History suggests strong economy could tame the Blue Wave
Often lost in all the talk about a drenching Democratic wave or a Trump backlash by suburban Republicans is this fact: To reclaim control of the House of Representatives in November, Democrats will have to defy economic history.
Not once since 1950 has an opposition party achieved the kind of overwhelming midterm election victory that Democrats need — not when the economy is as strong as it is right now.
The big reversals of the past have tended to happen in stormier times. Take 2010, when the still-fresh horror of the Great Recession helped Republicans pick up 63 new seats. And while the situation wasn’t so dire during the Gingrich revolution of 1994, unemployment was around 6 percent and the full energy of the dot-com recovery still a few years away.
There is no such distress heading into this year’s midterms. Unemployment is low, economic growth is high, and the main concern at the Federal Reserve is to slow the economy down so it doesn’t overheat.
Which is not to say that Democrats are doomed. There’s no iron law that prevents opposition parties from making big gains in boom times, just a rough pattern based on a relatively small sample of 17 midterm elections going back to 1950.
Plus, recent polling and special election results suggest that Democrats are poised to break through. Last week, they came within 2,000 votes of capturing an Ohio district that Republicans won by 90,000 votes in 2014. And betting markets currently give them about a 65 percent chance of capturing the House.
Yet, the very fact that no party has pulled off this trick in 70 years suggests that the hurdle for Democrats may be higher than election-watchers suspect, and the chance of success less certain.
What seems to matter most, when trying to gauge how the economy will affect election results, is where we are in the economic cycle, and in particular a measure called the “output gap,” which is more tightly connected to election results than more familiar measures like the unemployment rate on Election Day, wage growth over the prior year, inflation, or movements in the stock market.
The output gap is a measure of how close we are to maximum production of goods and services. A large output gap means we’re far from where we want to be, producing fewer goods and services than we could because a downturn has left qualified people jobless, without a chance to contribute.
When that happens, it’s bad news for incumbents. Like President Reagan in 1982, whose party was trounced during midterm season in part because they got the blame for back-to-back recessions.
By contrast, incumbents do far better when the output gap is small. In the boom time of 1998, Democrats under President Clinton actually gained seats during a midterm.
Then there are the rarest of moments, like today, when the output gap disappears entirely —
because the country is actually producing more than our maximum (and risking inflation as a result).
According to projections from the Congressional Budget Office, the US economy is currently running at least 0.6 percent above its long-term potential. That’s a very high peak, and judging from history it should give Republicans a major electoral advantage.
Of those 17 midterm elections since 1950, only four took place at an economic moment like ours: at the overheating peak of an economic cycle.
And in each of those four cases, the president’s party held its own. In the very worst of those showings, they got 49.5 percent of the major party votes across all House races nationwide.
Estimates suggest that if Democrats hope to win back the House in November, they’ll have to win bigger than that, garnering something like 53.5 percent of the total votes in House races nationwide.
That’s been done before. Seven times since 1950, the opposition party has captured at least 53.5 percent of the vote, with the most dramatic drubbing coming just months after Richard Nixon’s resignation in 1974, when Democrats claimed 58 percent of the vote.
But on each of these tide-turning occasions, the output gap was big, the economy underperforming. The Democrats don’t have that tailwind this time around.
Maybe it won’t matter. Mounting evidence suggests that Democrats are making inroads with non-economic grievances about Trump’s fitness, the dismantling of Obamacare, even the merits of capitalism.
But in the end the hot economy could be the thing that limits Democratic gains and leaves them short of the majority they seek — thus handing Republicans another shot at health reform and a chance for further tax cuts.
Don’t forget what happened on Election Day 2016, when Trump defied pundits, polls, and prediction markets with his surprise victory.
If there’s one lesson of that season, it’s that you shouldn’t discount the unlikely, particularly when economic history suggests that 2018 Republicans may have an under-appreciated advantage.