The title is a quotation from the advice given by James Carville to the first campaign of President Clinton. Since then, it has become almost a “mantra” for the media and candidates. Incumbents are anxious to take credit when economic indicators are good and to escape blame when they are bad. Candidates are quick to offer views of the economy that will exist, if only we will elect them. The media report all of this somewhat breathlessly and even go so far as to label a particular economic era with a president’s name.
Now, I must confess that I began my study of economics in 1955 with a basic course in what was then called macroeconomics. Perhaps things have changed since then, but I have seen no evidence for the change. This course taught me a number of things, but chief among them was the fact that what we refer to as “the economy” is a very complex series of activities. It cannot be created or controlled by a single individual. Pretending that it can will lead to nothing but frustration and grumbling about “politicians” who break their promises. [Politicians should make no promises about single-handed control of the economy. They will always be broken in one way or another.]
For most voters a “good” economy is one in which they have a job and in which they can afford a comfortable life style. Low unemployment statistics and a low rate of inflation are basic indicators of such an economy. Macroeconomics tells us the our governmental institutions can affect the economy in a number of ways.
The first of these is monetary policy. Although the Secretary of the Treasury who is appointed by the President with the advice and consent of the Senate plays a role in establishing and implementing this policy, it falls primarily within the responsibilities of the Board of Governors of the Federal Reserve System. This body serves to set basic interest rates, and theory and practice both tells us that low rates stimulate the economy.
In terms of electoral politics it is important to know who “controls” the Federal Reserve Board. As President Trump has learned to his immense dissatisfaction, it is not really the President. Board members are appointed to staggered fourteen-year terms by the President with the advice and consent of the Senate. This system was deliberately designed to make political control difficult, if not impossible. The chairman and vice-chairman of the Board are appointed by the President, but their special powers lie principally in the public visibility of the Chairman as the spokesperson for the Board.
The second way in which the government may affect the economy is through what is called fiscal policy. This policy is what supposedly governs the patterns of taxing and spending by the government. John Maynard Keynes suggested many years ago that government could stimulate the economy by increasing it expenditures or “priming the pump.” Such increases could be entirely independent of the rate of taxation, and, therefore would involve “deficit spending.” Practice has tended to support this theory.
Another economist, Arthur Laffer, has a theory that is much admired in some circles today. He proposes to stimulate the economy by cutting taxes, thus giving consumers more to spend and individuals and business more to invest in economic growth. Most of the experience with putting this theory into practice suggests that the stimulation provided by the tax cuts does not offset the loss of revenue for the government. Our current economy underscores this. The current deficit has increased in part due to tax cuts and in part due to continued expenditure increases. We seem to have an unhappy combination of Keynes and Laffer. There is little doubt that this combination does provide economic stimulus and must, in part, account for the “healthy” economic numbers we see today.
How did we get here? Who gets the credit? Who gets the blame? Taxing and spending are determined in large part by Congress. They set the tax rates and appropriate money for expenditures. Yes, the President proposes both tax levels and expenditures, but what is adopted is rarely exactly what the executive proposes. The recourse available to the President is to veto tax plans and/or appropriations, and this only results in further negotiations and compromise with Congress. No individual can accurately be credited or blamed for the outcome.
To complicate matters further, the economy is affected by other factors as well. International trade and the international economy have an impact on our domestic economy. The current trade wars have been justified as a way of returning economic advantage to this country. However, the evidence appears to suggest that the impact of tariffs on our economy has, at least in the short run, been negative. This should come as no surprise to conservative economists who have long favored free trade.
In summary, even though the economy and its impact on us as individuals does affect our political choices, we should be wary of candidates who take credit as individuals for the current state of affairs or who promise radical change for the future. I would contend that we currently have no coherent fiscal policy. While the Fed’s monetary policy offers more coherence, any success cannot be attributed to the efforts of current political figures.
The fiscal policies hinted at by presidential candidates can also be viewed with suspicion. The most radical contain promises of large increases in expenditures and promises of repeal of the most recent tax cuts and the imposition of “wealth” taxes. Even if the arithmetic of these proposals were complete and correct (and it is not), the candidates do not wish to address the problems they might face in getting their proposals approved by Congress. They appear to agree with the incumbent that rule by executive fiat is both possible and desirable.
What is to be done? Look for candidates who appear to understand how our wonderfully flawed system works. We cannot limit our search to presidential candidates. Candidates for the House and Senate play a crucial role as well. When faced with campaign rhetoric about the economy, ask questions, if only of yourself. Are you alarmed by current deficit spending? What changes are candidates recommending that will alter the current situation? What effect would these changes have on you and on others? I have trouble finding candidates who meet my criteria. I cannot decide whether they are ignorant of simple elementary and high school civics, or deliberately dissembling. In any event, the subject is far too important to be dealt with in the casual manner of the politicians and the media.