The Fiscal Model of presidential elections not only failed to predict that President Obama would win reelection handily, but the error incurred in the forecast of the incumbent share of the two-party vote was such (46.9% vs. 51.8% or more) as to warrant a rating of “inaccurate” or “quite inaccurate” in Campbell's table of benchmarks for evaluating forecasts (Campbell Reference Campbell2012, 611). This recap is a preliminary assessment of what went wrong.

Five predictors make up the Fiscal Model. Two measures of the economy, a weighted index of length of party reign and the party of the incumbents are borrowed or adapted from Fair (Reference Fair2012). Finally comes fiscal policy, the variable after which the model is named, categorized as expansionary or contractionary on the basis of quadrennial changes in F, the share of gross domestic product taken up by federal outlays, from one presidential election year to the next (Cuzán Reference Cuzán2012).

Fiscal policy is a potent predictor of incumbent victory or defeat in presidential elections. Normally, incumbents under whose administration federal spending relative to GDP falls or decelerates are reelected, while those who pursue an expansionary fiscal policy are not. It is this relationship that prompted me to ask as early as the spring of 2009 whether Barack Obama would turn out to be a one-term president. As I wrote at the time, “The most recent estimate for 2012 is that federal outlays will take up 24.3% of GDP, up 3.5% points since 2008. This is the second-largest peacetime increase from one election year to the next since 1880, edged out only by Franklin D. Roosevelt's first-term surge of 3.6% points” (Cuzán Reference Cuzán2009).

The Roosevelt parallel was not lost on President Obama. In his acceptance speech at the Democratic National Convention he invoked FDR's name. Elsewhere he has done so indirectly, by claiming to have “inherited the worst economy since the Great Depression.” The electorate appears to agree with this claim: exit polls on Election Day show that a majority blames George W. Bush for the poor economy. If that is the case, there can be little doubt that in 1936, too, most voters held Hoover responsible for the economic problems with which FDR was wrestling.

But if the electorate rationally parcels out blame for a depressed or recessionary economy between a Democratic president and his Republican predecessor, might it not do the same with fiscal policy? After all, during a president's first year in the White House spending is largely a function of the previous administration. It was in the fall of 2008 that the bank and auto bail-outs were enacted into law. So neither Mr. Obama nor his party is accountable for any but a relatively small portion of the enormous spike in outlays, from 20.8% of GPD in 2008 to 25.2% in 2009. Actually, as economists Paul Krugman and Mark Thoma pointed out, from 2010 to 2012 spending under Obama was relatively restrained. Indeed, after peaking in 2009, F drifted down a bit, settling at 24.3% this year.

To test this idea systematically, I proceeded as follows. In cases of a president in the first term of a new party reign, fiscal policy was measured not between presidential election years, but between the current year and his first year in the White House. Starting with the 1916 election which, following Fair, is the first in the series for estimating the Fiscal Model for forecasting purposes, this includes the first or only reelection bids of Wilson, Coolidge, F. D. Roosevelt, Eisenhower, Johnson, Nixon, Carter, Reagan, Clinton, G.W. Bush, and Obama. In the remaining 14 cases, the original fiscal policy value was retained. This resulted in two coding changes, both from an expansionary to a contractionary fiscal policy: Reagan and Obama.

The estimate of the model with the revised values for fiscal policy is similar to that published in the October issue (Cuzán Reference Cuzán2012, 649). The coefficients undergo marginal changes. Also, in out-of-sample forecasting the mean absolute error of the model with either the traditional or the revised values of fiscal policy is less than 2%. But the difference in the forecast for 2012 is dramatic: whereas with the unrevised measure Obama was predicted to lose with 46.9% of the two-party vote, now it shows him winning with 51.1%.Footnote ¹