Tuesday, October 11, 2016

Presidential Politics And The Economy

In the last presidential debate Donald Trump argued that the economy would expand if he became the president.  Hillary Clinton made two claims.  She cited the booming economy during her husband's administration and tried to take credit for the expansion.  She also proposed changes in fiscal policy that will expand the economy.  Trump's claim was based upon traditional GOP hype and another claim that Republicans typically reject.  In the first instance, he argued that cutting taxes for the rich and easing regulation would expand the economy.  In the second case, he claimed that the economy would grow by placing tariffs on imports which would reduce the US trade deficit.  Both candidates attempted to connect economic performance to whoever resides in the White House.  The quote below is closer to the real connection between the White House and economic performance:

I don’t want to suggest that presidents are irrelevant to markets and the economy; their actions can and do affect interest rates, and commodity and equity prices. A well-designed stimulus can help blunt the harm of a recession, while policy blunders such as waging unnecessary wars as in Vietnam or Iraq can and will affect markets. But during the ordinary course of business, a president isn't usually an especially important market-moving agent.
This article does a nice job of explaining the connections between presidential politics and economic performance.  Clinton proposed an increase on government spending that might expand an economy in recession.  The economic boom during her husband's administration was unrelated to his economic policies. Changes in the market created created the boom.  Trump's claim that cutting taxes for the rich and easing regulation has not proven to be a good recipe for economic growth.  Putting tariffs on imports has typically caused economic contractions.  On the other hand, he regarded it as a good way to convince citizens who have not benefited from globalization to vote for him.

The bottom line is that voters should not pay much attention to claims made by presidential candidates about how they will create jobs and grow the economy.  They learn more important things about the candidates during election campaigns.  Trump's campaign has collapsed because he has been exposed during the election cycle.

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