Democrats or Republicans in 2012? A Euro Perspective

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This analysis of the prospects for the upcoming US election is a little tongue in cheek at best, written as it is by a British director of Fidelity Worldwide Investments, Tom Stevenson; published in a British paper, the Telegraph; and viewed through this site’s British writer – it has a profoundly neutral stance.

If that sounds like I am trying to distance myself from the findings, you would be right. We review the observations here as interesting rather than necessarily endorsing the conclusions.

The essence of Tom Stevenson’s article is to assess the relative benefits for the US economy of a Democratic verses a Republican win by looking historically over the past 50 years to see on average how previous elections have panned out. As the financial industry is so fond of saying, though past performance is no guarantee of future results, caveat emptor.

Ray Fair, an economics professor at Yale, has apparently analyzed the impact of several economic variables on voters and shown, perhaps unsurprisingly, that low inflation tends to favor the incumbent party, while rising prices favor the challenger.

No surprises there — rising inflation signals a deteriorating situation and voters are more likely to opt for a change. Low inflation in the US should therefore favor Obama.

Similarly, no one will be particularly surprised that high economic growth in the first nine months of an election year is good news for the occupant of the Oval Office. Stevenson observes that soggy US growth this year goes some way to explaining why a relatively underwhelming Republican challenger is neck and neck with the President in the polls.

Looking at this from a European perspective, US growth is admirably strong considering the rest of the world’s position, but Europeans aren’t the ones voting!

One would expect the business cycle to play a major role. If a party comes in as an economy begins to tank, they are unlikely to be able to turn it around before the next election, severely harming their prospects of a re-election.

However, there’s another side to that coin.

Continued in Part Two.

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