Financial Anxiety Index Declines, Boosting Obama's Odds
A gauge of consumers' financial insecurity that correlates with the outcome of presidential reelection races declined in March for the third straight month, signaling better odds for Barack Obama in November.
The Money Anxiety Index measures several economic factors associated with Americans' level of financial stress.
"We use GDP, unemployment, spending, savings, a whole array of economic indicators," Dr. Dan Geller, chief research officer for the MAI, told DailyFinance. "And we developed a model that is very reliable and predictable."
In the last 50 years, only those incumbent presidents who saw the MAI decline during the year of their reelection campaigns -- from January to November -- won a second term. "Conversely," MAI researchers explained in a press release, "presidents running for reelection lost when the Money Anxiety Index increased between January and November."
For March, the index stands at 90.5, which reflects a reduction of 1.3 from the previous month, and 3.4 points worth of lower financial anxiety from the same month last year. The March reading also represents the third consecutive month of declining anxiety, which bodes well for President Obama's chances in the fall. In January, the index stood at 92.2.
"The MAI is in a downward trend," Geller said, "which basically increases the probability of reelection for President Obama. However, we have to see how we end up closer to the reelection. The biggest threat is the uncertainty over gas prices, because this can derail the economy."
It's Not the Level -- It's the Trend
The last half century saw eight presidential reelection campaigns, five of them successful. And all five victorious incumbents had managed the feat of lowering the MAI in the last year of their first terms.
"Most recently," the MAI's release explains, "President George W. Bush won reelection when, during his reelection year -- from January to November 2004 -- the Money Anxiety Index decreased from 59.6 to 58.2."
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In 1996, from January to November, the Money Anxiety Index fell from 69.2 to 68.8 -- and Bill Clinton was reelected.
Jimmy Carter, on the other hand, saw the MAI shoot up 18.1 points, from 80.3 to 98.4, from January to November 1980. What followed, of course, was his trouncing at the hands of Ronald Reagan, who won 489 electoral votes to Carter's 49. George H. W. Bush suffered a similar, if milder, fate, when the MAI increased 4.0 index points, from 81.7 to 85.7, from January to November 1992. He lost to Clinton, 370 electoral votes to 168.
The MAI's predictive power begins with the presidency of Lyndon B. Johnson, who won a presidential election in his own right in 1964, after serving out the remainder of John F. Kennedy's term. That year, from January to November, the MAI decreased from 63.0 to 48.5.The pattern holds for the electoral fates of Presidents Gerald Ford and Richard Nixon.
Different Economic Equation, Same Electoral Prediction
"The other interesting factor," Geller told DailyFinance, "is that even though during different reelection years there were other issues such as conflicts, at the end of the day, people vote on the economy, with their wallets and purses. That's what [the Money Anxiety Index] shows."
This conclusion matches one previously reached by Yale economist Ray Fair, who developed an equation based on economic indicators that has likewise had remarkable success predicting the winners of presidential elections. According to The Los Angeles Times, Fair's model has been correct 90% of the time. And he makes his predictions relatively early -- "way back in October 2010" for the 2012 race, "long before anyone knew who would be challenging Obama this year." (Fair predicts "another decisive Obama victory" this November.)
Fair says economic growth and inflation are the two factors that determine the outcome of a race for the White House. "Historically," he said in an interview for The New York TimesMagazine, "issues like war haven't swamped the economics."
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