Elections have consequences..right ?

We all know that Clinton was a good President, and Reagan was bad..right ?  Clinton's policies were good for the economy, and Reagan's were a disaster.  How about the internet (or the "information superhighway").  We all know that the internets have been good for the economy, right ?  And we know that wars are bad, and so we should not elect warmongers.

Elections have consequences...

Right ?

Take a look at the following chart....
Image and video hosting by TinyPic

Source: Housing, Housing and the business cycle.  E.E. Leamer, UCLA, Aug 7 2007 (Fed Res. Symposium at Jackson Hole).
downloaded from: pdf link

Now, those of you that know about logarithmic scaling are probably screaming that the log-scaling tends to mask real features.  So, here is the same data plotted on a real scale, along with a 3.2% annual GDP growth trendline.
Image and video hosting by TinyPic

Do you see the effect of the internets ?  Or of Reagan ? Or Clinton ?  I don't either.
How about if we go back further in history.... All the way to 1792.  And so, here is a chart of US Real GDP, along with a 3.6% annual GDP growth trendline.

Image and video hosting by TinyPic

Finally, now we can see something: the great depression.  WW1, and WW2: not so much.
And even the great depression shows up only as a blip ~ the real GDP returns to it's trendlines shortly thereafter.

And if you look closely, you can probably discern that the Real GDP was growing at a faster average pace before 1900 than after.  I am not showing the charts, but your eyes are not deceiving you ~ the Real GDP grew at annualized average rate of 4.1% before 1900, and only 3.3% after 1900.   Did something happen in 1900 ?  Who was the consequential President at the time that affected such a big (and negative) change at the time.  Turns out the answer is very trivial...

Image and video hosting by TinyPic

Of late, we have been spending too many hours watching TV, which does not leave enough time for having sex... and fewer babies today means that Real GDP growth slows down 20 yrs from now. (And yeah, I speak that line only partly in jest)

The takeaway from all this is that, after factoring in inflation (Real vs Nominal GDP), and population growth, the US economy has grown at a steady clip for a long time; and elections have not had any consequences on that front.

Of course, within that macroscale picture, there are minutiae that matter: (a) Manufacturing jobs have been bleeding recently, which is hidden from the GDP because services and software have grown.  (b) The GDP does not measure economic disparities, and elections have had consequences on this front.  (c)  Masked in the overall trendlines, are business cycles (~ the recession and subsequent recovery) that must be managed by the government.  And elections do have consequences on how the government chooses to manage this business cycle.  The implications on that front are quite profound (and the reason I am a progressive).

But I cannot pretend that elections matter any more than that.  

The primary role of the government, as explained brilliantly by Dr. Leamer in the paper I referenced above, is to efficiently manage the business cycle in a manner that spreads the pain fairly (okay, he does not quite say this); it is not to affect an outlandish GDP growth...because it cannot.  

And the manner in which the government spreads the pain is affected by elections.

But that is a political decision, not an economic one.  

And yeah.... this is a long winded explanation for why firing Geithner will not make a difference!!

Tags: Elections, GDP (all tags)

Comments

6 Comments

Re: Elections have consequences..right ?

Interesting point!  But I still cannot feel confident that we are guaranteed to keep the success story going no matter what political strategy we adopt.

by Steve M 2009-11-19 03:32PM | 0 recs
As they say...

past performance is no guarantee...but, it sure is a strong indication.

by Ravi Verma 2009-11-19 08:36PM | 0 recs
Re: As they say...

Until it isn't. Nothing last forever.

by bruh3 2009-11-21 09:17AM | 0 recs
That is true...

but absent a compelling reason, I am not going to hold my breath and wait for a 200 yr old trend to change...

can you think of any reason why a 200 yr old trend is going to change ?  If you do, then please dont reply here... instead, write a diary...it will make for interesting information.

by Ravi Verma 2009-11-23 08:31PM | 0 recs
Re: Elections have consequences..right ?

So firing Geithner shouldnt be a problem either, right? So what is your objection to firing Geithner if he doesnt make a difference either way according to your logic? He might asa well pay for his incompetence in the AIG issue.

by Pravin 2009-11-22 11:05PM | 0 recs
If only

firing Geithner had no implications.

Firing Geithner would be an acknowledgement that the political strategy chosen by Obama has failed.  He would then be forced to launch a strategic review for a new political strategy... given that the crisis is going to go on for another year or two, failure on this front could doom his presidency.

As to his incompetency during the AIG crisis, I would suspect that it was entirely deliberate.  It was for that (and his tax cheating) reason that he was a demonstrably bad choice.  But Obama selected him ~ he bought all the baggage that comes with it.  It became Obama's political strategy.

by Ravi Verma 2009-11-23 08:28PM | 0 recs

Diaries

Advertise Blogads