One of the best things about getting the midterms behind us is that we no longer have to listen to the endless firehose of drivel from television, radio and print media. It’s not just that the original pundit narrative was wrong, but the entire framework of the election debate has been profoundly misguided for many election cycles.
I’m a 30,000-foot guy, 1 so I’d like to consider some of the big-picture misses, misunderstandings, and fundamental failures we’ve heard during this election cycle.
The following is a list of 10 items where conventional wisdom was not only wrong but 180 degrees from reality.
1. Markets love gridlock: Markets prefer an environment where future revenue and earnings streams are relatively easy to project, taxes are relatively low, and the rule of law provides certainty over contracts and private property rights. At the same time, moderate fiscal stimulus and accommodative rates, both supportive of the overall economy, are not unfavorable.
2. Sentiment readings are junk: I have been raging on sentiment and surveys for decades as worthless garbage. My main reason is that they primarily tell you what happened in the recent past. Negative feelings tell you that things have been bad in the last 3-6 months; Positive feelings inform us of the opposite. Hence, sentiment is a lagging, not a leading indicator.
But it’s worse than that: does it mean that the current sentiment lessons are worse than those of the 1987 crash, the 9/11 terrorist attacks, the dotcom implosion or the Great Financial Crisis? No, and so something else must work.
The post-GFC era gave us a new reason for our sense of distrust, as the world of Fed haters, anti-establishmentists, staunch partisans and autocracy supporters had no place to vent their unfocused fury. Their anger manifests itself in trolling pollsters and other readers of the sentiment.
So, the reason is retroactive – negative feelings don’t reflect future behavior, but rather tells you that for some ~20% of the population, tribalism has become their dominant self-image. Therefore, they answer surveys as a reflection of their biased beliefs, not how they actually feel.
3. Inflation? less demand: The perfect manifestation of the sentiment issue is the rise in inflation as issue #1 in the survey. The election results strongly indicate that this was wrong.
It’s a big shock but maybe it shouldn’t have been. We have enjoyed 15 years of low inflation and modest wages. Don’t forget, energy costs 3% of a household’s budget today; By the 1970s it had tripled. Spend the public $5 trillion in cash with high inflation for 18 to 24 months – a trade most middle-income earners (or less) would happily make.
Inflation matters but so does the overall economy, including wage gains and fiscal stimulus, during a pandemic. In other words, it’s complex and nuanced, making some surveys worse. I’m not suggesting that inflation isn’t a problem but neither is it the disaster portrayed in the media. Commodity inflation is falling, and the idea that companies are abusing is gaining more traction.
4. Polling is fundamentally unhealthy: Ask people what their future behavior is going to be, and under optimal conditions the answers you get are false. People simply cannot predict their own future states of mind and what actions they may take at some distant time. Political polling is perhaps more vulnerable than other forms of polling.
GOP voter turnout has been low in the past two elections; Democratic turnout in this election is low. The consistent theme is that selection is incredible.
5. All models are wrong: Models that project turnout are deeply problematic, depending on weather, local turnout and other variables. But it also depends on who answers their landline(!), in an age where under 40s no longer have landlines and people don’t answer numbers they don’t recognize because of scam/spam calls.
as i know Day before Election:
Sucking Poles, Part 97:
In some states, nearly all of the recent polls were conducted by Republican-leaning agencies. They produce much more GOP-friendly results than traditional pollsters. Neither adheres to industry standards for transparency or data collection. https://t.co/TCScc0ou6w
— Barry Rietholtz (@Rietholtz) November 7, 2022
Ref work is common, and one way to do this is to influence the “poll of polls” – the average of all polling data. The assumption was that it emboldens your base and discourages the other side. It may be more conventional wisdom that is now called into question.
6. Roe v. Wade hurts Democrats: That’s not to say abortion rights aren’t a huge issue and haven’t been inspiring to many women and young voters. Rather, it is more subtle than it appears at first blush.
I have argued a very opposite thesis for years: Roe v. Wade Purple worked to the advantage of conservative Republicans in states and counties. The arguments of those candidates were “Hey, because my personal opinion about abortion doesn’t matter Ro Law of the land” That argument no longer works and candidates who are pro-life/anti-choice can no longer hide behind SCOTUS. So, the Dodd case overturning Roe is so important.
7. January 6m The hearing was very influential: The conventional wisdom was that the January 6 hearing did not sway voters. While it didn’t move the needle for partisans on either end of the political spectrum, it clearly had an impact on independent voters and others concerned with the sanctity of elections.
8. Candidates matter: As much as the national news likes to focus on the big issues — inflation, abortion and the war in Ukraine — it’s the local issues that drive local voters. We find that people in the same group perform very differently in over and under performance. The difference in votes for governors and senators in the same state – see Nevada, Arizona, Georgia and Pennsylvania – suggests that party affiliation is not a monolith.
A piece of conventional wisdom there is Well-held: Politics remains local and personality-driven.
9. Control of the GOP is complex: Who controls the Republican Party? What is it based on? Is it Donald Trump? What about traditional non-MAGA moderate Republicans? Is it future stars like Ron DeSantis or Greg Abbott? The answer seems to be a combination of all of the above.
Conventional wisdom has completely marginalized traditional moderate Republicans and overemphasized Donald Trump’s influence.
10. The mainstream media doesn’t understand the national zeitgeist: The conclusion of all of the above is that the national media base focuses on the wrong issues and oversimplifies complexity in the service of creating a better narrative with poor understanding of the situation.
Accusations that the media is politically biased miss the point; They instead focus on storytelling and clickbait and other forms of bad reporting that fail to portray reality as it is. What some people see as partisanship I read as lazy.
I like to do these exercises that I can identify when the crowd or an institution where that group reflects the crowd is wrong.
If convention wisdom is so wrong about selection, imagine how wrong it can be about stocks, bonds, markets, valuations, the Fed, inflation, and earnings.
in the past:
What is Inflation: Labor or Capital? (November 7, 2022)
Are partisanships driving consumer sentiment? (August 9, 2022)
Is the market intelligent – or potential? (March 26, 2020)
1. This blog is not called Big Picture for no reason
2. Sorry for the anthropomorphic market, but…