In election years, people sometimes ask me who should get their vote, based on economic policy. I don’t make endorsements, but I do try to help people understand some things about economics and candidates:
- They can’t implement their policies. In almost every case, an elected official is unable to act alone, but instead must compromise and build coalitions. If you like a candidate’s stand on trade or the minimum wage, fine — but don’t assume that electing that person will get you the policy.
- Their policies wouldn’t have the intended effects. Political campaigns tend to overstate the effectiveness of policies. Raise tariffs on foreign goods? Fine, but don’t expect a bunch of jobs to come flooding back to the U.S. Take the minimum wage up to $15 per hour, no exceptions? OK, but if you’re a non-economist you’ll probably overestimate the effects.
- Political campaigns understate uncertainty. The fact is, we often don’t know what the effects of a policy will be. It’s hard to admit that in a political campaign but we economists know it’s true. The range of possible outcomes from any given policy is vast.
- If you rely on social media, you’re too sure about economic policy. Facebook, for example, is great for keeping up with friends but a really poor way to stay informed on economics. Why? Because you’ll see a lot of opinions you already agree with — and not so much from the other side. Thus it’s possible for you to link to a really strong article and get nothing but affirmation from your friends. You’ll think only a dope could believe differently.
Be especially aware of Facebook links to articles that say “there’s no evidence” on a particular side of an economic controversy. If it’s a controversy at all . . . trust me, there is evidence on both sides. I have a graduate degree in economics and I’ve been studying economic policy for 40 years now, and I am much less certain about the effects of a $15 minimum wage than the average Facebook poster, pro or con.
So who should get your vote? Look for a candidate who shares your values, and disregard promises about economic policy.
WONK ALERT: This is “down in the weeds,” but in case you want to know, here are the two big problems that make economic policies less effective and more uncertain than political campaigns lead you to believe:
1. Offsetting behavior. Suppose you wanted to improve a city’s park system and simultaneously punish landlords. (Some City Council members do). So you propose a tax of $100 per apartment, to be paid by the landlord, to fund park improvements. Wait! my first-year economics students say. Won’t the landlord just raise the rent $100, escaping the tax? That’s not the exactly correct answer, but it does go in a promising direction. We economists know that when you try to make Party A give Party B a better deal, things often go wrong. It’s because of offsetting behavior (the rent increase, in this case).
Cases like this abound: controlling rents, increasing the minimum wage, subsidizing a new sports stadium. In all these cases and more, there’s offsetting behavior of one kind or another. It doesn’t make the policies totally ineffective, but it does make their effects less than is typically claimed in a political campaign.
2. Simultaneity, or “what causes what?” In science, experimenters get to change one thing — like temperature — and see the effect on a chemical reaction or biological process. But economics is a social science and we don’t get to experiment in the same way. So we look at patterns of variables moving together in the economy and use fancy statistics to make good guesses about causes and effects. But that’s the best it gets — good guesses. And the worst problem of all is that we don’t know for sure what causes what.
Here’s a great example: A state that’s thriving economically raises its minimum wage and it continues to thrive. So raising the minimum wage helped the economy! Not so fast; that statement assumes that the higher minimum wage caused the economy to thrive. What if it’s the opposite? What if the state legislature saw its economy thriving, saw that most wages are already above the old minimum already, and so raised the posted minimum wage? In that case, it would be the thriving economy that caused (via legislative action) the minimum wage to go up.
Both with offsetting behavior and with simultaneity, there are clever ways to take account of these effects. People spend years studying and becoming more clever. And yet in the end, when we adopt an economic policy we don’t know for sure (1) how offsetting behavior will really work out or (2) what’s causing what.
After admitting this, my economist friends go in a couple of different directions. Some say that the uncertainty and unpredictability should cause us to prefer freedom and less economic intervention. There is more merit in that than most people realize. Others say we should get really clever and smart people to guide economic intervention, and they’ll overcome the uncertainties. Maybe they will, but that’s an argument for another day.
END WONK ALERT