Home

After yesterday's post I assumed someone would come up with a link showing which candidate has the most support from independent economists. Unless I missed it, no one came up with such a link.


But I am fascinated by the comments to yesterday's post that got the most up votes. The authors of those comments came up with what appear to be the best and simplest common sense answers to who would be the better president for growing the economy.


The most popular answer was that Obama would reduce the national debt by raising taxes while McCain would increase the debt by lowering them. No one wants debt, therefore Obama is better for the economy. Common sense, right?


First, if it were that easy, all the independent economists would be supporting Obama. It really would be that simple. But there is no evidence that independent economists are lining up with Obama. What do those experts know that the people with common sense don't?


For starters, the economy has grown for decades without a clear link to debt levels. The deficit went down during Clinton's term largely because the economy was hot by coincidence, thanks to the dot-com era.


Second, debt isn't bad per se. The best indicator of a healthy economy is that everyone who can repay a loan gets one. The whole point of debt, either personal or government, is that it stimulates the economy more than it puts a drag on it. Obviously there is a point where debt can be too much, but would McCain reach that point where Obama would not? I don't see the experts lining up behind that prediction.


And how much do you think the deficit will be reduced under Obama's plan of increasing taxes on the rich while reducing taxes on the poor? Isn't that largely shuffling things from one pocket to another? I don't know the answer to my own question, and the bigger point is that you don't either. But we both know Obama plans to increase spending in a number of social areas whereas McCain might be stingier. Or would McCain just spend more on the military so both candidates spend about the same in the end? I don't know. Neither do you.


Can Obama convince a bunch of rich law makers to increase taxes on themselves and their major donors? I doubt it. Can McCain convince a bunch of law makers who depend on pork to cut the pork out of the budget? I doubt it. So assume both candidates haven't made the math work and are over-promising on the debt. Common sense tells me I can't tell the difference between the candidates.


A comment from Real Live Girl was interesting. She noted that the economy is fueled by optimism, and Obama brings more of that. Those are two true statements. But is all optimism the same? Wall Street veterans believe the market would go up if McCain gets elected. Lower taxes make the titans of business the most optimistic. Raising their taxes and transferring the money to worthy social services might make lots of people feel optimistic, but that isn't the optimism that fuels economies. An unemployed guy can't get too optimistic until a rich guy gets optimistic first and builds a factory he can work in. McCain makes rich guys optimistic. Obama makes students optimistic. Which approach stimulates the economy more? Beats me. You don't know either.


Another comment noted that McCain's support of the gas tax holiday was criticized by almost all economists.  Therefore McCain is both clueless about economics and likely to ignore expert advice on the subject. That seems like a common sense way to look at it, until you consider that politicians do things in campaigns that are intended to be symbolic. McCain was sending a message that he's a tax cutter. The gas tax holiday was always intended to be temporary. Message received.

McCain's actual economic ideas - the ones that would matter - involve free trade, taxes, and keeping the homeland safe. Those are either good for the economy or bad, and overwhelm the importance of something like a campaign promise involving gas taxes for a few months. So if you make a decision based on the gas tax holiday, you are basing your decision on trivia.


So which candidate would be better for the economy? I don't know. But I do know that common sense doesn't tell me anything useful, and neither do the experts.

 
Rank Up Rank Down Votes:  +16
  • Print
  • Share
  • Share:

Comments

Sort By:
Jun 20, 2008
There's a list at the following URL of some economists endorsing or working for Obama:
http://econ4obama.blogspot.com/2008/06/obama-economic-advisors-and-economic.html

These are generally well-respected economists in the field.

-Kevin
 
 
Jun 19, 2008
Easy. McCain is prepared to carry on laying the foundations of a 100-year occupation of Iraq and Obama says he'll pull out all US troops within 16 months. Hmm. Seems Obama's option is much cheaper. QED
 
 
Jun 19, 2008
In the comments, it is stated that Obama would be better for the economy based on assumptions that raising taxes on the rich and paying off the debt will make the economy better. Apperantly people think that rich people are going to not change their behavior when their taxes go up. As with all people, when your income is affected by higher taxes or higer prices, you adjust your spending accordingly. Look at our cueent condition with 4$ gas, as compared with 2.50$ last year. So when govt revenue goes down, because the economy slides into recession because of less cash flow, please tell me how owering the debt would have any effect on my wallet?
McCain is not an economic genius, quite the opposite, and his policy statements scare me just as bad as the trillion dollar tax increase coming in 08 if Obama is elected.

But I really don't know.

An economy is not measured in how much we make, or spend, but an aggregate of how mach every one makes and spends. That flowing of capitol is what makes an economy grow and shrink. The more we spend, the more the economy grows, the less we spend the more it contracts. If we all start spending less because of a change in balance, ie less jobs and less investment, the less the econiomy grows,. and in some cases really contracs. A real recession is negative growth. The recession we have have been beat over the head with had groth the entire time. Thanks the media for that one. The real recession starts when spending really takes a stop later this year.
 
 
+1 Rank Up Rank Down
Jun 19, 2008
insaneeto, were you really taught in school that when you try to cut a pie into more equal pieces, the pie itself gets smaller? I hope you're not one of the independent economists that Scott is searching in vain for.
 
 
Jun 19, 2008
Common Sense? The world is driven by the chaos theory, common sense has no place here.
 
 
Jun 19, 2008
>which candidate has the most support from independent economists.

This is problematic, Scott. What makes for an "independent economist." Once an economist declares that s/he is a supporter of one candidate over the other, would that disqualify him/her?

Or do you mean economists who are not registered Democrats or Republicans? That, too, is problematic.. Given all the consistent differences between the parties on economic issues (e.g. how progressive the tax structure should be, tax treatment of earned v. investment income, etc.), there is good reason for intelligent and independent thinking economists to be aligned with one party or another.

So, why focus on Independent economists?
 
 
Jun 19, 2008
Thomas Paine said: "That government is best which governs least."
So, McCain seems to be less Evill then Obama, because socialism (more regulations, more taxes) doesn't help to US.
 
 
Jun 19, 2008
Of course, you don't need an economist to tell you that it is bad for the economy when the government hides the true cost of its programs. It is a type of financial fraud. For example, Nobel Prize-winning economist Joseph Stiglitz has argued that President Bush massively understated the cost of the Iraq and Afghanistan wars. Combined with interest on debt, future borrowing, cost of continued military presence, and veterans health care, it is estimated that the wars have a potential cost of up to $5 to $7 trillion over time.

Republicans just don't understand how to handle money, period.
 
 
-3 Rank Up Rank Down
Jun 19, 2008
Yeah, lots and lots of talk.

Anyone with a little education and a little common sense knows that the republican party consists of self-serving crooks only, with a few blind idealists working as an unintended smokescreen, and ALWAYS a puppet president, whether he be an actor or a soldier, it doesn't matter.

There really isn't a choice. Democrats work for everyone, Republicans for a rich minority. It's so blindingly obvious people tend to disregard it in favor of complicated wordplay.

Most people will follow their wallet when it comes to voting anyway. I'm beginning to suspect Scott doesn't like to pay taxes a lot, he seems to drift often into territory that questions oldfashioned decency in favor of rethorics (not because I question his integrity, I'm only concerned what shapes his point of view). I know that a thinking man doesn't take appearances for granted, but the old truths are stil true, and will always be. Social government=better government.
 
 
-1 Rank Up Rank Down
Jun 19, 2008
I've been close to economics for 15 years, firstly academically and then in its practical applications to financial markets. As a subject it has some fairly fatal limitations, and although some good work has been done in the field of behavioural economics in particular, in the last decade or so, much economics does little more than reflect the prejudices of the economist. Often this is not political/ideological prejudice so much as "common sense" type prejudice. Much of what happens in the economy is left truly unexplained by conventional economics. Internally consistent models with intellectual rigour rather than models or explanations that reflect reality seems to be the goal. For that reason I am actively disinterested in which candidate has the support of most economists.

On the subject of debt, and the government deficit, I do want to say something because misunderstandings abound.

The US is running a trade deficit of 5% of GDP at the moment, and has had a deficit of similar magnitude for a long time. As a nation, this means the US is "spending" more than it "earns". Now this can be funded by either the public sector "spending" more than it "earns" (from taxes etc) or it can be funded by the private sector spending more than it earns. Within the private sector, the two groups are households, and firms. Either or both of those can spend more than they earn. This relationship is not a phoney assertion, by the way, it is axiomatic given how GDP is calculated.

At the end of the Clinton presidency the federal budget was in surplus. However there was a trade deficit. This had to be paid for, and was, by the private sector deficit. At that time both households and firms were spending more than they earned (either borrowing of liquidating savings can make up the difference). With the collapse of the dot com boom, over the next 3 years or so firms really cut back their spending, to less than their income (paying down debt etc). Households continued to spend more than they earned (they were able to borrow more thanks to the housing boom). However, thanks to the budget deficit caused by the Bush tax cuts the trade deficit could be funded by the public sector borrowing instead of private sector borrowing. In my opinion this was a good thing.

It's mostly true that public sector borrowing is cheaper than private sector borrowing, therefore costs the nation overall less. And it is certainly true that the alternative - a rapid contraction in the trade deficit from 5% to 0% would have led to a significant fall in living standards in the US, made worse by its uneven distribution.

Right now the situation is that the trade deficit is still around 5%, coming down gradually thanks to the competitive dollar. Firms are roughly spending what they earn, and both households and the Government are spending more than they earn to the tune of 2-3% of GDP. Given where we start from (ie a trade deficit) it must make sense for the Government, rather than firms or individuals to pay for it, since they can borrow more cheaply. It also must make sense for the trade deficit to come down gradually rather than suddenly given the dislocation costs in a sudden reduction.

Therefore, although I am not Republican, I do think the Bush tax cuts saved the day for the US economy. I support Obama over McCain, I think he has the better social policies, foreign policies, will help the working poor more, and is a more talented leader. Nonetheless a continuation of the Democrat policies of the late 1990s, of running a budget surplus alongside a trade deficit, would've caused a disaster.
 
 
+1 Rank Up Rank Down
Jun 19, 2008
"Supply side" economics, that is lower taxes on the rich and big corporations, doesn't work in modern America because:

1. We don't have a manufacturing-based economy. If some corporation or rich guy decides to build a factory, it'll be in China, not here. Most promising new businesses are internet startups, which require little capital (and for which the VC sector is overflowing).

and

2. the rich are not really the supply side--the middle class is. They buy the computers and ipods and handbags and Dilbert books everything else. They make the money and supply it to the rich.

Therefore, the only sensible policy is low taxes on the middle class, the poor, and small businesses.

Also, something like socialized healthcare (which republicans oppose) is also good for the economy, because dead people don't buy anything. And neither do people bankrupted by medical bills, the leading cause of bankruptcy.
 
 
Jun 19, 2008
This is a perspective view from the Middle East. America's foreign policy is in a tail spin. The democrats are more likely to save the tax payer's money by letting Israel nuke its threats rather than spend trillions on espionage and diplomacy. The futures market on Oil is already on the wall. There's no turning back on that. Barrels are booked at $135 till 2011.

The dollar may not kill international trade after all. Neither is there a prospect of a quiet exodus like the British nationals settling in the far east.

In the interest of Lassez Faire Capitalism Americans are well advised to vote for what is known. Learn from the Irish vote. If you are not sure, vote "No."
 
 
Jun 18, 2008
If you wish to choose a president based solely on their effect on the economy, I would advise you to vote for McCain. Lowering taxes on individuals and corporations does stimulate the economy in the short term and will make the effects of a recession milder or boost the economy from a period of slow growth or negative growth into a period of growth or rapid growth. That would also lower the unemployment rate. That is simply a fact of macro-economics. However, McCain will likely not be able to pass whatever economic bills he wants because he'll likely have a Democrat-controlled congress that will fight him tooth and nail on any expansionist policy he tries to push through.

Also, the Federal Reserve has a lot more power and control over the economy than a president. They can increase or decrease the federal funds rate which can influence other rates and effectively control the money supply. They've lowered interest rates lately to increase the money supply and stimulate the economy, but the side-effect has been inflation. The Fed will have to play ball with whoever becomes our next president when it comes to economic policy -- otherwise, they can counter the effects of government tax and spending policies.

Another thing... if you tax businesses or investors (rich people) more, you effectively increase their cost of doing business which will make Corporations want to spend less on investing in new property, plant, and equipment (and also produce less at every price point) which will lead to them hiring fewer people and possibly causing layoffs and raising the unemployment rate. Individuals spend less when they're taxed more which means they aren't spending money on goods and services which, in turn, makes companies want to produce less and thus lay people off and/or close factories, etc. If there is ever a good time to increase taxes, it's when the economy is doing well and in an expansion phase -- NOT when it's nearly in a recession.

The upshot is that the US economy is very resilient. Recessions are uncommon and when we have them, they usually don't last for very long and aren't very severe. Worst case scenario, Obama makes the economy worse than it already is and we still recover from it after a bit longer than it would have normally taken without him.

Personally, I think Obama's non-economic policies (other than health care) are not too shabby... but I will likely vote my wallet and not my heart.
 
 
Jun 18, 2008
First off, I'm Norwegian so I can't really give my 2 cents on this matter. I would, however, like to address something I've always found really weird about Americans. It seems to me that most Americans complain about taxes a lot and keep wanting to reduce them. What is the average tax percentage for a "middle class" citizen these days? 12%? 20%? Here in Norway the average annual income tax is about 36%. If you make a lot of money it could be closer to 50%. The thing is, you Americans actually also pay a similar percentage - the difference is that where our money is spent on various things benefiting everyone, your money goes into the pockets of the shareholders of large insurance agencies.

It's always seemed amazing to me that you'd rather help rich people afford private islands than help average people afford good health-care and good public education.

Sure, not all the money I spend on taxes is spent according to my personal preferences - 'cause I might disagree on much of the government's politics - but at least it's going back into something which benefits lots of people and not just some rich shareholder.

Oh, and when I say "you", I mean what I perceive to be most Americans. Most people who frequent this blog don't fall into that category though...
 
 
Jun 18, 2008
Given the fact that we've pretty clearly established an inability to determine either candidates likely effect on the economy, and despite the fact that it is ranked by most Americans as the most important issue, it seems most logical to leave it out of the equation altogether.

It would be more productive to focus on the next few most important issues, provided there exists any reasonable way to measure candidates ability in regards to those.

IMHO, the most important factors in choosing a president (or any leader for that matter) are 1) Do they know how to get the information they need? and 2) Will they make a thorough, rational, and unbiased evaluation of that information and from that make sound decisions?
 
 
Jun 18, 2008
"Another comment noted that McCain's support of the gas tax holiday was criticized by almost all economists. Therefore McCain is both clueless about economics and likely to ignore expert advice on the subject. That seems like a common sense way to look at it, until you consider that politicians do things in campaigns that are intended to be symbolic. McCain was sending a message that he's a tax cutter. The gas tax holiday was always intended to be temporary. Message received."

Message received? The only message I received was that McCain is willing to sacrifice our infrastructure in an attempt to signal he's tough on taxes. We economists (I'm a little biased) don't always agree, but I'll be happy to show Mr. McCain the error of his ways (voodoo and all). How about we get a candidate whose willing to come out and say "Hey I realize gas prices are high. Please be patient with me and I'll do everything in my power to find us some other fuel to use instead. It might be painful right now, but cheap(er) oil really isn't the answer to our problems."
 
 
Jun 18, 2008
Economics is the dismal science that aspires to maximize human happiness, right? People are on average so unhappy with the Bush presidency that unless a truly novel Republican candidate could be found, one who was in no way tainted by association with this popularly deplored "worst administration in history", it's probably more a matter of "anyone but the new Bush" rather than an enthusiastic vote for Obama.

Economics is supposed to be about human welfare and happiness. It's devaluing to reduce discussion of "economics" to the level of talk of tax cuts here, tax cuts there. Speaking of tax though :: don't we need innovation in energy economics, not more of the failed policies of the incumbent administration? In economic terms and resorting to happy talk of taxation ..... why wouldn't it be cool to begin, post haste, moving from taxation of good things like income and employment onto taxation of bad things like the burning of fossil fuels? Reduced income taxes balanced by increased carbon taxes - I'd vote for the candidate whose economics advisers came up with that election promise (and so would a whole bunch of Nobel laureate economists who've been advocating this very policy, some of them in quiet desperation, for decades now).
 
 
+1 Rank Up Rank Down
Jun 18, 2008
I think the problem is that you're making two critical assumptions that aren't necessarily valid.

1) That there is some agreed-upon definition of "the economy."
2) That there is some agreed-upon definition of what constitutes "good" for "the economy".

I don't think either of these are true; hence why there are a lot of highly respected economists on both sides of the fence. The best you can do is to identify the candidate who comes up with the idea that is most *ridiculed* by economists. (I don't know who that is, but one of the above comments mentions McCain's refusal to back down on the gas tax cut, which seems like a pretty lousy idea.)

 
 
+1 Rank Up Rank Down
Jun 18, 2008
10 yrs ago there are two things for under a dollar in a stop, a gallon of gas and a pack of farmer. The pack's price went up for quite a while and everyone can live with less of it, but gas......lots of things could be grounded in order to use less of it. From what I can see, moving things around is stimulating the current economy front end, and somehow they contradicts.
By the way can you make a CNAME for your blog, that way those who have too much bookmarks or simply type in addresses remember where you are.
 
 
Jun 18, 2008
I'm senior lecturer (assistant prof) in Economics at Canterbury University in New Zealand. Despite being an avid follower of American politics and econ policy, I have no strong preference between Obama and McCain on economic policy. I didn't like McCain's derisive dismissal of economists' views on gas taxes, but I also don't like that Obama is likely to preside over a unified Democratic Congress.

But I do know how I would assess the relative merits of both.

InTrade is a political real money betting market based in Ireland. If you go there, you can trade contingent claims on economic growth, unemployment, and other indicators. So, you can buy a contract that pays off at $10 if the economic growth rate is higher than 2.5% over the next three years, but only if Obama wins (and the same for McCain). If you combine the prices in those markets with the prices in their similar markets that pay off based on who wins the election, you can back out a market-based assessment of the effect of the election on different indicators. Unfortunately, trading on these markets is too thin to get any reliable price predictions.

Now, there are a LOT of folks here with VERY strong opinions about how great their preferred candidate would be. Those folks should go in and put their money where there mouths are. Then, the markets would be thick enough for the price quotes to be somewhat accurate in terms of prediction.

www.intrade.com -- hit the "politics" markets, then "Impact of Next President".

Oh -- if you're American, it's illegal to trade in these markets. You can thank John Kyl and his neverending campaign against anything that could possibly be fun.
 
 
 
Get the new Dilbert app!
Old Dilbert Blog