Elections and Economics

1. Elections and Economics Can we predict the presidential election with economic thinking???

2. Costs and Benefits Analysis • Does everybody that is of voting age in the country vote in presidential elections? • If the right to vote is so important, why do some people CHOOSE to not vote? • Opportunity costs of voting too much???

3. The costs of not voting • 1. Dollar costs- No dollar costs may be imposed by fees or taxation according to the 24th Amendment. • 2. Other costs- • Cost of a valid ID? • Time taken to register • Time finding a voting location, or to vote by absentee ballot • Time taken to vote, which may also mean lost wages for voter who miss work, or babysitting, or transportation • Time needed to investigate the candidates and issues

4. Top ten reasons people gave for not voting-2004 (Census Bureau)Percent of voting-aged citizens that actually voted

5. Why would anyone vote then? • When the election is likely to be close and a persons vote may change the results: • People may vote to support a particular politician • People may vote to remove the incumbents (Get the rascals out!!!) • When the election is not likely to be close: • People may believe its their civic duty • People may vote to voice their opinions regardless of outcome • People may vote in order to fell that they are part of a winning team

6. Well then, WHO votes? • Can economist make predictions about what type of people are more likely to voting? • If so, can this type of data be useful in an election? • Who votes more??? 2008

7. Gender? • Men or women? • . • . • . Women (65.7) Men (61.5)

8. Ethnicity? • White or Black or Asian or Hispanic? • . • . • . • White (66.1) Black (64.7) Asian (47.6) Hispanic (49.9)

9. Location of birth? • Native born or Naturalized citizens? • . • . • . • Native(64.4)..Naturalized (54.0)

10. Martial status? • Single or married or divorced or separated ? • . • . • . • Single (53.5) married(69.9) divorced (59.0) separated (53.5)

11. Income levels? • Low income (below $20,000) or Middle income (Between 20,000 and 99,000) or High income (over $100,000)??? • Low- 51.9 • Middle – 66.1 • High – 79.8

12. Employment status? • Employed or unemployed or not in labor force? • . • . • . • Employed (65.9) Unemployed (54.7) • Not in Labor Force(60.3)

13. Education Level? • Did not Graduate or High School or Bachelors or Masters/ PHD? • . • . • . Drop out (39.4) HS (54.9) BA/BS (77.0) MA/MS/PHD (82.7)

14. Location, Location, Location? • Northeasterners or Midwesterners or Southerners or Westerners? • . • . • . • NE (62.9) MW (66.2) S (62.6) W (63.3)

15. Veteran Status? • Vet or non-vet? • . • . • . • Veteran (70.9) Non-Veteran (62.8)

16. Housing Situation • Home owner or renter? • . • . • . • Owner (67.8) Renter (51.6).

17. Age??? • Old(over65 yrs. old) or Middle(45 to 54 yrs. Old) or Young (18 to 24 yrs. Old0 )??? • . • . • . • Old (72.4) Middle aged (71.5) Young (48.5)

18. Questions??? • 1. Sue is paid an hourly wage of $10. She punches a time clock every day. John is paid an annual salary of $140,000 a year. He is allowed to take off 2 hours a day for lunch. For Sue and John it will take about 2 hours to get to the polling place, vote, and get back to work. What can be said about the costs and benefits of voting for these two citizens? • Sue values voting more than John • John values voting more than Sue • Sue’s opportunity cost in terms of lost wages is higher than John’s • John’s overall opportunity costs is more than Sue’s • Nothing about costs or values can be determined

19. 2. Which is not an opportunity cost of voting in a US federal election? • A fee charged for voting • Wages lost while voting • Time taken to learn about the candidates • Gas used to drive to the polls

20. Constructed response In RARE: Support or oppose the following proposition: • The United States government should pay people to vote in order to increase participation.

21. Some key economic indicators • Unemployment rate: The percent of people in the labor force who do not have jobs, wants to work, and had make the government aware of this. • Inflation Rate: The percentage increase in OVERALL prices. • Real GDP: The value of all final goods and services produced in the country in a year, expressed in terms of constant dollars • Two statistics: • Misery Index: The sum of the unemployment rate and the inflation rate • Growth rate in real GDP per capita: The percentage change in real GDP per person.

22. Lets see how good this econ stuff is • We will investigate 4 “rules of thumb” that economist have used to predict the outcome of presidential elections…

23. Rule #1 • A Real GDP per capita growth rule: • The incumbent party usually wins if… • The growth rate of the real GDP is greater than 0% during the year of the election

24. Rule #2 • Another Real GDP per capita rule: • The incumbent party usually wins if… • The growth rate of real GDP per capita is greater than or equal to 2.5% during the year of the election

25. Rule #3 • A Misery Index rule: • The incumbent party usually wins if… • The Misery index has not increased from the year prior to election.

26. Rule #4 • A Guaranteed Loss Rule: • The incumbent party ALWAYS loses if… • 1. The Real GDP per capita growth is less than 2.5% • AND • 2. The Misery Index has increased form the year prior to the year of the election

27. Lets look at the numbers to see which rule works best!!! Of the last 13 Presidential elections, how accurate was YOUR rule????? Handout activity 8.2 :Elections and the Economy

28. Can we predict who will win??? • 2012 .. Obama is the incumbent ; Romney the challenger… • Obama is a Democrat, and therefore thinks the economy is best served using “Bottom-Up” economics • Romney is a Republican, and therefore thinks the economy is best served using “Trickle- Down” economics.

29. Bottom-Up • The Bottom-Up ( AKA trickle-up) effect states that benefits to the wealthy will be realized due to an increase in sales relative to the amount of benefits that are given to the poor. • The trickle-up effect argues itself as more effective than the trickle-down effect because people who have less tend to buy more. In other words, the poor are more inclined than the wealthy to spend their money. This being so, proponents of the trickle-up effect believe that if the lower and lower-middle classes are given benefits, such as tax breaks or subsidies, the increased funds would be spent at a much higher rate than would the upper class, given similar fund increases.

30. Trickle-Down • Of or relating to the economic theory that financial benefits accorded to big businesses and wealthy investors will pass down to profit smaller businesses and consumers • Economics) of or concerning the theory that granting concessions such as tax cuts to the rich will benefit all levels of society by stimulating the economy

31. The current numbers!!!

32. Questions: • 1. The misery index is the sum of the: • Inflation rate and the growth of the real GDP. • The unemployment rate and the growth rate of the real GDP per capita. • The inflation rate and the unemployment rate. • The inflation rate and the real GDP per capita and The unemployment rate.

33. Constructed response: • In RARE, answer the following: • Assume that you are the president of the United States and are seeking re-election. A bill that significantly increases government spending for projects across the country is awaiting your signature. While the increase in government spending will lower the unemployment rate for the next two years, you fear it will lead to significantly higher inflation in the next two year. Given what you know about the correlation between the Misery Index and election outcomes, would you sign it? Explain your ECONOMIC thinking.