Wednesday, December 08, 2004

Simple Economics

I have often heard it cited that a presidential election is often won on the basis of how the the economy is doing. If it is doing well the incumbant is re-elected and if it is doing poorly, the challenger is elected. And in most elections the economy is found to be the most important issue among voters. In this previous election for instance, the economy was only 2 points off from being the most important factor, second to moral values.

This confuses me, because in actuality the President has very little to do with the economy directly. Sure he can veto a budget and provide leadership on a budget. However it is the Legislature that handles fiscal policy directly and the Fed that handles monetary policy, two very large factors on the state of the economy. I wont give my opinion on which is more powerful, I will leave that for another day. Anyhow, this combined with factors such as consumer spending, capital investment, foriegn involvement, and the markets make the economy a volatile place, where the president has very very little direct control over. Sure he has influence but is that enough for the economy to be the #1 issue. Issues where the president does have direct control over such as foreign policy and the agenda's of his cabinets are marginalized in elections. Even an issue such as abortion, again an issue that is much more in the hands of congress and the courts, becomes the sole issue for people. I feel that it is good to look at all the issues surrounding a president, but why the economy is the #1 issue is beyond me. Sometimes I feel America just needs a scapegoat.

And if you look at the numbers for November the real GDP, that is GDP adjusted for inflation, was up 4.8% for that quarter, the previous quarter it had been up 3.3%. The numbers for unemployement were good as well at 5.4%, down from 6.1% the previous month. So fairly close to perfect, considering most economist consider 4.5-5% full employment of an economy. So all in all a good economic situation for the President as he went into the election. The only negative factors were our trade deficit which really only affects the value of the dollar, and the huge increase Bush has made in our National Debt, from his policy of cutting taxes and increasing spending. This however does not affect the average citizen directly, as it only takes away funds from the discretionary budget to pay interest--its more of a long range problem. So economically speaking the numbers that affect the everyday citizen were good, and Bush was re-elected, unfortunaley I may add.


At 10:41 PM, Blogger That one guy said...

Indeed, the economy is often cited as the most important factor in who wins a presidential election. The economy also bolsters incumbents at every level--if the economy is doing well, those in power must be doing something correctly, right? However, as you noted, the impact that the economy has on the President is one of the odd phenomenons of political science, though it makes sense.

The President, as you noted, has little to do, directly, with the economy. Save, perhaps, the tax cuts, tax hikes, tax incentives, welfare costs, medicare costs, and an assortment of other programs. I would probably argue that the reason that the President gets tied to the economy is because of taxes. People on the left, largely, assume that more tax revenue (higher taxes) will allow for more money for social programs, allowing people without jobs to get jobs (and generally have a higher standard of living), which pushes the economy along. People on the right, conversely, have, largely, a different view. Tax cuts, they argue, give people more money to spend, requiring more goods and services to be produced, this demand requires more jobs to be created, which allows more people to earn money, which allows more people to spend money, and, thus, pushes the economy along. All of this is, I would imagine, not new to anyone, but it all comes back to taxes. George H.W. Bush promised "no new taxes" (we even got to read his lips). Thus, when he didn't keep that promise and the economy went south, both the right and the left had something to blame him for (the left: he didn't raise revenue and social programs enough or soon enough; the right: he rose taxes). The President, in this view, has complete control of the economy. And, sadly enough, this is the view that many (if not most) Americans have of the relationship between the economy and the President.

The American people don't understand the way the economy works (beyond the feeble point I attempted to make above). Clinton was given responsibility for the Internet boom and economy of the 90s and George W. Bush was (is being) held responsible for the downslide post-Clinton. Sadly, this should not be. The reason the Internet boom was able to take place is because the groundwork had been set by the Reagan (and to some degree, the Bush) Administration of the 1980s. The reason that Bush had the slide was the policies of Clinton in the 90s. The numbers at the end of Clinton's Administration (remember, Democrats, the rosy time of surpluses--also a time when the economy was beginning to slip) were falling. Many economists agree that it takes 6-8 years for a President's policies to affect an economy. Thus, we will always be in a cycle of one President taking credit for the work of another (as he or she ruins the economy for the next President, who will, subsequently, be blamed for the mistakes of his or her predecessor).

Finally, I would point out that while the economy had, as usual, quite a large impact on the economy in the 2004 Presidential Election, it was not the only factor. Where Reagan asked: "Are you better off now than four years ago?" and Clinton said: "It's the economy, stupid," there was no such line in '04. Twenty-two percent of voters said that "morality" was the key issue they voted on in this election; maybe we are, indeed, getting somewhere. Additionally, it would be irresponsible to ignore (or even downplay) the effect that security and the threat of terrorism played (for Kerry or against) in the election. The "Security Moms," as Time Magazine dubbed them, and "Nascar Dads" are just two examples of new voting blocs that were seen this year. In following the election, I can remember several times where I heard or read someone talking about how she (they were often moms) didn't like Bush's social policy but didn't trust John Kerry with her kids.

In any case, this will all come back to the economy. "It's the economy, stupid" or "it's the stupid economy," either way, it boils down to: "are there more greenbacks in my wallet now than last month?" On Nov. 2nd, the people said yes, and, fortunately, President Bush was re-elected.

Peace be with each of you.


At 10:39 PM, Anonymous Anonymous said...

Does congress have to approve a tax cut?

At 10:44 PM, Blogger That one guy said...

Yes, Congress has to approve tax cuts, however the President 1. recommends most tax policy, and 2. is held responsible for tax policy (raises or cuts), largely because of the veto power.

At 4:14 PM, Blogger Bryan said...

Another thing to remember is that even though the President is independent of the Congress, he still can introduce a bill.


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