The 2008 Election in Perspective
The Unexpected Wall Street Meltdown Election
January 29th, 2009,
Some political analysts have interpreted the 2008 presidential election as an ordinary retrospective election. With a very unpopular Republican incumbent presiding over unpopular wars in Iraq and Afghanistan and a weak economy, 2008 appeared to be a Democratic year.
As the often insightful Larry Sabato put it in his recent essay, “any mainstream Democratic candidate was destined to win in 2008.” He rejects the alternative interpretation that “the election’s key event was the mid-September financial meltdown; that somehow had this never happened McCain might have been able to win or at least keep the election very close.” According to Professor Sabato, “This is poppycock. Except for a brief honeymoon period for McCain after the GOP convention, Obama consistently led the polls from early summer onwards. The evidence of severe economic slowdown was everywhere from the spring to the fall, and Americans already believed that we were in a serious recession.”
Poppycock? Balderdash. The Republicans did carry substantial political baggage into the 2008 election; but despite these considerable disadvantages, the open seat election was shaping up as a very close contest in the weeks before the national conventions and McCain took the lead after the conventions, only to plummet in the polls with the Wall Street meltdown in mid-September. The Wall Street meltdown was an unanticipated financial crisis that shook the electorate. It was the game changer. It derailed the course of the election and was critical in tipping the election to Obama.
Here is the evidence refuting each of Professor Sabato’s above assertions. First, contrary to the ordinary election perspective and consistent with the derailed election perspective, the election was shaping up before the conventions to be a close one, as open seat elections very often have been. We know from past elections that early polls are notoriously volatile and do not mean much about the election. However, around the time of the conventions, public opinion begins to gel. More voters have made up their minds or given their choice some serious thought by the conventions. While it is true that Obama led in the polls before the conventions, the race was tight. In the two weeks leading up to the conventions, the average Obama two-party support was at 51.7 percent in the Real Clear Politics polls and at 51.0 percent in Gallup’s registered voter tracking polls. In the week immediately before the Democrats convened in Denver, Obama’s mean support was only 51.1 percent in Real Clear Politics and 50.6 percent in Gallup. An election that could turn on a swing of one or two points, or even less, is on track to be a close election.
As close as Obama’s pre-convention poll lead was, it was quite probably even closer in reality. Registered Republicans consistently turn out at higher rates than registered Democrats. If the polls were 50-50, bet on the Republican to win. In regressions predicting the Democratic vote in elections since 1948 (whether including 2008 or not) by the Democratic candidate’s preconvention or early September poll standing, it is clear that the Democratic candidate requires a poll lead of over 51.5 percent of the vote to make up for the party turnout difference and receive 50 percent of the vote. In short, a simple reading of the preconvention polls indicates that the election was very close and a more sophisticated reading of them makes the election at this point look even closer. Despite the heavy baggage that McCain shouldered going into the election, contrary to the ordinary election thesis, he was holding his own in what looked before the conventions to be a very tight contest.
Second, McCain’s lead in the polls after the conventions was more than a “brief honeymoon.” Polls after the conventions are important because a significant number of voters make up their minds around convention time. In the fifteen elections from 1948 to 2004, only one candidate with an early September poll percentage over 51 percent lost his election. The only frontrunner who lost was Tom Dewey in 1948. Thus, McCain’s post-convention lead was important. In the week after the Republican convention, McCain’s mean two-party share of support was 51.2 percent in the Real Clear Politics polls and 52.0 percent in Gallup. Again, because of the turnout differences between registered partisans, McCain’s real lead was probably a point or so greater than his nominal poll lead. Even without considering this reality adjustment, McCain’s poll lead over Obama lasted for ten days in Gallup and eleven in Real Clear Politics–until the meltdown derailed the campaign in mid-September.
Third, on its face, one would expect the Wall Street meltdown to make a significant political difference. The events were unanticipated just weeks before at the conventions and were catastrophic in magnitude. It is hard to imagine how they could not be “game changers.” The first sign that the subprime mortgage mess amounted to something considerably more than a few isolated bankruptcies was on September 7 when the government seized control of Fannie Mae and Freddie Mac. Eight days later, Lehman Brothers declared bankruptcy and a distressed Merrill Lynch was bought by the Bank of America. The next day, September 16, the government made an $85 billion bailout loan to insurance giant AIG. On September 19, President Bush called the crisis “a pivotal moment for America’s economy” and asked Congress to “act now to protect our nation’s economic health from serious risk.” The administration proposed a $700 billion financial institutions bailout bill and Congress reconvened to consider it. On September 24, John McCain suspended his campaign to return to Washington for the bailout talks and called for the postponement of the first presidential debate, scheduled just days later. After being turned back in the initial House vote, a revised version of the $700 billion Bipartisan Emergency Economic Stabilization Act was passed and signed by the President on October 3. Meanwhile, the crisis spread. Washington Mutual was seized by the FDIC on September 29. From September 8 to October 9, the stock market lost a quarter of its value (a 25 percent drop in the Dow Jones index and a 28 percent drop in the Standard and Poor’s index). These were not normal times, to say the least.
Fourth, the ordinary election perspective contends that the events of the Wall Street meltdown should be seen as simply additional evidence of the severe economic slowdown. That evidence of this slowdown was, as Professor Sabato puts it, “everywhere from the spring to the fall.” Was it? No. While everyone understood that the economy was weak, not even financial experts anticipated the crisis and its ramifications for the economy. In mid-August, half way through the third quarter of the year, the Federal Reserve Bank of Philadelphia released a survey of 47 prominent economic forecasters. These forecasters predicted a real GDP third quarter growth rate of 1.2 percent. This would indicate a sluggish economy, but not one in recession. Despite the fact that the forecast was made midway through the quarter being forecast and the meltdown occurring only in the last month of the quarter, the actual GDP growth rate for the quarter according to the Bureau of Economic Analysis was -.5 percent, nearly two points lower than the forecast made during the quarter. The difference between the predicted sluggish economy (1.2 percent growth) and the actual retracting economy (-.5 percent “negative growth” or shrinkage) is about the same magnitude of difference as between a sluggish economy (1.2 percent) and a healthy economy (about 3 percent growth). Clearly, the meltdown produced a big difference in a very short time.
The fact is that the Wall Street meltdown was not just a symptom of a sluggish economy of which voters andeconomists were previously aware. The meltdown was a crisis in its own right that exacted a severe cost to the economy, much as it had taken its toll on the stock market (and would take on the political fortunes of the in-party). The impact of the crisis is further reflected in the forecasters’ revisions in their predictions for the fourth quarter of 2008. Before the meltdown the forecast was for a .7 percent growth rate in real GDP. After the meltdown, the forecast dropped to a -2.9 percent “negative growth” rate. The meltdown certainly was an unexpected game changer for the economy.
Fifth, did Americans understand this? Did Americans regard the meltdown as a crisis, as the derailed election thesis claims? Or, did voters take the Wall Street meltdown in stride as just another sign of the sluggish economy, as the ordinary election thesis contends? The polling evidence is that the public was staggered by the crisis. A September 24 USA Today and Gallup poll on September 24 asked a national sample how they would describe “the current situation.” Forty percent said that it was “the biggest financial crisis in [their] lifetime.” Another 24 percent said that it was “a crisis but not the worst in [their] lifetime.” Only 10 percent said it was not a major problem. A September 29 ABC-Washington Post poll asked respondents their opinion about the potential impact of “the country’s current financial situation” on the broader economy. Fifty-two percent said it was “a crisis” and another 43 percent said it was “a serious problem but not a crisis.” Only five percent thought it was not a crisis or a serious problem. It is noteworthy that pollsters did not bother to ask these questions until the crisis hit in September. Other polls made it clear that the public blamed the President and Republicans generally for the crisis. Given these public opinion reactions, it is difficult to see how the meltdown would not have also been a political game changer.
Sixth, the meltdown, in fact, was a political game changer. Allowing for some normal dissipation of the convention bump, McCain’s poll standing early in the meltdown crisis (September 14) was about 51 percent in both Gallup and in the Real Clear Politics poll average. Less than three weeks later (October 2), after the crisis was in full meltdown, McCain’s poll standing had dropped to 46 percent in Gallup and 47 percent in the Real Clear Politics poll average, about where the final vote percentage wound up. The meltdown appears to have made a difference of about five percentage points using Gallup’s numbers or a little more than four percentage points using Real Clear Politics’s numbers.
Seventh, could there be an explanation for McCain’s late September poll plunge other than the Wall Street meltdown? Could the McCain fall and Obama rise in the polls be the result of some other factor? Two possibilities have been suggested-the debates and Sarah Palin’s post-convention difficulties. The debates are not plausible as an alternative explanation because of timing. McCain’s drop in the polls began well before the first debate on September 26. Moreover, the polls did not change dramatically around the debate and there were no really memorable gaffes that might have precipitated a big poll change.
This leaves Sarah Palin. Initially, McCain’s selection of Palin as his running mate was well received by the Republican base and helped McCain receive a larger convention bump than the Democrats. After the conventions, however, Palin’s performance in several national media interviews was widely regarded as embarrassingly poor.
Was the McCain plummet in the polls a negative reaction to his selection of Sarah Palin as a vice presidential candidate or a negative reaction to the Wall Street meltdown? The evidence again supports the impact of the meltdown. The public’s political response to the Wall Street meltdown crisis was not limited to the drop in support for McCain. As one would well expect, President Bush’s approval rating also dropped with the meltdown. Despite President Bush’s low approval ratings going into the election and the polarization of the electorate, his ratings sank even lower during the meltdown. The Gallup Poll conducted from September 5-7 indicated that only 33 percent of the public approved of the President’s job performance. As low as that was, the October 3-5 Gallup Poll indicated that it had dropped another eight points to 25 percent. This is rather impressive when one thinks about it. Most of this approval drop was among Republicans, fellow partisans who had stuck with President Bush through the worst days of the Iraq War and the political disaster in the handling of the Katrina hurricane disaster. In early September, Bush had the approval of 71 percent among Republicans. After the meltdown, approval in his own party had sunk to 55 percent.
The Bush approval drop during the meltdown is important for two reasons. First, it is quite plausible that the public would blame President Bush for the meltdown. It is quite a stretch to think that they would blame President Bush for any dissatisfaction that they might have with McCain’s choice of a running mate. Second, while many people were not happy with the Palin pick after her interviews, the Republican base remained quite pleased with Palin. Thus, it is not plausible that Bush lost support because of Palin. Are we to believe that Bush lost approval support because of the meltdown, but that McCain at the same time lost support because of Palin? Not plausible. It seems clear that both Bush’s approval and McCain’s poll numbers dropped at the same time for the same reason: the Wall Street meltdown.
An ordinary election? Now that is poppycock.