Wednesday, November 7, 2012

Election Results: Forecasting Accuracy and a 2013 Recession?

Nearly 10 months ago I put forth a list of predictions for 2012 that were “seen as having a low probability (less than 33%) but which I believe hold a greater than 50% chance of occurring.” From that list:
8) President Obama will win re-election - Generally a weakening economy has been poor for incumbents but this time will be seen as abnormal circumstances. The troubles in Europe and high unemployment will actually spark desire for a more interventionist government. Given the choice between Obama and Romney, the President will win re-election by a slim margin (2% or less).
And the results...
Popular vote
Electoral votes (270 to win)
Barack Obama
Mitt Romney
Pretty good, though Nate Silver deserves the real congratulations for accurately forecasting every state.

Now that the election is over (with no significant change in the national balance of power), a few prominent questions for the macro-economy must be resolved...

1) What portion(s) of the Bush-Obama tax cuts will be allowed to expire, if any?
2) Will the federal government allow the budget deficit to contract next year? If so, by how much?
3) Will the debt ceiling be raised again? If so, what concessions (presumably from the Democrats) will be necessary?

How long will it take to resolve these questions? That’s tough to say but, considering the players still involved, continuing gridlock looks like the smart bet. Stakes remain high, despite the election results, as the eventual resolution of these topics will likely determine whether or not the US enters a recession in 2013.

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