Thoughts, essays, and writings on Liberty. Written by the heirs of Patrick Henry.

“Liberty is the only thing you cannot have unless you give it to others.”     William Allen White

October 14, 2008

Intrade Update — Wild Left Hook

by Brad Warbiany

Before the conventions, the election was looking pretty decently to be in Obama’s hands according to Intrade, with him predicted about 60% likely to win (which was higher than Bush was predicted in 2004). After the conventions, though, I remarked how shocked I was to see the numbers come to a dead heat.

Comparing my analysis to that of the financial world, I consider myself more of a “fundamentals” guy than a “technician”. I thought it was pretty clear that the country was pretty well sick of Bush, less than impressed by McCain, and that a significant number of people would be swindled by false promises of a new hopey-changey paradigm. So I was not surprised to see Obama trending at 60% before the election.

I was surprised to see the numbers over the last few weeks, though. Intrade’s current contract has Obama trading just over 80%. Their state-by-state analysis predicts he’ll win 364 electoral votes compared to McCain’s 174.

Now, a technician with a greater understanding of futures markets would probably state that those numbers will trend closer to parity between now and the election, and I don’t disagree. But I trust prediction markets a lot more than polls, and I think it’s pretty darn clear which way this one is going to end up. And to make it worse, they predict slightly over a 90% chance for each house of Congress being retained by the Democrats.

I’ve said before that I don’t believe that either McCain nor Obama would be a positive force for liberty. But things appear to be lining up about as negative as they can go. All that in the middle of what appears to be a financial meltdown of history-making proportions, and I have my own prediction for America over the next decade.

We’re screwed.

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18 Comments

  1. Because the last decade has been so profitable for America and our interests, right?

    Comment by Brian — October 14, 2008 @ 10:24 pm
  2. It is impossible to say which way the markets will trend prior to the election. Obama is currently trading at 80% (http://www.hubdub.com/m17795/Who_will_win_the_2008_US_Presidential_Election). My hunch is that McCain’s 20% is based on the chance of a dramatic reversal. Every day that dramatic reversal fails to occur works in Obama’s favor therefore I would expect the markets to trend towards Obama.

    Comment by Nigel Eccles — October 15, 2008 @ 1:44 am
  3. Brad, in th eshort term, we are screwed. In th elong term this may be a good thing:

    FDR made a career of blaming his policy failures on the “Do Nothing” republicans in Congress. Obama will lack that excuse.

    The U.S. will try state socialism, and it will go about as well as it has everywhere else it has been tried.

    People believed FDR’s plausible sounding excuses. Obama won’t have that option.

    Comment by tarran — October 15, 2008 @ 5:00 am
  4. I’m far less pessimistic. I think we’re screwed – but no more screwed than in any other election year, and less screwed than we wound up being the last 8 years.

    Despite the meme that Obama is a socialist, I see very little that makes him anything other than your run-of-the-mill center-Left politician. Keep in mind that the big criticism of him during the Dem primaries was that he wasn’t nearly as Left on economic issues as Hillary (wife of Bill) and Edwards.

    There’s actually a really good column in Reason (print edition only – it’s not online yet) this month that discusses the growth of government under four different scenarios, post-New Deal: Repub President and Congress, Dem President and Congress, Repub President and Dem Congress (at least one house), and Dem President and Repub Congress(at least one house).

    What it finds is, not surprisingly, that unified government expands government the most. BUT what it also finds is that Republican Presidents with a unified government are worse than Dem Presidents with a unified government and that Republican Presidents in divided government are worse than Dem Presidents in divided government (which is far and away the least bad scenario statistically speaking). Moreover, IIRC, it found that a unified Dem government is only slightly worse than a Republican President with a Dem Congress (and a unified Repub government is far and away the worst).

    This last bit is particularly important because it means that in terms of the growth of federal discretionary spending, and assuming that the Dems cannot possibly lose either house of Congress this year, there will be little short term difference between McCain and Obama. BUT, it’s also almost inevitable that Obama, with his unified government, will overreach on some issue (a la Bill Clinton on healthcare), and regardless, history tells us that the President’s party almost always loses seats in mid-term elections.

    All of this is to say that, statistically speaking, we’re probably better off with Obama, especially since this analysis says nothing about civil liberties and foreign policy, which have little to do with Congress, and on which McCain would be as bad or worse than Bush. If we have a President Obama, he is not significantly worse in the short-term than a President McCain (and far less bad than the Bushies from 2000-2006), and in the long run we have a legitimate chance at the least-bad scenario of divided government with a Dem President. McCain, on the other hand, would only be marginally better in the short term, but would raise the (admittedly unlikely) possibility of our worst-case scenario of unified Republican government in the long term.

    I understand that there is the specter of economic crisis that could theoretically undermine the usefulness of this analysis, since crises make great opportunities for government power-grabs. But my personal expectation is that we will find the crisis is more or less averted by early next year – we may still have a recession, but we will realize that this is not – and never was going to be – 1929 or 1932. In the long-run, of course, our debt will probably come back and bite us big-time if the deficit doesn’t start getting trimmed, but in the short-run I think we’ll find that this is more like 1987 than 1929/1932.

    Comment by Mark — October 15, 2008 @ 7:35 am
  5. Nigel,

    Normally I’d agree, but look at the Congressional prediction. Both the House and Senate are each trading at only a 90% chance that they’ll remain in Democrat control, even though I think most people would consider it more far likely than that (95%+).

    Futures contracts are like a bet which can be traded, but it’s still a bet. Right now, to bet that the Dems retain the Senate is betting $90 to win $10. Betting that the Reps will regain the Senate is betting $10 to win $90. The system self-biases away from the edges unless absolutely NOBODY is willing to take a chance on the long shot (i.e. current contracts for Romney to be the next President).

    There may still be room for Obama to go up on intrade, but I think a Presidential election is far less predictable than which house will win Congress, and so I think there’s a systemic reason to think the spread will tighten a bit as we near the election. It may be people banking on an October surprise, the Bradley effect, etc. As we approach the election, as well, you see people who bought the Obama contract at 50 or 60 after the Palin bump who want to start “profit-taking”. They’ve already seen a 20-30 point move, and they want to secure that gain.

    I do believe that each day we get closer to the election without some sort of major move by McCain, it becomes more probable that Obama will be elected. The intrade contract may be reflecting that a bit early, though, and may show a tightening for all the systemic reasons I mention above.

    Comment by Brad Warbiany — October 15, 2008 @ 8:46 am
  6. tarran,

    I think you’re overestimating the “crowd’s” ability to listen to reason. I think they’ll march headlong and grinning into the jaws of euro-style socialism, and then in another 10-20 years they’ll not believe those of us who warned about it happening.

    Mark,

    I’ve seen the same point, that divided government is good, and that for fiscal issues, that an R congress and D president is the best option. I don’t disagree. Congress has an inherent bias not to let the opposing party’s President take credit for what they do. This time around (much like the 1930′s), I do think that the public is waiting for government to “do something”, and they’re not too picky as to what that something is.

    Comment by Brad Warbiany — October 15, 2008 @ 8:59 am
  7. [...] Brad Warbiany: tarran, I think you’re overestimating the “crowd’s ” ability to listen to… [...]

    Pingback by The Liberty Papers »Blog Archive » Intrade — Make Money On Barr’08 — October 15, 2008 @ 9:41 am
  8. BUT, it’s also almost inevitable that Obama, with his unified government, will overreach on some issue (a la Bill Clinton on healthcare), and regardless, history tells us that the President’s party almost always loses seats in mid-term elections.

    Assuming that the media were a little more balanced, this would be a good prediction. My question is, with the MSM acting like they work for the Obama campaign, can he actually overreach on anything? Or will his mistakes and the disastrous consequences of his policies be covered up by a media that wants to see him in office? Considering the snow job we just got from the MSM on the financial crisis, I’m beginning to think the latter is quite likely.

    And, while we on the internets like to pretend we’re really making a difference, it’s going to be quite a while before the WWW takes over from the MSM as the fourth estate.

    Comment by Quincy — October 15, 2008 @ 10:56 am
  9. Brad:

    I’m not so sure that the public are waiting for the government to “do something,” at least not in nearly the numbers leading up to and during the Great Depression. The bailout bill received fierce opposition from a huge chunk, even a slight majority, of the population (admittedly, the bill passed anyways, but that’s not the point here). And poll after poll showed a majority thought the stimulus package was worthless and predicted (correctly) that it would not stave off economic problems. I haven’t seen polling on Pelosi’s new “stimulus” proposal, but the sense I’m getting is that it’s not terribly popular, either.

    As for the closely related issue of media bias mentioned by Quincy, I think you’re overestimating its effects. For starters, the fact that the public at large has remained so generally opposed to the bailouts and stimulus packages in spite of the media’s uncritical support thereof demonstrates that media’s influence is not as strong as you credit it for.

    Second, during the Clinton years (when I was regrettably a partisan Republican), I recall having the view that the media was in the tank for Clinton to the point that CNN was referred to as the “Clinton News Network.” Complaints about the “liberal media” were at an all time high, and they were eating up Hillarycare and gun control as the greatest thing since sliced bread. Despite all this – and despite the fact that the “alternative media” amounted to nothing more than Rush Limbaugh (blech!) – Clinton paid dearly for his overreaches in 1994 and, in the process, became arguably morphed into the least bad (for liberty purposes) administration in recent memory. Now, things are better in the sense that we have this internets thing, plus a greater variety of radio commentary (left, right, and otherwise), and Comedy Central (which, despite its liberal bias, is more than willing to question conventional wisdom on just about anything).

    So yeah, the MSM is still dominant, but I think you vastly overestimate its influence.

    Comment by Mark — October 15, 2008 @ 1:09 pm
  10. For a scientific forecast of the election outcome, check out the http://www.pollyvote.com

    A forecast much more stable than polls and markets have proven to be.

    Comment by Anderl — October 15, 2008 @ 1:36 pm
  11. Mark –

    Good points, but I based my estimation of the media’s influence based on the conversation going on about the bailouts. The media successfully convinced people of (their version of) the *cause* of the financial crisis, people just rebelled at the solution offered.

    Freddie Mac and Fannie Mae and government regulation don’t come up in the conversation most Americans have about the financial crisis because the MSM never brought them up. If they did, we’d have a vastly different reaction than we do. If they knew the who’s and what’s involved, they’d have the heads of Barney Frank, Chris Dodd, and yes, Barack Obama, on a silver platter for putting the interest of Fannie and Freddie ahead of the interests of the public. Instead, we have people on Main Street screaming about the greedy bastards on Wall Street. Big win for both Obama and the MSM.

    In terms of the national debate in an Obama administration, the MSM will be the ones defining what the national agenda should be by highlighting certain problems and suppressing others, all while giving leftist interpretations of why these problems are happening. This will act as an enabling force for Obama’s grasps at our liberty.

    If the media had told the whole truth about the financial crisis, including who enabled the greediest guys in the room, the Democrats would be run out of the Capitol Building on a rail and Barack Obama’s campaign would be a distant memory. Instead, he’s poised for a big victory, to sweep into power with a “mandate” (oh, how I HATE that word), all because the MSM successfully pinned the financial crisis on the Republicans.

    I think you don’t give them enough credit.

    Comment by Quincy — October 15, 2008 @ 1:52 pm
  12. Mark,

    The bailout was largely spun amongst the populists as a “giveaway to Wall Street.” Despite the crowing of Paulson & Bush, very few on “Main Street” really believed that this was a fundamental fix to a deeply flawed system that imperiled the whole economy.

    I pointed out in a previous post that McCain suggested in true doublespeak that the package be referred to as a rescue instead of a bailout. It’s more of a neutral term than bailout, which invokes a sense of fixing problems they never should have gotten themselves into.

    This is a complicated financial mess, and one that I have worked hard to try to understand and then worked harder to try to explain to others on this blog. The explanation is far too complex to get out during a 5 minute cable news segment, so they haven’t even tried. Thus, the public seems to be of the opinion that “I can’t understand this so it must be a giveaway to rich people… After all, Bush is doing it.”

    But all that will change if this pain ever hits “Main Street”. If we run into a real recession, with job losses, unemployment, and potentially the inflation that this bailout will cause, you’ll see the American public looking for a leader to coddle them. Obama will be more than happy to be that leader.

    Comment by Brad Warbiany — October 15, 2008 @ 2:54 pm
  13. Quincy and Brad: Fair points, but also remember that the party that at least made an attempt to oppose the bailout was primarily the Republicans rather than the Dems (with certain obvious exceptions).

    One thing I would dispute is the idea that this is all the Dems’ fault. I would say that both parties are at least equally to blame. It’s also pretty clear, I think, that Wall Street, the banking industry, and overreaching homeowners played more than their part in creating the whole situation. Either way, the point is that you had a situation where the leadership of both parties and the President pushed for the bailout (IIRC, it was Paulson himself who used the term). In the news stories that I read from CNN, etc., there was little or no discussion of dissenting voices to the bailout plans. Despite all this, people opposed the plan. FWIW, though – I also question the idea that voters only blame the Republicans and Wall Street…as far as I know, most of the public is equally unthrilled with homeowners who overextended themselves.

    Either way, the more salient point is the skepticism with which people viewed the “stimulus” package this spring, since it theoretically benefited most taxpayers directly. Despite this fact and despite the media’s fawning coverage of the “bipartisan deal,” most people thought it was a giant waste of money.

    Comment by Mark — October 15, 2008 @ 3:41 pm
  14. Brad,

    I think they’ll march headlong and grinning into the jaws of euro-style socialism, and then in another 10-20 years they’ll not believe those of us who warned about it happening.

    Maybe… maybe, blogs + google will help us gain credibility afterwards.

    Comment by Jeff Molby — October 15, 2008 @ 3:45 pm
  15. One thing I would dispute is the idea that this is all the Dems’ fault.

    I’m not saying the crisis was all the Dems’ fault, nor am I saying that the bailout was anything but bipartisan butt covering by the beltway political machine. I *am* saying that the leaders of Fannie and Freddie were the ones profiting off of knowingly fradulent accounting, and the Democratic leadership, including Obama, were their enablers. As much as bankers and homeowners tried to profit from the situation, it’s clear that the leadership of Fannie and Freddie crossed the line into outright fraud in the name of greed. They were the greediest guys in the room.

    Most Main Street Americans, left and right, would have been calling for the heads of those who profited off the fradulent accounting and those who enabled them *if they knew*. It would have been as big as Enron, or even bigger.

    Most Americans hate the idea of fraud, whether it’s from homeowners, bankers, Enron, or Fannie and Freddie. But, they don’t know and the Democrats maintain their credibility on the economy because the MSM ran a massive, distributed coverup operation to keep these facts off the air and out of the conversation.

    Because of this, we’re stuck with Barack Obama as our likely president, and we’ll be stuck with his insane economic plans, which again are described uncritically by the MSM as creating millions of jobs and helping to stabilize the economy when history suggests they’ll do just the opposite. Think 1933-1937 and the suppression of economic activity caused by the repressive tax regime of the New Deal. The media matters because the media frames the debate, even if not everyone agrees with their conclusions.

    Comment by Quincy — October 15, 2008 @ 4:04 pm
  16. Maybe… maybe, blogs + google will help us gain credibility afterwards.

    Maybe, but if that Euro-style socialism includes nationalizing telecom as I fear it will, we’d never be able to access it.

    Comment by Quincy — October 15, 2008 @ 4:06 pm
  17. Mark,

    I’m not blaming the Democrats. There’s enough blame in this one to go around, whether it be Congress, the Fed, Wall Street, mortgage companies/brokers, and the greedy guys on the street who took advantage of loans they couldn’t afford thinking prices would just keep rising.

    Those of us with a handle on the situation know how we got here. But that won’t stop our government from taking ALL the wrong steps in trying to address it. In the effort to avoid short-term pain, I think Obama will be selling us a lot farther down the long-term socialist path than we are today.

    Comment by Brad Warbiany — October 15, 2008 @ 4:21 pm
  18. Suffice to say, my evaluation of what Obama is likely to do in office is different. Of course, I’m still not voting for him…I just don’t think he’ll be nearly the disaster you’re predicting, especially given the recent comparative track records of other Dem Presidents.
    As for Fannie and Freddie’s role in all this – you’ll get no disagreement from me, and I’ve written before that the private-public hybrid they exemplify is a recipe for disaster that mostly just combines the worst elements of socialism with the worst elements of capitalism. But I’m not sure how much difference it makes (for public opinion purposes) how much the media emphasized their role in the situation. Regardless, what matters most to me is that the public as a whole was able to call “BS” on the stimulus and bailout packages in spite of the MSM’s clear support of both.

    Comment by Mark — October 15, 2008 @ 7:47 pm

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