Economist Hats

Years ago, I had a friend from India who often marveled at our great country. One day I asked him: what are the top three things about the U.S. that are most impressionable from his cultural perspective. He said: 1) The interstate; 2) the supermarket; 3) you can put dog do-do on a hat and people will line up to buy it. I found this to be a fascinating comment on our society. He was suggesting that Americans will buy into just about anything. And so goes our perspective on economic policy.

The past couple years have been described as the worst economy since The Great Depression. President Clinton used that line in 1991 to defeat George Herbert Walker Bush and we bought it. “It’s the economy stupid.” Is it? Did the government create the recession? Or did the markets? Can you honestly show the data as to which? President Obama took Secretary Geithner’s advice and pumped more money into the economy since….since ever. The headlines said the U.S. Government has spent more money than spent by all previous administrations since President Washington. Did you see a figure for that, or just repeat it? Does the General Accounting Office have the balance sheets back to 1780? Tax cuts for small businesses encourage hiring, right? Or do tax cuts hurt the federal government’s ability to stimulate the economy? Will 1990s Japan-like deflation happen, or is inflation on the horizon? Is gold on the rise because of the devaluation of the dollar? Will the stimulus package create jobs? What questions should I be asking anyway?

Well, it depends on the economist and the ideology you follow. Each expert sees things differently. The stimulus package should have been bigger. The stimulus package is why unemployment is so high. Hyperinflation, I’m told on Tuesday, is coming. Thursday I’m told no need to be concerned about it. Unemployment is 10.3% and dropping. Unemployment is around 17%. What are you hearing on CNN, Fox, Patriot Radio, Radio America, etc? Ed Leamer, UCLA economics professor suggests all this is “faith-based econometrics”.

John Maynard Keyes’ theories of government “pumping” money into the economy to stimulate the markets was credited for the success of the country moving out of The Great Depression. Yet, why did the country come out of the depression only after WWII started?. To get out of a recession, President Kennedy followed a new theory and cut marginal taxes resulting in an economic boom during the 1960s. Most economists sidelined Keyes after the 1970s stagflation experience. Then along comes President Obama and we cycle back to the 1930s.

Are we using economic theories and talk show hosts to support our ideological positions and biases? Conservatives loved Ronald Reagan’s faith in the lessons of the Laffer Curve. Progressives support President Obama’s Keynesian approach. Great economists like Adam Smith and Milton Friedman would just nurse a headache listening to all this policy rhetoric.

Have economists moved from philosophical theorists, to empirical scientists, to being members of the political establishment? We should note, there are economic principals that are universally accepted. Certainly economists agree that inflation and money supply are related. This is the primary mission of The Federal Reserve afterall. Even non-economists seem to understand that incentives energize business, trade creates wealth, and middle class tax cuts get you re-elected. Policy makers and their regulations will always be debated. Economic cycles, it seems, are unpredictable, and economists don’t really know for sure how to steer them. When will we accept that economists are working from immature theories, and not just listen to the ones who share our politics without verifying the communiqué? When will we realize that political ideologies exploit the void?

There are thousands of variables to the economy. Any ideology can use these variables to gather followers and loyalists. After 80+ years, economists continue to debate what started and what stopped The Great Depression. Earlier this year, the Obama administration sited a GDP report of 5.2% as evidence that the recession is over. The Wall Street Journal reported that when adjusting the GDP number for post-Christmas shelf restocking, the economy grew 2.5%, not 5.2%. The economy is complex and our ability to apply a universal theory lacking. We need to listen less to the ideological economic viewpoints and gather more perspective from discussion. Or else we’ll find ourselves buying one of those “doggy do-do” hats.

President Reagan summed up economics best when he quipped: “Are you better off today than you were four years ago?” Taking the interstate to the grocery store will help answer that question better than visiting the hat shop. -Publius