ECONOMICS determine American presidential elections.
That's what Kristina Frenyea and David Wyss maintain. Looking at the present status of the economy, the two economists calculate that President Clinton will win reelection with 53.1 percent of the popular vote in November.
"Although non-economic factors can help to sway a close election, most voters focus on their wallets," they note. "Incumbents rave about any improvement in the economy that occurred during their term, while their challengers expound on the failures."
But Ray Fair, an economist at Yale University, in New Haven, Conn., also using an economic model, forecasts a "dead heat."
Miss Frenyea and Mr. Wyss, who work for DRI/McGraw-Hill, a Lexington, Mass., consulting firm, use a simple model that gives vote shares to economic and political factors. Applied to presidential elections since 1948, it worked fine until 1992. Then, the model forecast President Bush's reelection with 50 percent of the vote. He actually lost with 46.5 percent.
"[Ross] Perot fouled it up," Frenyea says. The model didn't count on the third-party candidate taking away a chunk of Mr. Bush's voters.
If Mr. Perot runs again, she says, this would weaken the prospects for Bob Dole, who now has enough votes to win the Republican nomination.
Mr. Fair's model also failed badly in 1992, and has since been revised. However, since exit polls indicated that Perot voters came about equally from both parties, he doesn't blame Perot for that mistake. His model now reckons voters have a longer memory of the economy than in earlier versions.
The Frenyea-Wyss model assumes continued, though modest, growth in national output of 1.6 percent in real terms this year, 2.7 percent inflation, and an increase of 1 percent in personal income. If the economy were to sink into a mild recession in the spring and summer quarters, Mr. Clinton's prospects for victory would slip to 50.3 percent, the model predicts. Since the model's margin of error is 2.8 percent, that would give Mr. Dole a chance.
The model finds it would take 6.1 percent more inflation and 2.1 percent less disposable income than foreseen for Clinton to lose. Such dramatic changes are not regarded as likely.
What helps Clinton most politically is his incumbency, the economists note. It provides an advantage of 3.8 percentage points in the share of the total vote. "If he were running on the Democratic ticket as a new candidate, our model suggests that he would win only 49.3 percent of the popular vote, a near dead heat," Frenyea and Wyss write. Each one percentage point rise in unemployment over a "full-employment level" of about 5.9 percent costs the incumbent 1.6 percentage points in voting share.
Clinton was perhaps cheered by the testimony of Federal Reserve chairman Alan Greenspan Wednesday before the House Budget Committee. "The current economic expansion seems to have exhibited staying power," Mr. Greenspan said. And he called recent reports on inflation "reasonably encouraging."
Further, the issue of balancing the federal budget has, as Frenyea puts it, "been put on the back burner again."
Congress and the White House were this week still hassling over the budget for fiscal 1996, a year half over, and a boost in the limit on the national debt. The Treasury Department had to postpone planned auctions of notes Wednesday and Thursday because the sales would have pushed the debt limit over the current $4.9 trillion ceiling. The House is scheduled to take up legislation today to raise the limit to $5.5 trillion through September 1997.
In the meantime, the deficit's economic significance has been shrinking economically as well as politically. Cynthia Latta, another DRI/McGraw-Hill economist, figures the deficit for fiscal 1996 will be $145 billion, down from $164 billion last year. Her forecast squares with the $145.6 billion deficit foreseen by the Clinton administration in its budget released last week. That 1996 deficit is half the peak $290.4 billion deficit in fiscal 1992.
The 1996 deficit will be under 2 percent of the gross domestic product this year, the lowest percentage among the major industrial nations. The budget will have what economists call a "primary surplus" of about $85 billion if the $230 billion in interest on the federal debt is excluded. Further, outstanding debt as a percentage of national output will once again be shrinking after a sharp buildup in the 1980s and early 1990s. And total outlays this fiscal year will rise only 1.8 percent, Ms. Latta calculates.