Peasants or Bankers? The American Electorate and the U.S. Economy

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Abstract
The usual model of electoral reaction to economic conditions assumes the “retrospective” economic voter who bases expectations solely on recent economic performance or personal economic experience (voter as “peasant”). A second model assumes a “sophisticated” economic voter who incorporates new information about the future into personal economic expectations (voter as “banker”). Using the components, both retrospective and prospective, of the Index of Consumer Sentiment (ICS) as intervening variables between economic conditions and approval, we find that the prospective component fully accounts for the presidential approval time series. With aggregate consumer expectations about long-term business conditions in the approval equation, neither the usual economic indicators not the other ICS components matter. Moreover, short-term changes in consumer expectations respond more to current forecasts than to the current economy. The qualitative result is a rational expectations outcome: the electorate anticipates the economic future and rewards or punishes the president for economic events before they happen.

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