Politicians who advertise themselves as “fiscal conservatives” sometimes campaign on crowd-pleasing pledges to cut taxes and simultaneously reduce budget deficits. These are difficult promises to deliver on in practice, since the budget deficit equals government spending minus tax revenue.
Aspiring fiscal conservatives may be interested in learning four innovative tricks that are commonly used by American politicians who like to promise what seems impossible. Each of these feats has been perfected over three decades or more. Indeed they first acquired their colorful names in the early years of the Ronald Reagan presidency:
Every pundit agrees that President Obama did badly in the first debate. But I can’t help wondering whether he (and VP Joe Biden) would have been able to come out swinging as freely as they have in the subsequent debates, if it were not for what happened in Denver. Obama must have been afraid of sounding unpresidential. But because his initial performance was so roundly criticized for passivity, he was licensed after that to argue aggressively: “What you are saying is not true, Governor Romney.” And it helps that he was right, each time. (My morning-after talking-head comments can be viewed:“Re-cap of 1st Presidential Debate,” Oct.4; and “Re-cap” of 2nd Presidential Debate, Oct.17.)
A survey of economists is published in the November 2012 issue of Foreign Policy. One question was whether we thought that the US unemployment rate would dip below 8.0% before the election. When the FP conducted the poll at the end of the summer, unemployment was 8.1-8.2%. Now it’s 7.8%. Only 8% of the respondents said “yes.” (I was one. I basically just extrapolated the trend of the last two years.)
My fellow economists choose defense spending and agricultural subsidies as the two categories of US federal budget that they think the best to cut. They rate the euro crisis as the greatest threat to the world economy now and are particularly worried about Spain.
Mitt Romney, presidential candidate, said in now-infamous comments that 47% of the American electorate is dependent on the federal government, that he will never be able to teach them to take personal responsibility for their lives, and that they are certain to vote for Barack Obama in November. He continues a tradition in his party that goes back at least three decades: building political campaigns around the proposition that folks in the heartland exhibit the American virtues of self sufficiency and personal responsibility and the implication that other, more urban, regions display decadent social values and dependency on government.
Once again this morning, the BLS employment release tells conflicting stories depending on whether one looks at the unemployment rate or job growth. The U.S. unemployment rate fell from 8.3% in July to 8.1% in August, continuing the gradual three-year downward trend (from its 2009 peak at 10 %). Political economy equations often say that the direction of movement of the unemployment rate in the period preceding a presidential election is the main economic determinant of whether the incumbent is re-elected.
I have argued that the best way to think of “black swan” events is as developments that, even though low-probability, can in fact be contemplated ahead of time. Even if they are the sort of thing that has never happened before within an analyst’s memory, similar things may have happened before in the distant past or in other countries.
What current possible shocks have probabilities that, even if fairly low, are high enough to warrant thinking about now? Some have been discussed ad infinitum, others hardly at all.
Throughout history, big economic and political shocks have often occurred in August, when leaders had gone on vacation in the belief that world affairs were quiet. Examples of geopolitical jolts that came in August include the outbreak of World War I, the Nazi-Soviet pact of 1939 and the Berlin Wall in 1961. Subsequent examples of economic and other surprises in August have included the Nixon shock of 1971 (when the American president enacted wage-price controls, took the dollar off gold, and imposed trade controls), 1982 eruption in Mexico of the international debt crisis, Iraq’s invasion of Kuwait in 1990, the 1991 Soviet coup, 1992 crisis in the European Exchange Rate Mechanism, Hurricane Katrina in 2005, and US subprime mortgage crisis of 2007. Many of these shocks constituted events that had previously not even appeared on most radar screens. They were considered unthinkable.
The Supreme Court today upheld the Affordable Care Act of 2010, otherwise known as Obamacare. Judging from the polls, American public opinion appears to be very sharply divided over the legislation. Some view it as socialism, others as the first success in a half-century of efforts to achieve a sensible national policy on health care.
What explains the wide divergence of views? An economists’ approach – cynical or naïve depending on how you look at it – would be to assume that citizens vote according to their own personal interests. Getting the uninsured onto paid insurance through the individual mandate is very much in some people’s interest, but not necessarily as strongly in others’ interests. Let’s take a look.