Geopolitical Risk and the US Election: The Media, Polls, Forecasts, and Why Did So Many Get it Wrong?

The outcome of the US election was somewhat surprising to many in the country, as it was largely assumed VP Harris would emerge victorious given the improvement she appeared to present over Joe Biden as the Democrats’ candidate and the by perception created by Donald Trump’s various legal woes, reputation et al.

The media in the US and commentators did their part to create the expectation of a Harris win.  The VP raised considerable sums for her campaign versus those of Trump; polls had her leading in many swing states; and the now discredited Iowa Register poll that was the final poll before the election and which was seen as quite predictive of the outcome, had Harris leading Trump 47-44% among likely voters in the state (Other surveys had Trump comfortably in the lead in the state).

In the end, Trump and the GOP prevailed by an impressive margin, capturing the Senate and holding the House.  Unsurprisingly, the postmortems on Harris’ and the Democrats’ loss continue, ranging from her inability to present new policy positions separate from the Administration, to not appearing on the Joe Rogan show (both Rogan and Harris really couldn’t area on the topics for discussion)

Back in March, I asked our longstanding Americas team to give me their forecast for the November balloting.  The answer came swiftly: Trump will win.  I was a little taken aback because I too was under the impression that Trump’s political hurdles would be too high to clear, and that Americans were still exhausted by acrimony of the 2016-2020 period. Even though Harris wasn’t that well known, and really didn’t have many policy victories to her name – VPs rarely do – for those not committed to the Democrat ticket, it would be a matter of holding one’s nose and casting their ballot in favor of Biden’s successor.

In explaining the factors behind the forecasted Trump win, my team offered their usual disciplined and thoughtful fare.

It was made clear that victory in the presidential election is claimed not by the candidate who wins the most votes, but by the contender who wins a majority of the 538 votes in the Electoral College, the composition of which mirrors each state’s representation in the Congress. The candidate who wins the popular vote in each state (with the exception of Maine and Nebraska) claims all of that state’s electors, regardless of the margin of victory. 

Such is the rigidity of partisanship in the US at large that the statewide result is all but a foregone conclusion in most of the 50 states and the District of Colombia, which has three seats in the Electoral College. Consequently, the outcome of the November contest would likely turn on the result in just six states: Arizona, Georgia, Michigan, North Carolina, Pennsylvania, and Wisconsin. (As it turned out Nevada was also in play, which by itself was a huge danger sign for the Democrats).

Trump finished on top in all six in 2016, albeit by very narrow margins in Pennsylvania, Michigan, and Wisconsin, and secured a comfortable majority in the Electoral College, despite winning nearly 3 million fewer total votes than Hillary Clinton. In 2020, Biden won about seven million more votes than Trump overall, but relied on come-from-behind victories in Arizona and Georgia (both of which were dismissed as fraudulent by Trump and other Republicans) to claim the most seats in the Electoral College.

Biden’s victories in those crucial swing states [in 2020] were achieved thanks to high turnout by the Democrat base and strong support from independent voters. My team made it clear that Biden could not count on either this time around.

On the policy front, discontent over rising living costs and the Biden administration’s failure to address concerns related to border security had eroded the incumbent’s popular support among independent voters. 

Biden’s electoral obstacles were not limited to weaker support among swing voters. The president is also struggling with key segments of the Democrat base, including younger Americans dissatisfied with his lack of action in policy areas they consider priorities, such as the environment. His response to the Gaza crisis has more recently alienated Arab American voters (whose strong support is essential to his chances of finishing on top in Michigan) and is a bone of contention for progressive Democrats more generally.

In the case of Harris, she failed to distinguish herself from Biden and she focused on attacking Trump rather than talking about what she would do.  Indeed, an interview on “The View,” where she was asked point blank if she would have handled anything differently than Biden and she said “nothing comes to mind,” has been cited in several post-election analyses as a prime example of the fatal flaw of her campaign.

The accuracy of our forecasts has never been in doubt.  Several years back a seminal article published by the National Bureau of Economic Research titled ‘Political Risk Spreads,’ found that our ICRG risk ratings to be ‘predictive measures of risk realizations’ using political risk insurance claims and political risk news events. (https://www.nber.org/system/files/working_papers/w19786/w19786.pdf)

The piece is extremely informative.  Have a look when time permits.

Additionally, a quick search of JSTOR – the online publications portal – holds over 800 entries in published articles where the ICRG data have been used and/or cited. (https://www.jstor.org)

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Our return to Montreal in November is set, designed to meet with our new digital marketing and AI development teams.  Also, a partnership with a French firm will marry an ‘AI-complement’ to our forthcoming marketing efforts and data backend improvements of the PRS site.  Finally, our creative team in NYC is set to go with some new ideas to bring a fresher look to PRS, highlighting not only our unique, proprietary analyses, but the position PRS-ICRG occupies in the alternative/geopolitical risk data world. All exciting developments as 2024 ends!

Our new video series is currently in production.  Named ‘Au Courant’ after a previous publication of PRS’ that enjoyed considerable success, the new bi-weekly series will include synopses of timely geopolitical risk events and what they mean for investors and business; trends in the ICRG data and country forecasts; recent academic findings using the PRS data; and the occasional interview with academics and practitioners in the field.  The series should be ready by December 2024.

PRS’ work in developing several AI platforms for the use of our data are gaining pace with significant assistance from private equity groups and related lenders, as well as various end-users, especially in the academic world.  Stay tuned for more information on our work in this area.  That we have surpassed the six million data point mark in relation to our curated geopolitical risk data series is telling!  No other risk firm can offer such depth; nor can they claim the mantle of being consistently used in leading academic scholarship and appearing in the top journals.

Clients should note that our popular Researchers’ Dataset (RDS) series – containing updates from 2023 – is now available.  The RDS series – derived from our ICRG data – continues to yield unique insights in a range of topics that explore the impact of political risk on asset prices, inflation and monetary policy, the economic costs of war, youth unemployment and political stability, and much more.  Contact us at custserv@prsgroup.com to acquire about acquisition of the RDS updates.

October was another terrific month for new and returning clients, ranging from some of the world’s top universities to the largest institutional investors throughout the US, Europe, the UK, and the Middle East and Asia.   Our data have become increasingly popular with the larger consultancies, helping them and their clients in assessing geopolitical risk over time and across 141 countries, and in relation to issue-specific concerns, such as supply chain security.

Our ICRG political risk scoring changes were very good in October, affecting some 75 countries (of 141) and over 108 individual political risk metrics!!

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As always, ICRG and related PRS data continue to be the gold standard of all geopolitical risk data among the scholarly and research communities. For example, in a very interesting IMF Working Paper that used our ICRG data, the authors considered the impact of removing fossil fuel subsidies on presidential popularity levels, using difference-indifference approaches and a stylized theoretical model. 

Analyzing macro level data for two subsidy removal events in Mexico and Bolivia in the early 2010s, they found evidence of a negative impact on presidential approval. 

The theoretical probabilistic voting model used predicts that the decline in popularity is driven by high income groups if subsidies are regressive, and that lack of trust in the government lowers popularity of the removal in all income groups.
(https://lnkd.in/eKW5XAPK)

Using our ICRG data, during election years, firms reduce investment expenditures by an average of 4.8% relative to nonelection years, controlling for growth opportunities and economic conditions. The magnitude of the investment cycles varies with different country and election characteristics. (https://lnkd.in/eTrqy8KA)

CHRISTOPHER MCKEE, PHD CHIEF EXECUTIVE

Christopher McKee is PRS’ CEO and Owner. An international political economist, global investor, entrepreneur, and author, Chris received his PhD from Queen’s University (Canada) and has been involved in the field of geopolitical risk, limited recourse financing, and private sector development for the past 25 years.