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Sunday, February 17, 2008

"It’s an Election, Not a Revolution"

Tyler Cowen on the impact of elections on economic policy:

It’s an Election, Not a Revolution, by Tyler Cowen, Commentary, NY Times: ...Voters are being told that the country’s economic health depends on pulling the right lever in the polling booth. This election is certainly important. But based on the historical record, it isn’t likely to result in a major swing in economic policy. ... Voters may be concerned about the economy, but there is little evidence that the electorate, as a whole, really wants to engage in close consideration of economics. The current campaign season is a case in point.

On the Democratic side, Senators Hillary Rodham Clinton and Barack Obama arguably represent the best thinking in their party. Yet voters seem to be making their judgment on the basis of image and style, not substance. ... Former Senator John Edwards, perhaps the biggest “policy wonk” among the original Democratic candidates, never generated much voter support. He was often viewed as the guy with the $400 haircut, rather than as a leading advocate of the redistribution of economic wealth. ...

On the Republican side, the situation is no better. The candidates have generally sought to cloak themselves in the mantle of Ronald Reagan, emphasizing his conservative principles, particularly his disdain for big government. But they might have stressed how President Reagan improved funding for the Social Security system or how he engineered what was then the largest tax increase in American history. In fact, the economic policies of his administration and that of Bill Clinton were marked by more continuity than change...

The economic debate is likely to be even less useful in the general election than in the primaries; general election campaigns tend to rely more heavily on the tactics of attack and misrepresentation. And for all the talk about the rising influence of independent voters, independents tend not to be as well informed as the partisans. ...

To put it simply, the public this year will probably not vote itself into a much better or even much different economic policy. To be sure, the next president — whoever he or she may be — may well extend health care coverage to more Americans. But most of the country’s economic problems won’t be solved at the voting booth. It is already too late to stop an economic downturn. Health care costs will keep rising, no matter who becomes president or which party controls Congress. China is now a bigger carbon polluter than the United States, so don’t expect a tax or cap-and-trade rules to solve global warming... A Democratic president may propose more spending on social services, but most of the federal budget is on automatic pilot. Furthermore, even if a Republican president wanted to cut back on such mandates, the bulk of them are here to stay.

Yes, the election does matter. Even small differences on economic issues affect millions of Americans. But the record of the Bush administration should prove sobering to all those who expect the American political economy to turn around in the next four years.

Many conservative and libertarian economists supported President Bush, thinking they would be getting policy drawn from the work of Milton Friedman and Martin Feldstein, two respected market-oriented economists. Instead, in economics, the Bush years have brought an increase in domestic government spending, and some poorly-thought-out privatization plans. For all the talk of an extreme right-wing revolution, government transfer programs like Social Security and Medicare have continued to grow. And despite big mistakes involving the Iraq war, Mr. Bush wasn’t punished by voters in 2004.

Of course, an administration can make big economic changes. The New Deal brought about a revolution in economic policy — but those were special circumstances. The United States was in a very deep depression, and the concept of economic planning was sweeping the world. That period is an exception; it does not reflect the general tendency of the American political system... Shifts in economic policy are usually quite moderate. ...

Rather than being cynics, we should be realists. Democracy is reasonably good at some things: pushing scoundrels out of office, checking their worst excesses by requiring openness, and simply giving large numbers of people the feeling of having a voice. Democracy is not nearly as good at others: holding politicians accountable for their economic promises or translating the preferences of intellectuals into public policy.

That might sound pessimistic, but it’s not. Many Americans will be living longer, finding new sources of learning and recreation, creating more rewarding jobs, striking up new loves and friendships, and, yes, earning more money. Just don’t expect most of these gains to come out of the voting booth or, for that matter, Washington.

And if you’re still worrying about how to vote, I have two pieces of advice. First, spend your time studying foreign policy, where the president has more direct power, and the choice of a candidate makes a much bigger difference. Second, stop worrying and get back to work.

So, the president might not matter at all, or the president might matter a lot - like when there is a big economic disturbance and a large degree of economic inequality. That combination doesn't seem so far fetched at the moment (but let's sure hope there's not a hard, hard landing).

Are you feeling lucky?

Also, I hear a lot that Bush proves government can't be trusted, that government won't do as promised, that it's ineffective, etc. However, that Bush was bad at his job does not imply that all presidents were or will be similarly bad, so I don't buy that argument. George Bush is a lower bound, he is not representative of average presidential performance ("..the record of the Bush administration should prove sobering to all those who expect..." Can't we expect regression to the mean?). Bush's presidency will be used to try to argue for government incompetence generally, but that mantle belongs to the individual, not the office of the president more generally, or the entire government.

As for translating the preferences of intellectuals into public policy ("Democracy is not nearly as good at ... translating the preferences of intellectuals into public policy), there is actual outcry about that - inflation targeting. The more populist members of the electorate feel that inflation targeting, which comes from intellectuals in universities and has found its way into public policy, sacrifices the worker at the alter of inflation. Yet central banks worldwide have persisted in adopting monetary policy strategies that react strongly to inflation. Much of supply-side economic policy over the last few decades, i.e. tax-cuts, found cover in real business cycle theoretical models where changes in taxes were shown to impact long-run growth rates. I think there are lots of examples where intellectual ideas have found their way into public policy in ways that have mattered, so I'm not so sure I agree that democracy is lousy at making such translations. It's not perfect, no doubt about that, but as macro theory has changed over the last one hundred years public policy has also changed, and changed in dramatic ways at some points as noted above, but it hasn't happened devoid of intellectual influence.

Who the president is may not be the most important factor in determining the economy's course, but it does matter, and sometimes it can matter a lot. With a recession looking more and more likely, and with our uncertain economic future generally, I am going to be more optimistic than Tyler and hope "that the electorate, as a whole, really wants to engage in close consideration of economics," at least closer than they have in the past.

    Posted by on Sunday, February 17, 2008 at 12:36 AM in Economics, Politics | Permalink  TrackBack (0)  Comments (86)


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