Tag Archives: Al Gore

It’s Not Just the Economy, Stupid.

Over the past few years it’s become fashionable in sophisticated political circles to argue that presidential campaigns themselves barely matter. What matters is the economic fundamentals. When the economy is strong, the incumbent party wins. When the economy is lousy, the incumbent party loses. All the rest is just a bunch of sound and fury, signifying nothing.

I’ve long had some problems with this attitude. I don’t think there’s any question that the state of the economy matters, and I agree that political journalists probably ought to pay more attention to this than they usually do. At the same time, it’s easy to go overboard. For one thing, political scientists have come up with a lot of different models, and they don’t all rely on the same economic measures. Nor do they make the same predictions. Nor do they even claim (in most cases, anyway) to explain more than about 60-70% of the variance in how well the parties do. So even if the models are accurate, there’s plenty of scope for other factors to influence presidential elections too.

But are they accurate? It’s easy to be impressed by a model that accounts for past election results with high accuracy. That’s a nice looking regression line, buddy.  But it’s quite another thing for your model to predict elections in advance, and that’s the acid test for any election model. Until now I’ve never seen anyone do a systematic review of actual predictions by the various models, but today Nate Silver filled that void, taking a look at model predictions since 1992.

The results aren’t pretty:

In total, 18 of the 58 models — more than 30 percent — missed by a margin outside their 95 percent confidence interval, something that is supposed to happen only one time in 20 (or about three times out of 58).

Across all 58 models, the standard error was 8 points of vote margin or 4.6 points of incumbent vote share. That was much larger than the error that the models claimed they would have — about twice as large, in fact.

The “fundamentals” models, in fact, have had almost no predictive power at all. Over this 16-year period, there has been no relationship between the vote they forecast for the incumbent candidate and how well he actually did.

Nate argues that the state of the economy does have some predictive power. He figures it at about 40%, but says that most current models don’t even do that well because they’re poorly designed. That doesn’t surprise me: this is a really hard subject with lots of hard-to-answer questions. What matters most, the absolute state of the economy or whether it’s on an upswing/downswing?

Should we look at GDP growth or unemployment? Or something else, like disposable income? Do voters respond to some variables, like inflation, only when they get above a certain level? Etc. This is hard stuff, and we don’t have a whole lot of data points to work with.

What’s more, common sense suggests that other things matter too. For example, I just can’t accept as coincidence that since 1950, incumbent parties have nearly always won after one term in office and nearly always lost after two terms. If I used that as my only rule, I’d have an accuracy rate of 87%. (Though only 80% if you count Al Gore as the popular-vote winner in 2000.)

All of this is one reason why I’m reasonably optimistic about Obama‘s chances in November. Yes, the economy is still in weak shape. But it’s improving (I think, or at least I continue to tell myself while I hold my breath), which I suspect is at least as important as its absolute level. What’s more, his party has been in power for only one term and he’s a strong candidate running against a weak Republican field. Put all that stuff together, and I think his odds look pretty good.

As long as Greece can keep the lie up for about eight more months and Merkel can keep persuading the good Germans to continue to be good Germans, and North Korea stays sedated, and Iran keeps rattling and not thrusting, and no other big bubble bursts (like the student loan bubble for instance), and oil doesn’t go to $150., and no other Soldier loses it in Afghanistan and blows away 20 or 30 innocents, and mexico isn’t taken over by drug gangs, and the rest of Europe can keep their pants on, and Iraq doesn’t erupt in civil war (which will clearly be Obama’s fault) and the Supreme Court doesn’t find the “Obamacare” mandate to be unconstitutional, or even if it does, and the Chinese, well you get the picture. Say again, why would anyone want this job?

Bottom line: the economy matters, but it’s probably wise not to get too deterministic about these things. Monocausal explanations are often appealing, but just as often wrong. The world is a very complicated place.


Al Gore Takes Aim at “Unsustainable” Capitalism

Former Vice President and Current TV Chairman and co-founder Al Gore speaks during the panel for Current TV's ''Politically Direct'' at the Television Critics Association winter press tour in Pasadena, California January 13, 2012.  REUTERS/Mario Anzuoni

Former Vice President and Current TV Chairman and co-founder Al Gore speaks during the panel for Current TV’s ”Politically Direct” at the Television Critics Association winter press tour in Pasadena, California January 13, 2012.

Former U.S. Vice President Al Gore wants to end the default practice of quarterly earnings guidance and explore issuing loyalty-driven securities as part of an overhaul of capitalism which he says has turned many of the world’s largest economies into hotbeds of irresponsible short-term investment.

Together with David Blood, senior partner of  ‘green’ fund firm Generation Investment Management, the environmental activist has crafted a blueprint for “sustainable capitalism” he wants the financial industry to adopt to support lasting economic growth.

“While we believe that capitalism is fundamentally superior to any other system for organizing economic activity, it is also clear that some of the ways in which it is now practiced do not incorporate sufficient regard for its impact on people, society and the planet,” Gore said.

At a briefing ahead of Thursday’s launch, David Blood said capitalism has been blighted with short-termism and an obsession with instant investment results, which had ramped up market volatility, widened the gap between rich and poor and deflected attention from the deepening climate crisis.

The former CEO of Goldman Sachs Asset Management put forward five key actions which he hoped would revive the discussion on how to clean up capitalism and put companies, investors and stakeholders on the path towards long-term, sustainable profit.

These include ending quarterly earnings guidance from companies, which the authors said incentivized executives and investors to base decisions on short-term factors at the expense of longer-term objectives.

Companies have also been encouraged to integrate financial reporting with insight on environmental, social and governance policy so investors can clearly see how performance in the latter can contribute to the former.

“This is a direct appeal, dare I say, attack on short-termism in business,” Blood said.

“Today the average mutual fund in the U.S. turns over its entire portfolio every 7 months; 20 years ago (in 1992) it was every 7 years. Something has fundamentally changed and the problem with that is it means we’re not making good investing decisions… and not delivering proper and efficient wealth creation.”

After hitting mainstream consciousness in the early part of the last decade, the 2008 financial crisis brought efforts to make global business more environmentally and economically sound to a virtual halt.

But with so many roots to that crisis found in skewed asset valuations and irrational short-term trading, the authors want to restate the case for change while the pain of the credit crunch was still fresh in the memory.

“We went down this path because we fundamentally believe this is relevant to business. This has always been about value creation and this whole conversation about sustainable capitalism is not a new movement,” Blood said.

“While governments and civil society will need to be part of the solution to these challenges, ultimately it will be companies and investors that will mobilize the capital needed to overcome them.”

COMPENSATION AND LOYALTY

To offset the disproportional influence of short-term traders like hedge funds on global markets, Generation has proposed the issuance of loyalty-driven securities to reward investors who nurture real business growth by holding a company’s shares for a number of years.

The blueprint also recommends significant changes in corporate compensation structures, putting more emphasis on bonuses linked to multi-year performance instead of individual fiscal years.

Gore said pension funds had a vital role to play in coaxing their managers to make longer-term investment decisions, which by extension, could result in a healthier society and planet.

“(They) have a fiduciary obligation to maximize the long-term performance of their assets to the maturation of their long term liabilities,” Gore said.

“If pension funds turn to managers of their assets and compensate them with a structure that incentivizes them to maximize performance on an annual basis, they should not be surprised if that is what their managers end up doing.”

Blood said the campaign for sustainable investment had been hit by worries that change would cost more than it would ultimately deliver, but many businesses were still to grasp how value-destructive some elements of modern capitalism had become.

“…in America, as soon as you say the word ‘sustainability’ people think of socially-responsible investing, tree-hugging and we don’t believe that at all. We think sustainability is just best practice in business,” he said.


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