I don’t like to publish bad news about the Kerry campaign, because let’s face it, I’m biased and it only hurts my cause. There’s been an awful lot of bad press about how Kerry’s been handling his campaign lately, and I am starting to agree with a lot of it. But the ultimate question remains, can John Kerry win this race?

I’m no expert on markets, but right now, the numbers on the Iowa Electronic Markets aren’t looking so hot. According to the markets, Kerry’s doing worse right now than he has at any point since at least June, and the gap is quickly widening. This discredits the idea that Bush is simply getting a post-convention bounce, and suggests that at the very least, bad vibes about the Kerry campaign are reverberating and strenthening Bush’s lead. Kerry needs to take immediate action to correct this trend.

Of course, many people may ask, why is it that I would sooner use data from a fictitious market than anecdotal data, tracking poll data, or any other data. Simply put, I truly believe that an unrepresentative sample is far more prescient than a representative one. The people bidding on the IEM know what will affect the candidates’ chances long before it actually filters down to the voters. It’s not really that they have insider information. In fact, the traders (on the whole) are probably reacting as much to the latest CNN news as I am. But taken as an aggregate, they’re much better at filtering out the important from the unimportant than I am alone.

The record bears this out. On Election Day, the IEM (vote share) market has consistently been more accurate than the tracking polls at predicting the outcome. That’s an impressive feat when you think about it, and the kind of stuff that makes many an economist’s heart flutter.

Of course, the market’s not perfect either. To see that, just look at the market history for the Democratic primaries. Apparently no one could predict the meteoric rise of John Kerry. Not long before the Iowa caucuses, Howard Dean was trading at well over 50 cents, sometimes as high as 75 cents, while John Kerry was at under 10 cents, barely beating out Hillary Clinton’s (!) price. So much for prescient markets. Some folks made an awful lot of money on that gamble.

Fine, so maybe this trend doesn’t spell the end of the Kerry candidacy. And, to compensate, while Bush is still trading higher than Kerry on the vote share market, the numbers are still about 51 to 49, a far smaller spread than what the tracking polls would suggest. Maybe Kerry’s not quite on the ropes yet, but I’m awfully worried about what happens if he gets there.

Posted on September 13th, 2004 by Lee
Tagged: Economics, Politics