Gone are the days when political leaders saw credibility as their most valuable asset. From presidents to prime ministers, economic policymakers have traversed the territory beyond the familiar terrain of political hyperbole, becoming increasingly disconnected from voters’ own understanding of reality.
There are several explanations for this. First, today’s communications environment favors extreme statements over cold, unbiased, fact-based analysis. In a polarized society, politicians have become more interested in nurturing their extremist base than in offering moderation or compromise.
Second, sometimes the forecast goes wrong. The claim that “inflation is transitory” was not unreasonable at first; but it has become more and more questionable over the months, in part because the public has a different understanding of the term than economists. To the average voter, transient means “gone quickly,” a description that does not correspond to a problem that has not only persisted but has worsened. American baseball legend Yogi Berra noted that prediction is difficult, especially when it comes to the future. In fact, because economics sometimes need to be revised significantly, even a description of current conditions can get lost.
Third, political leaders hate to bring bad news, preferring to blame the problems on their opponents or on some political foil like the oil and gas industry. Every time gasoline prices soar, the left claims it is the result of a nefarious conspiracy by domestic producers. Yet, to my knowledge, no such conspiracy has ever been uncovered. While the OPEC cartel may seek to profit from market fluctuations, the price at the pump is ultimately subject to the forces of supply and demand.
Failure to see this reflects widespread economic illiteracy, which is the fourth reason for the current situation. Most voters have a limited capacity or time to absorb seemingly subtle points such as the differences between “high” and “rising”, “net” and “gross”, and “short term” and “long term” Not to mention the probability. And, unlike economists, politicians usually don’t care much about nuance.
Think about inflation. For economists, statistical agencies, central banks and finance ministries, inflation means prices are rising. But for the general public, inflation means prices are uncomfortably high for their budget. Suppose the 6.8% year-over-year increase in the U.S. Consumer Price Index drops to zero over the next 12 months. Many people would still feel that inflation was not under control, as the previous price increase would not have been reversed.
Or, consider how economists and statistical agencies define a recession. Technical issues aside, that means the economy is contracting – hence the simplistic rule of thumb that a recession occurs when real (inflation-adjusted) GDP growth is negative for two consecutive quarters. A recession therefore ends when the economy begins to grow again. But to the layman, a recession isn’t really over until the good times and abundant jobs return. This is why slow economic recoveries are painful for those in power.
Another common source of confusion is the difference between net and gross. A good example is the (usually exaggerated) claim that millions of jobs would be created by phasing out fossil fuels quickly by relying on subsidies and mandates for wind and solar power. It doesn’t matter all the fossil fuel jobs that are lost. This argument emphasizes crude while ignoring the net effect.
Another example is the budget scoring gadget used to hide the real costs of legislation like US President Joe Biden’s Build Back Better (BBB) bill. To cram as many “progressive” policies as possible into a budget window of $ 1.75 trillion over ten years, many benefits would supposedly end after a short period. The implication is that programs lasting one, three or six years would be paid for with ten years of tax increases.
In fact, no one believes that these programs will be allowed to expire when their expiration dates come up. As President Ronald Reagan said, “Nothing lasts longer than a temporary government program.” So when the Congressional Budget Office assessed the budgetary cost as if BBB programs lasted the full ten years, the total soared to nearly $ 5,000 billion, of which $ 3 trillion would be added to the national debt already. unprecedented.
Democrats aren’t the only ones using budget gimmicks. When Reagan’s budget manager, David Stockman, couldn’t get enough spending cuts to satisfy a law requiring the Estimates to present a balanced budget in a few years, he added a famous asterisk: ” expenses will be decided later ”.
There are also different interpretations of the short and long term time horizons. Economists measure the short break-in quarters or a year or two; but for the general public, short term means weeks – or a few months at most.
Sensing the growing pressure from rising inflation, Biden often repeats the claim by some prominent economists that his BBB bill will reduce inflation. The logic here is that larger subsidies for child care, paid family leave, etc. will allow more parents to work. This is a questionable empirical proposition. But even if it is true, the argument rests on a claim about inflation in the years to come, not in the weeks or months to come. It would be absurd to claim that massive additional government spending will quickly reduce short-term inflation in an economy already close to full employment. Unsurprisingly, recent polls show the public is not cracking up.
All political leaders feel pressured to try and circumvent the laws of economics or even the laws of arithmetic – as Biden did when he claimed his bill costs nothing. Whatever temporary advantage this tactic confers, the resulting erosion of credibility ends up haunting political leaders of all stripes. This is especially true when politicians need public support the most. As my friend George P. Shultz said: “Trust is the currency of the kingdom”.
Michael J. Boskin is Professor of Economics at Stanford University and Principal Investigator at the Hoover Institution. He was chairman of George HW Bush’s Council of Economic Advisers from 1989 to 1993 and headed the Boskin Commission, a congressional advisory body that exposed errors in official estimates of US inflation.
Copyright: Project Syndicate