Safe + Moderate ≠ Electable
Low-beta isn’t always better.
Lawrence B. Lindsey
January 16, 2012, Vol. 17, No. 17
The conventional wisdom among the chattering class about the Republican field is that voters face a choice between “electability” and “ideology.” But a careful look at elections since the end of World War II suggests that is not the case. What most pundits think of as “electable,” a safe candidate attractive to moderate voters, has historically been highly unlikely to unseat an incumbent president. In the five elections since World War II in which the party out of power has picked a “safe” candidate to take on a sitting president, the result was defeat for the supposedly safe, electable challenger.
To understand why this is not always the case, consider the math of an election as composed of two parts: the “normal” or “expected” result and the variability or chance part around that normal result. The term used in markets to denote this chance or variable part is “beta.” A high-beta stock—or a high-beta candidate—might do a lot better or a lot worse than what would normally be expected, whereas a low-beta candidate (or stock) is pretty much going to do as expected, or, in the case of a stock, as the rest of the market does.
If there is an election a party would normally be expected to win, the smart thing to do is to nominate a low-beta candidate. If, on the other hand, a party is thought likely to lose, it might select a high-beta candidate. That would increase its chances of winning, though it would also increase its chances of losing big.
Statistically, the odds of winning depend a lot on whether there is an incumbent seeking reelection, as has happened in 10 of the 16 presidential races since World War II. Incumbency offers tremendous advantages, by some estimates adding at least 3 points to the “normal” result, turning a 50-50 election into one that is 53-47. Job performance matters, so a bad economy tends to subtract from this edge. With subpar growth, but no recession, President Obama might normally be expected to win narrowly, say by 1 percentage point.
If that model is right and the Republicans ran a “zero-beta” candidate, one with absolutely no variability around the “normal” result, he would perform quite respectably but lose. To be precise, he would lose by one point, 50.5 to 49.5. A very low-beta candidate, say one with a variability equivalent to half a point, would have an equal chance of producing a “tie” or losing 51-49. A high-beta candidate, with 10 times the variability of that very low-beta candidate, would have an equal chance of winning 54.5-45.5 or losing big, by 55-45. But if a party really wants to win—and doesn’t care about how badly it might lose—it should pick a high-beta candidate.
Stated simply, given the incumbent’s built-in advantage, the opposition party must nominate someone who will “shake things up” in order to win. After all, if an election was simply going to be a rerun of the previous election, the incumbent would win again. Indeed, running the same opposing candidate as the last time is the ultimate “low beta” strategy—the candidate has been vetted, is therefore “safe,” has good national name identification, and obviously has the support of the party machinery. But this recalls Einstein’s famous definition of insanity—doing the exact same thing and expecting a different result. Actually both parties have tried this—Dewey ran in 1944 and 1948 and garnered just as many votes both times; Stevenson ran in 1952 and 1956 and got clobbered by roughly the same margin.
There were three other postwar incumbent elections in which the opposition party tried the next safest thing, picking a party stalwart who had experience running for national office. Bob Dole, Senate Republican leader in 1996 and a runner-up in the 1988 presidential contest, was one such example. So was Walter Mondale in 1984, who had been the vice presidential candidate in the two previous contests. John Kerry was also “safe” in 2004, a war hero running in a nation at war. Kerry, with the least experience, probably had the highest beta of these candidates and, by the way, came the closest to unseating the incumbent. And unlike his lower-beta colleagues, Kerry actually increased his party’s popular vote over its previous performance. Still, low-beta choices have been zero-for-five at unseating incumbents.
By contrast, the five high-beta candidates who have taken on incumbents have shaken things up, sometimes in a positive way producing a rare victory over an incumbent, and sometimes in a negative way producing a disastrous landslide. Two obvious disasters were Goldwater in 1964 and McGovern in 1972, and these are the candidates most people think of when they think that high-beta candidates can’t be elected. But Ronald Reagan was the high-beta choice in 1980—and incumbent President Jimmy Carter’s preferred opponent. High-beta candidates can also be “unknowns” who simply capture the imagination or bring in a new class of voter. Carter was one such candidate in 1976, running against his party’s establishment and as a Washington outsider. Bill Clinton in 1992 was one of the highest-beta candidates ever in purely statistical terms; he actually ran third in the polls in the summer of 1992. He was also the first Boomer in a country that had been governed by World War II-era G.I.s for the previous 32 years. And Clinton, like Carter, appealed to a part of the country long ostracized by the Democratic establishment—the South.
Each of these successful high-beta candidates brought in new votes. Clinton’s 45 million was the highest total received by a Democrat until that time, even though he won with just 43 percent of the vote. And of course, Reagan reshaped the political landscape, creating the famous “Reagan Democrat.”
This is not to say that it can’t be different this time—Romney, the obvious low-beta candidate, could win. As they say in markets, “past performance is no guarantee of future results.” But it is certainly not the case that, based on history, he is obviously the most “electable.” Statistically, he may be the least electable. But he may well be the candidate most likely to put in a “respectable” showing. After all, a Santorum or Gingrich might be more like a Goldwater than a Reagan.
The real attractiveness of a low-beta candidate to a party establishment is not the chance that he will win the White House, it is that other incumbents, particularly in Congress, maximize their chances for reelection precisely because things are not shaken up. Incumbents like low-beta candidates above them on the ballot. That is why the Republican establishment in Washington is overwhelmingly supportive of Mitt Romney. He maximizes the chances that Republicans hold the House and take the Senate. And there is an added bonus—if the low-beta “establishment” candidate happens to win, he is beholden to the establishment.
In the interests of full disclosure, I have nothing to disclose. I am not affiliated with any campaign and haven’t even contributed to any of the candidates. But we should realize that the electability argument is a phony one the way it is currently framed. What really should matter is which candidate will actually enact a very ambitious legislative agenda during the first six months of 2013—the historic window of opportunity for legislative accomplishment. For if we do not achieve entitlement reform, tax law changes, and regulatory improvements that lead to faster economic growth and a sharply falling deficit, by late 2013 markets will be treating us the way they are now treating Italy. And since the voters intuitively sense this, nominating the individual most likely to pull off an ambitious legislative agenda in 2013 will probably also mean nominating the most electable candidate in 2012.
Lawrence B. Lindsey’s most recent book is What a President Should Know . . . but Most Learn Too Late.
