered in
Speaker 1: the mid terms, you would have seen a really clear
Speaker 1: connection at that time. And that has a lot to
Speaker 1: do with how Congress actually, at a hundred plus years
Speaker 1: ago played a much more instrumental and central role in
Speaker 1: formulating economic policy, to the point where the president actually
Speaker 1: did very little when it came to economics. And by
Speaker 1: the twentieth century you began to see something quite different evolve,
Speaker 1: and which, especially after the New Deal and FDR, the
Speaker 1: economy kind of becomes owned by the president, and Congress
Speaker 1: plays a kind of secondary and supporting role. So you
Speaker 1: have ended up in the twentieth century with it mattering
Speaker 1: less and less. Now that's what we now believe we
Speaker 1: know about midterm election. But I should add that political
Speaker 1: scientists have argued about this, and that in itself is
Speaker 1: a rather interesting story. But it's only recently that this
Speaker 1: has kind of come into focus. So obviously it's coming
Speaker 1: to focus again because people have more and more elections
Speaker 1: to analyze, Right, how do they analyze them? They to
Speaker 1: voters after they voted and asked them what they voted on.
Speaker 1: The voters tell the truth, tell us a little bit
Speaker 1: about the political science. So the political scientists who have
Speaker 1: studied this look at quote unquote objective economic data that
Speaker 1: are prevailing in a say, congressional district. In other words,
Speaker 1: unemployment rates, inflation is kind of a national trend, but
Speaker 1: but other economic data, and they try to figure out
Speaker 1: if if that's influencing how people vote, all other things
Speaker 1: being equal and all other things kind of being held stable.
Speaker 1: And you can do fairly sophisticated regression analysis where you
Speaker 1: can start to assess whether or not the economy seems
Speaker 1: to change the outcome in ways that are statistically significant.
Speaker 1: And for a long time in the nineteen sixties and
Speaker 1: nineteen seventies, there was a small cluster of statisticians and
Speaker 1: political scientists who are studying this, and they came to
Speaker 1: a conclusion that the economy definitely mattered in the internal elections.
Speaker 1: And then you know later and another political scientist's last
Speaker 1: name is Ericson, who's now Colombia, actually punched a huge
Speaker 1: hole in this consensus and pointed out that you actually
Speaker 1: started to really control for all variables, including how they
Speaker 1: had voted previously, because it's critical here that people start
Speaker 1: to change their vote to express their dissatisfaction with the economy.
Speaker 1: If you control for that, then the economy really peters
Speaker 1: to insignificance when it comes to mid term elections. That
Speaker 1: is so fascinating because let's talk about you know, absolutely
Speaker 1: and and so there are two models here that are
Speaker 1: kind of competing as to what a mid term election is.
Speaker 1: In the first, which is the old conventional wisdom, is
Speaker 1: it's like the opportunity for voters to pass judgment on
Speaker 1: the president and his party's handling of the economy, which
Speaker 1: then would translate to punishing potentially members of Congress or alternatively,
Speaker 1: you know, to reward the president and his party. And
Speaker 1: of course, what actually has all we has been the case,
Speaker 1: interestingly enough, is that the president's party almost always loses
Speaker 1: seats in the mid term, which no matter how well
Speaker 1: the economy is doing. So so that alone should give
Speaker 1: us a little bit of pause as to whether the
Speaker 1: economy is like the signal issue. And then if you
Speaker 1: start to think about specific midterns like Donald Trump and
Speaker 1: Keen well, his party lost seats in Congress, but the
Speaker 1: economy was doing quite well, you know, And so when
Speaker 1: you begin to do actual regression analyzes, it starts to
Speaker 1: seem the economy plays very little role in these local votes.
Speaker 1: The other thing that you have to wonder about is
Speaker 1: when candidates start campaigning on the economy because that's what
Speaker 1: they think their voters want to hear about it. Does
Speaker 1: this all mean that maybe voters don't actually want to
Speaker 1: hear so much about the economy. I think that's often
Speaker 1: times the case, insofar as voters recognize that their local
Speaker 1: representative or senator, probably in a larger scheme of things,
Speaker 1: has very little control all the economy. You know. Of course,
Speaker 1: we could argue the president really doesn't control of them.
Speaker 1: But that doesn't that doesn't seem to stop people from
Speaker 1: punishing presidents for for for presiding about economy. But I
Speaker 1: think that there's a tendency to assume that people are
Speaker 1: thinking about these things when in fact they may be
Speaker 1: thinking about other more local issues or cultural issues, what
Speaker 1: have you. For example, you mentioned Rob Wade and how
Speaker 1: that might factor into the election. Having said that, there's
Speaker 1: some evidence that Republicans and Democrats view different economic issues
Speaker 1: differently and act on them somewhat differently depending on what
Speaker 1: they believed to be the problem, which is itself interesting.
Speaker 1: You know, there were as Democrats to them be more
Speaker 1: sensitive about unemployment and Republicans are more sensitive about inflation exactly.
Speaker 1: I was just going to ask that, obviously, every midterm
Speaker 1: is special, but this midterm has the color of inflation
Speaker 1: all over it, because inflation is so right to be
Speaker 1: high right now, correct, And so there's always perhaps the
Speaker 1: exception that proves the rule, or just simply the exception
Speaker 1: to the norm, and we may see something where inflation
Speaker 1: actually does play a role. But again, the data up
Speaker 1: until now, over the last say, deventy years, would suggest
Speaker 1: that inflation has no impact on Senate races and only
Speaker 1: a negligible impact at best on House races. So why
Speaker 1: the difference between Senate and the House. I find it
Speaker 1: fascinating the political scientists have decided that voters actually look
Speaker 1: at their representative and think about what their representative can
Speaker 1: actually accomplish. Right, I think the question of the House
Speaker 1: and the Senate races is interesting. I guess one possibility
Speaker 1: is that House districts tend to be gerrymandered almost invariably.
Speaker 1: They tend to have a more extreme concentration of voters
Speaker 1: in one direction or the other, and thus might be
Speaker 1: more sensitive to economic fluctuation than the Senate races, which
Speaker 1: are statewide and thus but not jerryman. So that question
Speaker 1: of like how political parties react, it may be primed
Speaker 1: to overreact in certain highly gerryman districts. What about the market,
Speaker 1: So inflation is one thing. It obviously affects people's pocketbooks
Speaker 1: every time they go to the grocery store. But when
Speaker 1: the market tanks, does that have a similar impact on
Speaker 1: elections or does that have any impact? It does not
Speaker 1: seem to have any impact, Although I think that's probably
Speaker 1: that's a that's a more complicated question because stock ownership
Speaker 1: has become increasingly democratized in very recent history, like over
Speaker 1: the last thirty forty years. So it's possible that that
Speaker 1: could play a larger role now than it did, you know,
Speaker 1: back when only three of the American population on stock
Speaker 1: or something really quite low. So that's a really interesting point,
Speaker 1: and I don't know what the answer to that is.
Speaker 1: I do know that you know, they've done fairly steady
Speaker 1: analyzes of unemployment, you know, but of we're not actually
Speaker 1: confronting high unemployment right now, interestingly, so exact many of
Speaker 1: the economic indicators are in fact quite good, right and
Speaker 1: also obviously the president has engaged in certain actions to
Speaker 1: take things like gas prices down. You have to wonder
Speaker 1: how much that has an impact on how people think
Speaker 1: about inflation if their gaspel isn't as high as it
Speaker 1: was three, four or five months ago, right precisely. And
Speaker 1: so it's a very murky set of economic data anyway,
Speaker 1: it's certainly not unambiguously bad. It's actually in some cases
Speaker 1: pretty good, you know, And that's another issue that's kind
Speaker 1: of coming into play. But all of which is to say,
Speaker 1: given what we know about how little the economy plays
Speaker 1: in the terms. These races will buy and large probably
Speaker 1: be decided on other factors that might be cultural, or religious,
Speaker 1: or or even The most plausible explanation for why presidents
Speaker 1: suffer stepbacks and mid terms more generally is that there's
Speaker 1: a desire to curb the power of the president by
Speaker 1: kind of divid the government. That seems to be a
Speaker 1: fairly consistent theme that emerges from midterm election, So that
Speaker 1: might have something to do about the outcome whenever it
Speaker 1: comes more than the economy. For sure, the Federal Reserve
Speaker 1: every now and then it pops up as a political issue,
Speaker 1: and right you have to wonder if that's wise on
Speaker 1: the part of any candidate, or if it really has
Speaker 1: anything to do with how people think about the economy.
Speaker 1: It's a great question, and I think again it's much
Speaker 1: like a question of what the market is doing. So
Speaker 1: at any given time what the Federal Reserve is doing
Speaker 1: may affect people, but only a small number, namely those
Speaker 1: perhaps trying to buy a house for them. They may
Speaker 1: have very strong feelings about this, so whether that translates
Speaker 1: to electoral impact is probably a lot harder. This election
Speaker 1: should teach us a lot Steven Right. I imagine there
Speaker 1: are political scientists waiting for these mid terms to be
Speaker 1: over in order to input their data to their models.
Speaker 1: Absolutely no, I think that this one is kind of
Speaker 1: an interesting test case of what can happen. For example,
Speaker 1: when you have low unemployment but high inflation. You know
Speaker 1: that in itself is kind of an interesting paradoxical situation.
Speaker 1: What matters more so, well now soon University of Georgia
Speaker 1: history professor and Bloomberg Opinion columnist Stephen mim there. Please
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