There is one thing that is certain come Wednesday morning; there will be just as many losers as winners and as ConvergEx's Nick Colas notes, while the main-event remains too close to call, the psychology of 'losing' will become a critical part of the domestic political process from November 7th onwards. We suggest the Post-Election Stress Syndrome (PESS) will follow the Kubler-Ross model - which means initially 'Denial' and 'Anger' will dominate people's deeds and words. None of this is good news for an efficient resolution to the political Gordian Knot know as the 'fiscal cliff' or to the stability of capital markets going into year-end as politicians and plebeians alike will be PESS'd off.
Via Nick Colas of ConvergEx: I'm A Loser Baby, So Why Don;t You Kill Me
If there is one certainty about the Presidential election tomorrow, it is that it will be a close contest. Only the most partisan of observers seem to feel differently. There’s nothing wrong with that, of course. It is just that the numbers point to a long Tuesday night. A few points here:
- The Real Clear Politics average of national polls is split virtually down the middle, at 47.5% for President Obama and 47.3% for Governor Romney. The state-by-state map shows 201 “Safe” Electoral College votes for the President, and 191 for Romney.
- Intrade, the gambling/prediction website, currently places the odds of President Obama’s reelection at 65%. That might sound promising for those who favor this outcome, but it is a far cry from a lock. As an aside, some $30 million is on the line at Intrade over just the Presidential race.
- In the important battleground states, the story is much the same. Ohio polling places the President with a 2.8 percentage point advantage, but the Intrade odds are just 66% in favor of Obama winning the state. Virginia and Colorado and straight-up coin flips on Intrade – 50/50, within a point or two – and the state polling in both is within a statistical dead heat.
- Two closely watched political pundits – the Republican Party’s Karl Rove and The New York Times Nate Silver, who both essentially nailed the 50-state predictions in 2008 – are on opposite sides of the trade this time around. Rove, in a piece for The Wall Street Journal last week, called for a Romney victory. Silver sees an +80% chance of President Obama keeping his job for four more years.
The bottom line is that both sides feel they have a real chance, and that means one Party will take a hard loss out of this contest. A loss for the Democrats means that they will be very much an opposition party, with (likely) only the Senate to call their own. As for the Republicans, the mere fact that this election is as close as it is must be a disappointment. The U.S. economy is still operating distinctly below its potential and unemployment is right on the historical cusp of assuring any challenging party a solid victory. A loss on Tuesday for either party - and one will certainly draw the short straw – is going to go down very poorly indeed among the faithful and their representatives in government.
That’s a problem for the country, because there is a lot of heavy lifting to be done in the coming months with respect to the package of tax increases and spending cuts known as the Fiscal Cliff. Numerous studies of the impact here total 2-4 points of growth in Gross Domestic Product should the entire “Cliff” come into law. Since that measure of economic growth is only currently running 2% or so, failing to address the “Cliff” all but assures a recession in early 2013. The threads of the debate about this problem very much resemble the ancient story of the Gordian Knot, a tale from antiquity that promised great things to anyone who could untie an especially large and complex mass of rope. Alexander the Great, passing through the Knot’s hometown in what is now Turkey, tried his luck and untangling it. When he failed at the attempt, he simply took out his sword and cut through the knot, fulfilling the challenge with what management consultants would now call “Out of the box” thinking.
So will the losing party in Tuesday’s election feel like being part of a decisive action on the Fiscal Cliff? Observations from the world of psychology offer some warning signs on this question. A few points to expand on this:
- The most often quoted psychological paradigm for how humans cope with loss applies to everything from the death of a parent or spouse to a nasty romantic breakup. It was first described by Swiss-American psychiatrist Elizabeth Kubler-Ross in her book On Death and Dying, published in 1969.
If you assume that the loss of an election has the same emotional impact on a political party that grieving has on an individual, the Kubler-Ross model lays out the path ahead for either Democrats or Republicans. The good news is that “Acceptance” is the final step – the person (or party) that suffers a loss almost always learns to cope with it over time. The bad news is that there are four antecedent emotions, which are denial, anger, bargaining, and depression – in that order. There is no set time frame associated with the Kubler-Ross model. Every individual is different, as is every loss.
The first two steps – denial and anger – seem especially ill suited for a quick political compromise on the Fiscal Cliff. They also seem to follow naturally from such a close campaign. The best outcome, ironically, is for a blowout result favoring either side. The losing party would feel the sting, of course, but it could hardly argue that they had enough popular support to oppose the winner’s proposals for resolving the “Cliff.” The polling data argues against it, as I noted above, but polls have been wrong before so this outcome still has a chance.
- From the world of sports psychology, specifically Mixed Martial Arts (MMA, for short), comes this trenchant bit of wisdom: “It’s all about the money.” Two university professors (Drs. Butryn and Masucci, of San Jose State) have put in +5 years in studying MMA fighters and what motivates them. As it turns out, they are more aware of the economics of their sport than athletes in other disciplines. A November 2012 article in Fight! Magazine about the pair’s findings quoted Dr, Butryn saying. “Sports psychology 101 is about process, not outcome.” But since money is inextricably tied to wins and losses, many fighters have trouble staying on the right psychological path to success.
Elections are inherently about outcomes, but whichever party loses will likely come to the conclusion that they didn’t spend enough money to win. That might sound amazing, given that both sides are reported to be laying out $1 billion each to assure victory. Whether the losing side also thinks about process – the ideas and positions that motivate voters – remains to be seen. Like a battered and bruised (and losing) MMA fighter, they will probably worry about the money first.
- A loss in a sporting contest doesn’t just sting the losing players – it lowers the testosterone levels of male fans that back the unhappy team. In studies going back to the 1990s, researchers have found that witnessing a loss of your favorite team doesn’t just mentally upset fans that happen to be men; it also lowers the production of endocrine hormones such as testosterone. How this relates to political races, I am not brave enough to predict.
We have, in summary, a worrying confluence of psychological pressures shaping up around the election on Tuesday. No matter how close the contest, there will be a winner. They will garner all the customary attention, and their backers will be rightly happy with the outcome. But it may be the losers that capital markets will have to watch more carefully in the coming months. That Gordian Knot isn’t going to cut itself.