It’s Not Just the Economy, Stupid


The mid-terms are coming, and with it comes the prospect that the nation’s economic woes will cost the Democrats control of Congress. As one pundit on Fox News recently explained, political consultant James Carville’s 1992 adage, “It’s the economy, stupid,” still applies. Polling data seems to support this point of view.

But applying a 30-year-old rule of thumb for a presidential election to the 2022 midterms isn’t such a safe bet, if history is any indication.

The Democrats will almost certainly lose seats, just as any party that holds the presidency tends to lose ground in the midterms. But research suggests that the economy is unlikely to affect the outcome one way or another.

This was not the case in the 19th century, when economic issues often decided midterm elections. One study of the period performed regression analyzes to determine whether economic growth or prices of household necessities helped determine midterm outcomes. It found a significant correlation.

Why? The author speculated that in the earlier era, Congress, not the president, did most of the heavy lifting when it came to crafting economic policy. Before the creation of the Federal Reserve Bank, battles over monetary policy and other economic issues dominated American politics, with very clear lines dividing Democrats and Republicans.

These controversies are mostly forgotten nowadays. But for the people living in the Gilded Age, the question of the free coinage of silver, debates about the use of paper money versus coins and other monetary issues consumed the electorate and their representatives in Congress. So too, the tariff schedules, another contentious issue that Congress largely controlled. Even federal budgets still remain firmly in the hands of appropriations committees, not the executive branch.

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In short, the midterm elections were an opportunity to show off on economic issues, precisely because members of Congress played a large role in determining economic policy – and presidents did not. As a consequence, price levels or job growth fueled midterm turnout in ways that directly affected the outcome of the elections.

For example, voters in 1894, furious about a crippling depression, vented their fury on Congress. The Democrats, who once controlled the House, lost 100 seats in the election – the largest midterm loss ever.

The 20th century brought changes that reconfigured how voters understood the relationship between Congress and the economy. The Federal Reserve Act of 1913, which began a gradual transfer of monetary policy from policy into the hands of economic “experts,” removed a major bone of contention from legislative fights.

In 1921, legislators gave the president new powers to set budgetary priorities, marking the continued migration of economic decisions away from Congress.

As the powers of the president increased at the expense of Congress, presidential elections increasingly turned on the state of the economy, while House and Senate races depend on local issues, the style of individual candidates and campaign spending.

The fact that most presidents saw their party lose seats in the midterms led many pundits to conclude that voters used midterms to indicate their relative dissatisfaction with the president’s handling of the economy. This idea solidified into conventional wisdom in 1975, when statistician Edward Tufte turned to midterm elections.

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His landmark article, which covered midterms between 1946 and 1974, made a compelling case that the contests served as “a referendum on the performance of the president and his administration’s management of the economy.” Tufte rejected the idea that other random issues determine the outcome of the midterms. No, it was the economy and the president’s management of it.

Other researchers have echoed Tufte’s findings as the newfound orthodoxy in political science. But a growing number of dissident researchers eventually began to question the findings. As they dug into the details of local races, they found themselves hard-pressed to figure out how national economic conditions aligned with the outcome of midterm contests, especially after 1960.

In fact, the closer one approaches to the present, the less the model holds. For example, including the results of the 1978 and 1982 elections in Tufts’ model resulted in a much less dramatic correlation.

A 1990 study poked an even bigger hole in Tufte’s claim. Political scientist Robert Erickson—now a professor at Columbia—published an article arguing that Tufte failed to control how people voted in previous presidential elections. Doing so, wrote Erickson, “reduces the estimated effect of income changes to the range of statistical insignificance.”

“The midterm electorate,” he concluded, “is often portrayed as a nemesis electorate – ever ready to inflict retrospective punishment on the in-party for its economic shortcomings.” This naive view, he concluded, was wrong because voters “attribute economic responsibility to the president but not to Congress” – precisely the opposite behavior that prevailed in the late 19th century.

Erikson and other researchers subsequently elaborated on these findings in other articles. Typical of this genre was an in-depth study of the 2010 Senate elections, which found that “declining presidential approval ratings, but not economic indicators,” predicted the rout that Democrats endured that year. Likewise, the losses in the House that the Republican Party sustained in 2018 – despite a booming economy – echoes this finding.

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A recent summary of the literature reflects the new orthodoxy, noting that job growth (or decline) “had zero correlation with both House and Senate seat gains by the president’s party.” Similarly, inflation appears to have no effect on midterm Senate races, and only the slightest impact on House races.

None of this should, of course, suggest that the Democrats will escape unscathed. The president’s party almost always loses seats in the midterms. Why this is the case remains a matter of debate, although voters’ desire to resist the power of the president may be one of the strongest reasons.

But dissatisfaction with the national economy? Unlike elections more than a century ago, this one is no longer likely to make a big difference in the final winners.

More from other Bloomberg opinion writers:

False Spin Wins Future Political Battles: Jonathan Bernstein

GDP gives hope to Democrats but not many others: Jonathan Levine

Zuckerberg should focus on midterms, not metaverse: Parmy Olson

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Stephen Mihm, a professor of history at the University of Georgia, is co-author of “Crisis Economics: A Crash Course in the Future of Finance.”

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