By now it’s well known that just about every conservative pundit predicted a win for Romney (e.g. here, here, and here). Many of them even predicted a “landslide.” Everybody on Romney’s staff got it wrong, too. Romney himself was “shellshocked,” according to one of his advisers. Early on election day he’d claimed to have written only one speech — a victory speech — because, as he put it, “Intellectually I’ve felt we’re going to win this and have felt that for some time.” A lot of people have observed that this doesn’t reflect well on GOP psychology and, more importantly, GOP policy.
Yet I haven’t yet seen anybody answer what should be a glaringly obvious question: why didn’t Team Romney mark their beliefs to market? Team Romney made faith in markets over faith in government a the central issue of the Romney campaign, yet predicted its own victory even though the the prediction markets (e.g. Intrade, Iowa Electronic Markets, and Betfair) were predicting a victory for Obama the whole time.
For example, here is the lifetime history of Intrade shares in Obama’s victory:
Since January 2012 the markets consistently believed that Obama would probably win (i.e. shares never fell below $5 each).
Mitt Romney, on the other hand, never even hit even odds:
And here I have selected Intrade, the most Romney-bullish of the prediction markets. Other prediction markets were even more bullish about Obama.
Mitt Romney, his entire campaign staff, and all the GOP pundits who got it so very, very wrong, who made faith in the efficiency of markets the central pillar of their campaign, should have either:
a) Marked their beliefs to market: looked at what the all-knowing, all-wise markets were saying about Romney’s chances and agreed that Romney was the underdog, or
b) Bet a lot of money on their beliefs: if they were really so confident that the markets were wrong and that Romney would win (if they were the “efficiency experts” and “numbers people” they claimed to be), put their money where their mouth was and bet on a Romney victory in the prediction markets until they moved the price in Romney’s favor (this was totally possible, as none of the markets were very liquid).
Yet they seem to have done neither.
The pundits who predicted a victory for Romney were almost without exception the very same pundits who say they believe the market can do no wrong, or at least that the government can do no better. Why? It’s a question I think they should answer.
Until they do, here is my best guess: the people who made these predictions don’t really believe in free market principles, because they are conservatives first, and libertarians second (if at all).
This is something libertarian luminary Friedrich Hayek observed fifty-two years ago. Conservatives fear and distrust “change,” Hayek wrote, “uncontrolled social forces,” and “new ideas,” whereas the pursuit of political and economic freedom necessarily requires all three.
Hayek wrote that in 1960, but it’s still true 50 years later. For instance many conservatives prefer:
- restrictive immigration laws;
- laws against buying, selling, or possessing cannabis;
- laws against sodomy, same-sex marriage, same-sex adoption, and same-sex parenting;
- laws against abortion;
- a strong national military;
- warrantless surveillance;
- drone strikes;
- “enhanced interrogation techniques;”
- subsidies to religious institutions (pdf);
- state sanctioned and/or mandatory school prayer;
- laws against assisted suicide;
- laws against embryonic stem cell research;
- laws against the teaching of evolution without also teaching creationism;
- agricultural subsidies;
- and various protectionist measures.
Now I don’t mean to suggest there’s anything wrong with that, nor that there aren’t a slew of issues on which conservatives are more pro-market than liberals. I’m just guessing — guessing – that conservatives aren’t nearly as pro-liberty as some of them (including Romney) like to say.
Once you accept that, it seems plausible that right-wing pundits, Romney staffers, and even Romney himself ignored the prediction markets because, well, they just don’t care about markets. Markets work for them politically and psychologically, but that’s as far as they go — they don’t love or understand markets enough to believe what the markets have say about the odds of Romney’s victory, the prospects of inflation, or the government’s credit-worthiness). They are conservatives, first and foremost.
Most commentators have offered a different explanation, which is that conservatives chose to believe the facts they wanted to believe were true, not the facts that actually were true. Hayek, incidentally, offered up the exact same explanation in 1960 for why, among other reasons, he was not a conservative:
Personally, I find that the most objectionable feature of the conservative attitude is its propensity to reject well-substantiated new knowledge because it dislikes some of the consequences which seem to follow from it – or, to put it bluntly, its obscurantism.
That’s the explanation most commentators have offered for the stunningly bad election predictions made on the right, and I don’t see any reason to disagree, but I do find the following, from the same essay by Hayek, just as plausible, and in at least as much need of attention:
It may well be asked whether the name really matters so much. In a country like the United States, which on the whole has free institutions and where, therefore, [conservatism] is often a defense of freedom, it might not make so much difference if the defenders of freedom call themselves conservatives… [But] even when men approve of the same arrangements, it must be asked whether they approve of them because they exist or because they are desirable in themselves…
Belief in integral freedom is based on an essentially forward-looking attitude [i.e. liberalism] and not on any nostalgic longing for the past or a romantic admiration for what has been [i.e. conservativism]. The need for a clear distinction is absolutely imperative… the believer in freedom cannot but conflict with the conservative and take an essentially radical position, directed against popular prejudices, entrenched positions, and firmly established privileges. Follies and abuses are no better for having long been established principles of folly.
It’s not so much a love of freedom that distinguishes the Republican party, but an uneasy alliance between conservatives, who say they love freedom but really love tradition, and libertarians, who genuinely do love freedom and believe in the free market’s wisdom.
The deeper irony is that in some sense Romney supporters were right all along: the market worked very well! It predicted the election better than they did. It did something none of them could have: turn near-infinite bits of decentralized information into an accurate signal about the probability of an Obama victory, via a profit motive.
Maybe a libertarian should have won…
As for libertarians who called the election wrong too (I’m looking at you, Russ Roberts, though you were at least humble about your prediction), I assume they were fooled by their conservative fellow-travelers.
Update (11/30/2012): It seems there was one Romney adviser who was not surprised by the election’s outcome.