The election year has finally kicked off in USA with the Iowa caucus, accompanied by wall to wall media coverage and a cacophony of previews, reviews, analysis and interpretation. The result, as you might be aware by now, was slightly surprising on the Republican side. Ted Cruz won the contest with 28% of the votes, against 24% of the votes won by Donald Trump and 23% of the votes won by Marco Rubio. The Democratic contest was also full of drama, although the final result, an extremely narrow win for Clinton was more or less along the expected lines.
In the next few days, you will be bombarded with the opinions of pundits from all sides, sensationalizing the results of the Iowa caucus and deriving grand conclusions from the same. However, if you do not want to get swept up in the mass hysteria and instead want a brief and concise explanation of the caucus results, where less than 200,000 voters from each side exercised their right to franchise, you can do worse than look at these two charts.
This is the first chart that shows the change in the probabilities of the three leading candidates of winning the Republican presidential contest, as calculated by Predictwise (a website that calculates the probabilities of future events by aggregating odds from various betting websites) before and after the results of the Iowa caucus came in. The chart shows a huge swing in favour of Marco Rubio and against Donald Trump. Ted Cruz also gets a boost, but to a more limited extent.
But, Ted Cruz finished first, Donald Trump finished second and Marco Rubio finished third, right? If this chart makes no sense to you, you have to understand that the real results of the Iowa are not what are declared after the voting is done; it is the media spin that is given to the performance of the candidates relative to the expectations. It is like the performance of a stock after the quarterly results come out, the results on an absolute basis almost always do not matter; what matters is how the results came in relative to the expectations.
The expectation heading to Iowa was that Trump would be winning the caucus, followed by Cruz. The fate of Rubio was kind of a mystery, although there were reports of a ‘Marcomentum’, the polls has shown him getting votes only in the middle to high teens. Trump, not running the conventional presidential campaign, did nothing to tone down expectation, promoting aggressively the idea that he would be winning. Thus when the results came out, it was greeted by cheers of Schadenfreude from mainstream conservative news outlets and considered a defeat for him. Further, although Trump was leading in polls everywhere, no one knew if the polls were overestimating his support, since a large number of his supporters were first time voters. The Iowa result definitely showed that his actual support in the ballot box may be less than what the polls are estimating. Further, there is, of course, the question of momentum. The negative coverage arising out of Iowa may result in a drop in his poll numbers in New Hampshire, leading to him performing below expectation there, resulting in a self-sustaining negative feedback loop.
For Rubio though, the story was the exact opposite. For a long time now, he has been considered by the media as fundamentally the strongest candidate in the field; he is strongly conservative; at the same time, he is also a brilliant orator, radiates youth, is well versed on policy positions and comes from the largest swing state. However, his poll numbers have been stubborn and have remained stuck in low teens. The main worry with Rubio was that he would be unable to translate his potential into actual voters and will remain bogged down in a four way fight for the establishment support. But now that he has performed much better than not only his own expected numbers, but also other establishment rivals (Jeb Bush, Chris Christie and John Kasich all of whom polled less than 3%), he may be considered the strong favourite to finish second in New Hampshire. This will also put pressure on the other establishment candidates to drop out. If it happens, especially if Jeb Bush drops put, this will free up enormous establishment resources for Rubio, in the form of both endorsements and money, and will make him a frontrunner in the race.
As far as Ted Cruz is concerned, the betting market has always been bearish on him. I would not put his odds of winning the nomination at 14%. I think it is closer to 25%. However, Ted Cruz still has a lot of questions to answer. For one, Iowa, with high evangelical population and low turnout caucus, was more favourable to him than other candidates. Will he able to replicate his success in a less hospitable terrain? Secondly, the campaign has demonstrated how intensely disliked Cruz is among the Republican Party elders. If the establishment provides its full support to Rubio, will be able to survive the onslaught?
After reading this, you may think we are writing Donald Trump off. It is not so. Iowa was always a difficult state for him. And Cruz’s excellent ground game ensured that the percentage of evangelicals among Caucus goers was 64%. Trump with his thrice married status, extravagant lifestyle and ‘New York values’ was never considered a good fit with the religious right. Secondly, the high turnout suggests that the Trump supporters did turn out. However, his support among first time caucus goers was less than expected, indicating that the Cruz campaign was even more excellent in its turnout operations. In a small state that goes for caucus, these things matter. However, as the contest moves to primaries in bigger states, media coverage and advertisement budget shall matter more than the presence of volunteers. Thirdly, the drop in poll numbers subsequent to a below par showing is driven by a cycle of negative media coverage. But Trump has proved adept at manipulating the media and news cycle to his benefit. Also, the media has a perverse interest in keeping the Trump candidacy alive and kicking. Nothing sells ratings like Donald Trump. And a settled race definitely does not. Fourthly, he is currently leading by a lot in New Hampshire and South Carolina. Although primary leads are transient (ask Scott Walker about his lead in Iowa) and volatile, Trump does have some margin to play with before these states vote.
The fact with Trump is that he is an unpredictable candidate. He does not play by the rules of the primary playbook. For all we know, he may drop out tomorrow and endorse Jim Gilmore. Also, there have not been a number of candidates like Trump in the modern primary history. So, before writing Trump off, it will be better to wait and look at the results of the New Hampshire. He has been leading this state for the last seven months, often by huge margin. So, if he loses there, it will be proof enough that the Trump phenomenon was the Y2K of this decade, much ado about nothing. On the other hand, if he wins comfortably, one may expect the Republican contest to muddle along, along three or more plausible contenders.
If you go by the media reports, the contest on the Democratic side was even more dramatic. The betting market, however, tells a different story.
There has hardly been any change in the odds of the two candidates. Hillary Clinton still has around 82% probability of winning the nomination. Even though the media will tell you a lot of stuff about how the Iowa results have shaken up the Democratic race and the Clinton campaign should be in a state of panic, the reality is far more different. In terms of demographics, Iowa is one of the more favourable states for Sanders. It has a large, young, liberal white population. Sanders does well among these groups. But he does poorly among blacks, Hispanics, moderate and conservative whites, who constitute the majority of the party, especially among the Southern states. It is still possible that Sanders starts doing well among such groups, but nothing in the Iowa result suggests that this has started happening.
The most probable way Clinton can lose from here is by allowing the media establish a narrative of a losing Clinton campaign and a winning Sanders one, which in turn results in attracting the voters sitting on the fences towards Sanders. Sanders is a strong favourite to win New Hampshire, another demographically favourite state for him, and this in turn may lead to more media frenzy on how Sanders is the next Obama. The real test of Sanders will come in South Carolina and the southern states scheduled to vote in March. If he manages to give a tough fight to Clinton in such states, he deserves to be taken more than seriously; otherwise, he will be toast.