Has the government made us rich?

In a classically fact-filled blogpost, Andrew Norton expresses his skepticism about this quote, from Andrew Charlton:

The most popular misconception in economics and politics is that if the economy is humming along, the government must be doing a good job – it must be a capable economic manager and its policies must be working. … The truth, however, is that politicians have much less control over the economy than they would have us believe.

Andrew points to evidence showing that 57% of respondents in the 2004 Australian Election Study didn’t think the government is currently making much difference to the economy. But I’m not sure this is the right counterfactual. Another way of thinking about it is to ask the question: if the economy boomed for reasons entirely outside the government’s control, would its chances of re-election rise? Here’s my attempt at answering that question.

Does the World Economy Swing National Elections?
Do voters reward national leaders who are more competent economic managers, or merely those who happen to be in power when the world economy booms? According to rational voting models, electors should parse out the state of the world economy when deciding whether to re-elect their national leader. I test this theory using data from 268 democratic elections held between 1978 and 1999, comparing the effect of world growth (“luck”) and national growth relative to world growth (“competence”). In the preferred specification, which allows for countries to have different degrees of global integration, an extra percentage point of world growth boosts incumbents’ chances of re-election by 9 percent, while an extra percentage point of national growth relative to world growth only boosts an incumbent’s chances of re-election by 4 percent. Voters are more likely to reward competence in countries that are richer and better educated. Controlling for income, higher rates of newspaper readership reduce the returns to luck, while higher rates of television viewing reduce the returns to competence.

Since elections are won with 50+e% of the vote, just a small group of swing voters who believe that Howard and Costello deserves credit for the current economic boom can make a big difference to the outcome.

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7 Responses to Has the government made us rich?

  1. Kevin Cox says:

    Perhaps the same effect is likely to apply to our State Elections where we replace “The world” with “The Federal Government”.

  2. Andrew – Thanks for alerting me to your paper. I’m about half-way through Bryan Caplan’s Myth of the Rational Voter so perhaps more on this subject later.

    I did not put it in my post, but the AES suggests that voters are less likely to think the government will make a difference in the next twelve months than in the previous twelve months. Is that bad for incumbents running on their ‘competence’?

    I wasn’t sure when writing my post what importance to place on the twelve-month timeframe in the question. It would be possible to believe that no *recent* policies make a difference, but that a government’s long-term policies are still seen as good/bad worth voting for/worth voting against, depending on circumstances.

  3. Andrew Leigh says:

    Kevin, funny you mention that. Watch this space.

  4. Damien Eldridge says:

    Are elections won with 50 + epsilon per cent of the vote? Ignoring the Senate (and hence the ability to easily pass bills), doesn’t a party or coalition need to win 50 per cent of the seats plus one more seat to form a Government? (Using the term coalition loosely to cover minority governments that need the help of minor parties to gevern.) This would be guarranteed to translate into 50 plus epsilon per cent of the total vote if every electorate had the same number of voters, but I don’t think that is the case in Australia. Couldn’t a party win less than 50 per cent of the vote and more than 50 per cent of the seats in the House of Representatives?

  5. Andrew Leigh says:

    Damien, you’re perfectly correct. Beazley 1998 and Gore 2000 are the two most recent examples of candidates who got a majority of the popular vote and lost the election.

    In this case, however, it seemed better to put expositional clarity ahead of electoral precision. My point to Andrew was that factors that shift only a few percent of the electorate can change the outcome.

  6. David Walsh says:

    This would be guarranteed to translate into 50 plus epsilon per cent of the total vote if every electorate had the same number of voters, but I don’t think that is the case in Australia.

    Actually, one vote one value does not ensure that party that wins the popular vote also wins the election.

    Granted, gross malapportionment can produced quirky election results. But that doesn’t mean a quirky result is always the result of malapportionment. In fact many gerrymanders (e.g. in the US) adhere to the one vote, one value rule.

    To win an election, all a party/coalition must do is win more than half the vote in more than half the seats. If all electorates have the same number of electors, that implies that the winning party/coalition’s share of the popular vote was strictly greater than 25%. But there’s no inherent reason why it must be as much as 50%.

    Any malapportionment in the Australian House of Representatives is very minor. And in the case of 1998, where Labor won the vote and lost the election, it may have even worked to Labor’s advantage. They did win all the low-quota Tasmanian seats.

  7. Damien Eldridge says:

    You are of course right David. Oops!!! As is Andrew, when he notes that the exact electoral rule is not really important to the point he is trying to make. Sorry for derailing the thread.

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