Economists and politicians: Parceling out credit and blame for the numbers

January 13, 2015

By Matthew E. Milliken
MEMwrites.wordpress.com
Jan. 13, 2015

Gas prices are down! The economy is growing! More Americans are going to work!

Great job, President Obama! Oh, wait — perhaps new Senate Majority Leader Mitch McConnell, Republican of Kentucky, deserves credit for the turnaround?

Or maybe not. On Thursday, Politico’s Lucy McCalmont contacted 14 different experts and asked them to evaluate Sen. McConnell’s claim that “[t]he uptick appears to coincide with the biggest political change of the Obama administration’s long tenure in Washington: The expectation of a new Republican Congress.”

McCalmont found a few economists who were willing to back up McConnell, including the Heritage Foundation’s Stephen Moore (“I don’t think it’s outlandish to say that the expectations of a Republican Congress has lifted spirits and business and investors”) and Diana Furchtgott-Roth of the Manhattan Institute (“it’s very possible that employers had more confidence and stepped up their hiring”).

But most of the interviewees agreed with this remark from Princeton professor Alan Blinder, a former member of President Obama’s Council of Economic Advisers: “I’m not sure when ‘the expectation of a new Republican Congress’ took hold, but the economy’s been doing well since the second quarter of last year.”

Even Jeffrey Miron, an economist at the libertarian-oriented Cato Institute, politely stated that McConnell’s assertion “does not seem especially likely to me.”

Tyler Cowen, a George Mason University professor, may have addressed the point even more succinctly: “I would say that politicians of all kinds often deserve less credit for upswings than they might like to think or claim.”

Cowen’s observation is a useful one to keep in mind whenever the topics of economics and politics collide. On Monday, left-leaning pundit Ezra Klein, in a piece intended “to bury the lazy economic thinking that infects American politics and, particularly, political campaigns,” wrote:

Washington tends to think of itself as the cause and everything that subsequently happens in the world as the result. A booming economy is proof that Bill Clinton is a genius, or that Ronald Reagan is a genius. A crappy economy is proof that Barack Obama is a naif, or that George H. W. Bush can’t govern. It’s a view of causality usually found in five-year-olds, but it is pervasive in American politics. It is also false.

Policy matters, of course. And, particularly in 2008, 2009, and 2010, it was, arguably, the driver of our economic fortunes. But, for the most part, the economy is driven by much beyond what happens in the White House and the Congress…

Klein’s assessment is of a piece with one offered by Reihan Salam. Last month, the conservative pundit wrote:

Americans, like the citizens of most market democracies, believe elected officials have magical powers when it comes to things like GDP growth, unemployment, and inflation. When things go wrong, the president gets the blame. When things go right, he gets the credit. This is despite the fact that the American economy is a complex beast that even our most sophisticated technocrats scarcely understand and the fact that Saudi sheikhs who decide to let the oil flow can have about as big an impact on how much U.S. households spend on Chinese-made tchotchkes this holiday season as a Congress that decides to slash payroll taxes. I’m exaggerating but only slightly.

Salam is on point here. Recently, the federal government estimated that Americans will spend $550 less on gasoline this year than they did in 2014. If this holds, a lot of that money will be spent on other parts of the economy — restaurants and entertainment, say, or home furnishings.

But neither President Obama nor Sen. McConnell deserves much credit for this. After all, OPEC’s decision in November to maintain oil production at current levels has helped cause oil and gas prices to tumble. Neither the president nor Congress had much effect on OPEC’s decision. Nor did they exert much influence on the events that caused prices to begin dropping in late 2014 in the first place — a combination of a reduction in demand in Asia and Europe and the expansion of production in Libya and Iraq.

Do you remember the scathing assessment that Rush Limbaugh offered the afternoon after Obama was re-elected? The conservative talker said that Obama

successfully painted Romney’s policies as caring primarily about the rich. He successfully convinced roughly half the country that his policies will favor the middle class. Now, measure that against reality. The reality is that the economy of this country is crumbling. The unemployment situation is worsening. The debt situation is worsening.

……

[U]ntil people understand why and how big government reduces prosperity for all, they’re gonna continue to be fooled by little things.

By marketing, by smooth talkers, by faux compassion. So we’ll see what happens with the economy as we go forward. Some people think, “Hey, Rush, the economy is resilient in this country, and it’s gonna naturally rebound. No matter what.” There are people today scared the economy is going to rebound despite what’s happening in the stock market today and Obama’s policies are gonna get credit for it.

A bunch of libs are salivating over that. They think the economy is gonna come back no matter what, and that Obama’s big government is going to end up being the explanation for the rest of our lives as to how that happened.

Well, the economy has indeed rebounded, but the president, whose job approval rating has been mired below 45 percent since July 2013, is in little danger of winning popular acclaim for it. That ought to offer Limbaugh some comfort…

Oh, wait. Limbaugh suggested just last week that the economy is still kind of struggling, blame for which is due to the president and his policies (emphasis mine):

It’s a total mischaracterization to portray what’s happening economically in this country as this roaring rebound recovery. It isn’t.

To the extent that the US economy is rebounding is a testament to the American people, not government policy. The policies in place in the last six years are punitive when it comes to work and they’re punitive when it comes to business.

Well, as I discussed the other day, the current recovery is far from unblemished. But corporate profits after tax recovered very quickly from the 2007–09 recession, eclipsing the previous all-time record in the first quarter of 2010. Results dropped in early 2011, but by the end of that year they set a new record of $1.5 trillion in profits, and every quarterly number since then has exceeded that mark.

Again, the president doesn’t deserve much (if any!) credit for this. But in an ideal world — or at least one that was slightly fairer, or slightly more rational — people like Limbaugh would stop blaming Obama for things that don’t exist.

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