Sawford formula
There have been some questions on the Watty Sawford formula (also known as the Rod Sawford formula): if two or more of the unemployment, inflation and interest rates rise over a full, three-year electoral cycle, the government will lose. Conversely, if two or more fall the government will be returned.
According to Mumble (9 July 2006), this formula has picked every Federal election since 1961 except 1974 and 1980.
As it currently stands, following the 2004 election:
- The unemployment rate is down from 5.1 per cent to 4.5 per cent
- The inflation rate is arguably down from 2.6 per cent for the year ending December 2004, to 2.4 per cent for the year ending March 2007 — and significantly down in the last two quarters with a net CPI growth of zero
- Interest rates are up from 5.25 per cent to 6.25 per cent
In my view, the Sawford formula is a shorthand way of saying that governments tend to be returned to power if they manage the economy well. This understanding underpins a number of economic models for predicting election outcomes. Of course, the Sawford formula is not a hard and fast rule; it is just a guide. Other factors can and have seen it overturned, and in this election year other factors — probably WorkChoices and the drought (and maybe petrol prices) — are impacting on the polls.
It is too early to conclude that Howard has lost (remember 1993 and 2001) and it is too early apply the Sawford formula (there will be more rate data before the election). However, with two down and one up, the Sawford formula currently suggests a Coalition victory. This is a change on July 2006, when the SMH ran the above linked story on the Watty Sawford formula. At that time interest rates and inflation were up.
Update: I blogged on the Sawford formula in response to some questions. I was surprised when Dennis Shanahan decided to write on the same topic.
Update #2: Charles Richardson wrote and said, “why would anyone think 1974 was an election after ‘a full, three-year electoral cycle’ - it was less than 18 months.” He has a point.
Update #3: FCOTW had a go at me on my claim that inflation is down. I concede that depending on which measure you use, and which starting point you take (September or December 2004) you can argue inflation as either up or down. In my defence I should note that I said that arguably inflation was down. The arguable nature of the proposition is demonstrated in the next graph. The date of the 2004 election is indicated by the vertical red line.
