As this article goes to press, there are still many House and Senate races at the federal level yet to be called, and it’s looking likely that the House will be under Republican control by a handful of seats and the balance of power in the Senate will come down to a runoff in Georgia.
This article is going to focus on what lessons we can take from the 2022 elections and close with what it may mean for the policy agenda for the next two years.
First, polling isn’t the problem; interpretation of polling is the problem. No reputable prognosticator put the odds of Republicans having a small majority and the Senate margin being razor thin outside of their range of possible outcomes. The issue is that we seem to forget every two years that polls showing Candidate A having 51% and Candidate B having 49% does not mean that the Candidate A is going to win. We’ve forgotten that not only is there a significant margin of error in any political poll, but there are assumptions inherent in the poll results where even small deviations between the assumptions and reality can have huge implications. The political media’s bias toward reporting on the so-called horse race is no small factor in this phenomenon. Annie Duke has a great book called Thinking in Bets, where she talks about the human mind’s natural tendencies to misinterpret probabilities. One of the takeaways is if someone says that there is a 70% chance of something happening, don’t be surprised if, in any given instance, the 30% chance comes true. (If you have 1,000 loans and you’ve priced in a 30% default rate, would you be surprised when 300 loans defaulted? Put in different terms, if someone told you there was a 30% chance that if you went swimming, you’d get bitten by a shark, you’d think hard about enjoying the view from the beach.)
Second, if the Florida recount in 2000 taught us anything, it is that we have a system of 50 individual elections, and in the House of Representatives, we have 435 individual elections governed by 50 different sets of election laws. Each of these elections brings different dynamics. Many states now have early voting that allows people to vote in early October. This means that while events may change the perception of how a race is going, millions of votes could have been cast before those events occurred. Additionally, while national trends can certainly affect each of these elections, it is foolish to believe that the same factors that affect a House race in upstate New York are the determinative factors in a House race in Alaska that utilizes ranked choice voting.
Third, candidates matter deeply. Ron Brownstein is credited with saying that Americans are increasingly voting based on the color of the jersey rather than the name on the back. This election showed that may be a trend all else being equal, but all else is never equal. The fact that gubernatorial candidates in New Hampshire, Pennsylvania and Georgia ran so far ahead of the Senate candidate of the same party that they shared the ticket with shows that we haven’t become a parliamentary system yet, even if the trends are in that direction.
Lastly, this election will be over-interpreted by many. There are lessons to be learned for sure (e.g., New York Democrats vastly overplayed their redistricting hand and likely ended up costing themselves almost the exact amount of seats that will determine control of the House of Representatives). To interpret national trends based on elections in 50 different states is dangerous work, but that doesn’t mean people won’t do it.
So, what do the election results mean for the equipment leasing and finance industry? The next two years are going to be messy at the federal level. One issue that is likely to be really messy is the raising of the statutory debt ceiling. Considering the role that Treasury securities play in debt markets that are already frothy, this could have huge implications. The results also mean that from a true policy perspective, divided government usually means gridlock and not much is going to change. With House Republicans controlling the oversight levers, expect a lot of light; the question is, “how much heat will there be?” Lastly, if you haven’t heard it already, you read it here first: Welcome to the 2024 presidential election cycle!
This article is going to focus on what lessons we can take from the 2022 elections and close with what it may mean for the policy agenda for the next two years.
First, polling isn’t the problem; interpretation of polling is the problem. No reputable prognosticator put the odds of Republicans having a small majority and the Senate margin being razor thin outside of their range of possible outcomes. The issue is that we seem to forget every two years that polls showing Candidate A having 51% and Candidate B having 49% does not mean that the Candidate A is going to win. We’ve forgotten that not only is there a significant margin of error in any political poll, but there are assumptions inherent in the poll results where even small deviations between the assumptions and reality can have huge implications. The political media’s bias toward reporting on the so-called horse race is no small factor in this phenomenon. Annie Duke has a great book called Thinking in Bets, where she talks about the human mind’s natural tendencies to misinterpret probabilities. One of the takeaways is if someone says that there is a 70% chance of something happening, don’t be surprised if, in any given instance, the 30% chance comes true. (If you have 1,000 loans and you’ve priced in a 30% default rate, would you be surprised when 300 loans defaulted? Put in different terms, if someone told you there was a 30% chance that if you went swimming, you’d get bitten by a shark, you’d think hard about enjoying the view from the beach.)
Second, if the Florida recount in 2000 taught us anything, it is that we have a system of 50 individual elections, and in the House of Representatives, we have 435 individual elections governed by 50 different sets of election laws. Each of these elections brings different dynamics. Many states now have early voting that allows people to vote in early October. This means that while events may change the perception of how a race is going, millions of votes could have been cast before those events occurred. Additionally, while national trends can certainly affect each of these elections, it is foolish to believe that the same factors that affect a House race in upstate New York are the determinative factors in a House race in Alaska that utilizes ranked choice voting.
Third, candidates matter deeply. Ron Brownstein is credited with saying that Americans are increasingly voting based on the color of the jersey rather than the name on the back. This election showed that may be a trend all else being equal, but all else is never equal. The fact that gubernatorial candidates in New Hampshire, Pennsylvania and Georgia ran so far ahead of the Senate candidate of the same party that they shared the ticket with shows that we haven’t become a parliamentary system yet, even if the trends are in that direction.
Lastly, this election will be over-interpreted by many. There are lessons to be learned for sure (e.g., New York Democrats vastly overplayed their redistricting hand and likely ended up costing themselves almost the exact amount of seats that will determine control of the House of Representatives). To interpret national trends based on elections in 50 different states is dangerous work, but that doesn’t mean people won’t do it.
So, what do the election results mean for the equipment leasing and finance industry? The next two years are going to be messy at the federal level. One issue that is likely to be really messy is the raising of the statutory debt ceiling. Considering the role that Treasury securities play in debt markets that are already frothy, this could have huge implications. The results also mean that from a true policy perspective, divided government usually means gridlock and not much is going to change. With House Republicans controlling the oversight levers, expect a lot of light; the question is, “how much heat will there be?” Lastly, if you haven’t heard it already, you read it here first: Welcome to the 2024 presidential election cycle!
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2022