Sunday, May 15, 2011

Why I'm long Romney

The conventional wisdom about the 2012 Republican presidential nomination is that the field is wide-open. Nate Silver projects that Mitt Romney has a 27% chance of winning the Republican nomination, which makes the 2012 Republican contest "by some margin, the most wide-open in the modern era on the G.O.P side." Similarly, Intrade currently predicts that Romney has a 26% chance of winning the nomination. According to the Associated Press, Huckabee's announcement, "makes an already wide-open Republican field even more unpredictable." 

This is a case where the conventional wisdom is anything but wise. Far from wide-open, the 2012 Republican presidential contest has a clear favorite in Mr. Romney, who, in my view, has a better than 50% chance of winning the nomination. 

The starting place for any analysis of the 2012 Republican nomination should begin with what I dub the "next-in-line rule." Four out of the last five Republican presidential nominees placed second in the previous primary season (see below for list). If the rule holds, Mitt Romney, the 2nd place finisher ins 2008, should win the nomination.

1980 – Ronald Reagan (Runner-up in 1976 Republican nomination)
1988 – George H.W. Bush (Runner-up in 1980 Republican nomination)
1996 – Bob Dole (Runner-up in 1988 Republican nomination)
2000 – George W. Bush (Son of former President George H.W. Bush)
2008 – John McCain (Runner-up in 2000 Republican nomination)

Because his father had been President, George W. Bush received many of the same advantages that Reagan, Dole, Bush, and McCain earned, such as high name recognition and a strong donor base. It's important to note that both Dole and McCain were both perceived as too moderate by some Republicans and were attacked from their right during the primaries. The historical record shows that the Republicans have chosen to nominate the center-right candidate they know over the hard-right candidate they don't know.  

The two primary objections to Romney winning because he is "next-in-line" are that (1) the Tea Party has fundamentally changed the Republican nominating process so that an outsider is more likely to win and (2) Romney is a uniquely weak candidate because of Romneycare.

(1) Tea Party candidates knocked off establishment Republicans in multiple 2010 Senate primaries. Marco Rubio chased Governor Charlie Crist out of the Florida Senate primary. Christine O'Donnell defeated Representative Mike Castle in the Delaware Senate primary. Sharron Angle defeated former State Party Chairwoman Sue Lowden in the Nevada Senate primary. However, the Tea Party did not beat the establishment across the board. Senator John McCain defeated tea partier J.D. Hayworth in Arizona and Representative Roy Blunt defeated tea partier Chuck Purgason in Missouri.

Interestingly, the races where the Tea Party won were either in small states (Delaware; Nevada) or states where the insurgent candidate was actually able to raise as much money as the incumbent (Marco Rubio in Florida). In the mid-size states (Arizona; Missouri), the tea partiers could not overcome being outspent by the establishment candidate. The lesson for 2012 is that insurgent Republicans are most likely to win where there is a small electorate or they can reach financial parity with their establishment competitor. 

(2) Romney's biggest flaw as a candidate is that he supported a health care bill in Massachusetts that contained all of the elements that ended up in the 2009 health care reform legislation (individual mandate; subsidies for low-income earners, etc.). Health care is one of the issues that most fires up the Republican base and Romney's Massachusetts legislation will cost him votes. 

Yet, both parties have nominated candidates in recent years who were on the wrong side of a major issue for the party's faithful. McCain won the 2008 Republican Party nomination after sponsoring a comprehensive immigration reform bill with Ted Kennedy and John Kerry won the 2004 Democratic Party nomination after voting to authorize the war in Iraq. Romney is following the McCain and Kerry route. He is standing by the initial decision (passing Romneycare; sponsoring immigration reform; voting for the war) while claiming that he actually agrees with his base because of a technicality (a state health care bill is different than a federal health care bill; comprehensive immigration reform is different than amnesty; voting to authorize the war is different that executing a war). So while the Massachusetts health care legislation will hurt Romney, it does not mean that he is "fatally wounded" as Jonathan Chait of the New Republic has argued. 

The objections are strong evidence that Romney will not walk away with the nomination solely on his "next-in-line status" but do not prove that he is doomed. The crucial task, then, is to understand how Romney's strengths and weaknesses will effect him within the context of this year's Republican field and caucus / primary calendar.

The Iowa Caucus and New Hampshire Primary will be the first two elections of the 2012 Republican presidential contest as has been the case since 1972. Every Republican nominee since 1972 has won atleast one of Iowa or New Hampshire (some won both). This is not a coincidence. If a candidate wins both elections, this sends such a strong signal to undecided voters that the candidate walks away with the nomination. If there is a split between the two states, then undecided voters migrate to one of the two candidates and the supporters of other candidates start moving into one of the two camps. 

An advantage for the Romney campaign is that New Hampshire is a great state for him. It neighbors Massachusetts, it has a higher proportion of economic rather than social conservatives, and it is unusually secular. Two recent polls have Romney leading in New Hampshire by average of 26 points (!). Given that Romney will have the most money of any Republican candidate, it seems almost impossible that any competitor would surpass him in New Hampshire.

This means that the only clear path for another Republican to beat Romney is to win the Iowa Caucus. What kind of insurgent candidate is likely to do well in Iowa? Iowans caucus for underdogs who are either social conservatives (ala Huckabee in 2008) or Midwesterners (ala Dole in 1988). With Huckabee out, the current cast of possible social conservatives (Michelle Bachmann, Rick Santorum, and Sarah Palin) will alienate the mainstream of the party. It's Romney's dream to run against one of those three for the nomination. 

There are two Midwestern governors who could win the Iowa Caucuses: Minnesota Governor Tim Pawlenty and Indiana Governor Mitch Daniels. (In my opinion, Pawlenty stands the better chance of the two: he's already declared his candidacy, he's slightly more charismatic, and he didn't work in the Bush Administration.)  If Pawlenty or Daniels were to win Iowa, they would immediately become the "Anti-Romney". The next two elections would be the South Carolina primary, where Pawlenty / Daniels would be favored, and Nevada, where Romney would be favored. As the calendar is currently shaping up, next up would be California and New York and a few smaller states in the first week in February. 

Here's where it gets fun. Under the Republican Party's new rules for 2012, any primary held before April has to allocate its delegates proportionally. A candidate could lose a primary and still get 49% of the delegates. This means that it's going to be hard for anyone to deliver a knock-out punch. Although the primary calendar is not finalized, there are likely going to be around 25 states holding contests in February and March. A two-month slog over delegates will favor the candidate with more money and organization. Romney would have the edge over Pawlenty and Daniels in both categories. Money: Romney is trying to raise $50M by early summer which will blow his opponents out of the water. Organization: Romney is a management consultant at heart and he's already been through this game once. The lesson of 2010 is that the tea partiers want to fight on a small scale with financial parity. Facing Mr. Private Equity in 25 states in two months? Not their cup of tea.

To conclude, the 2012 Republican nomination contest is likely to unfold in one of three ways depending on who wins the Iowa Caucus. (1) Romney wins Iowa and runs away with it fast. (2) A hardcore social conservative (Bachmann, Santorum or Palin) wins Iowa and Romney dispatches them fairly quickly by consolidating the mainstream of the Republican Party; or (3) Pawlenty or Daniels wins Iowa causing a drawn-out nomination fight under terms that favor Romney. 

Until conventional wisdom catches up with reality, I'm going long Romney.

1 comment:

  1. Except . . . Romney finished *third*.