Get Our Economics Commentary Every Week

Back to Blog

Political Action - Good or Bad? (Vol. 50)

mse | May 04, 2022

Politicians have an Irresistible Urge to 'Do Something' 

Economic problems are just a part of life. Today, it is inflation and gas prices, tomorrow it will be something else.

 

Economists today are mostly very smart - they understand what works and what doesn't. Henry Hazlitt describes the difference between a good and bad economist in ‘Economics in One Lesson.’

  ‘The bad economist sees only what immediately strikes the eye;  the good economist also looks beyond. The bad economist sees only the direct consequences of a proposed course;  the good economist looks at the longer and indirect consequences.  The bad economist sees only what the effect of a particular policy has been or will be for one particular group;  the good economist inquires also what the effect of the policy will be on all groups.’ 

 

 

Then there are ‘Objective’ Economists and ‘Political’ Economists. The Objective Economists say it like it is, like it or not. The Political Economists are usually committed to politics instead of the true economics of a subject. Take what they say with many grains of salt.  They are not objective any more and may or may not be following good economics.

 

So, should we do something about economic problems? There is not a clear answer to this, but politicians feel a need to ‘do something’ all the time. It is quite common that the ‘something’ does more harm than good. But it sounds good and makes them look like they are addressing the problem. This is the ‘Political’ Economist problem. 

 

As Milton Friedman said,

What are we talking about?  Let’s examine some real world examples.

 

The Depression of 1921 vs. the Depression of 1929. When President Harding took over in 1921 there was a Depression raging. He did very little other than cut taxes and spending.  Result: The Roaring Twenties. When President Hoover took over in 1929 there was the Stock Market Crash later that year followed by an economic downturn. It was recovering on its own when the politicians ‘did something’.  Starting with the Smoot-Hawley tariff in 1930, which was bad economic policy, the progressive Presidents, Hoover and Roosevelt did more, and more, and more. Result: The Great Depression.

 

Price Controls. Raging inflation seems to invariably find those who think price controls will stop inflation. Every good economist will tell you otherwise - it just causes an imbalance in supply and demand with resulting shortages and sometimes Black Markets. Nixon tried it - it didn't work then, and it won’t work now. Venezuela tried it, need i say more?

 

Tax the rich; everyone pays their fair share…sounds good, feels bad. Did you know that Corporate taxes in 2021 are the highest ever, AFTER the tax cuts a few years ago.      And corporate taxes are effectively  paid by the workers and consumers, not the corporation. High personal income taxes take money from the productive sector where they could invest in growth, and gives it to the government, who produces nothing. Not exactly the formula for growth.

 

Discourage fossil fuels. Can we go green by not having the energy we need?  It is a rhetorical question - we all know the answer. What we have done is go from energy independence to dependence on foreign imports of fossil fuels. AND we have driven the price of gas up 60% BEFORE the Russian-Ukrainian war, which has made it worse. Don’t listen to the PBS (political bull s–t) about why prices are high. Supply and Demand still works - ask any objective economist.  

 

Big Government. President Clinton tried it to start, didn’t work so well, moved to smaller government and actually ran a surplus for 3 years (only one to do it in recent history). He even went so far as to declare ‘the era of big government is over’.Let’s shortcut this endless discussion by simply saying economies grow fastest when government is limited, taxes are modest, budgets are balanced, and it gets out of the way of productive people.  Real world examples abound of the effects, good and bad, of big vs. limited government. 

 

BOTTOM LINE

 

The instinct of government is to ‘do something’ and is often ill considered and harmful.  The ‘voting public’ needs to understand this and what good policy looks like. Then voice opinions to sway the politicians to do the right thing. Otherwise we get caught up in an endless cycle of government doing more and more, as we get less and less. If your representative doesn’t do the right thing, then vote for someone else.  

 

LEARN ECONOMICS, THEN VOTE SMART