Let’s Make the Politicians Take Economics 101
Senator Obama said in a speech yesterday that Senator McCain is “out of touch on the economy.” I wonder who wrote that killer line? That got me thinking again about the competence and clarity of our politicians when it comes to matters of economics.
Do Our Politicians Know Anything About Economics?
Mr. ToughMoneyLove isn’t going to say that our politicians are “out of touch” or “just don’t get it” on matters of the economy. No, the hard truth is that our politicians just don’t know anything at all about economics. I think that makes my position quite clear.
I am not picking only on today’s politicians. Some of you may remember this famous quote from President Reagan some years ago. He was asked the difference between a “recession” and a “depression.” His answer went something like this:
A ‘recession’ is when your neighbor loses his job. A ‘depression’ is when you lose your job.
Now many will say that this is just the way that politicians talk, to show their empathy for the working man. That may be true. But I don’t think that any politician could answer that question with any more accuracy than did President Reagan.
Let’s also not forget that in the present campaign, both Obama and McCain have come out with some real doozies that exposed their own economic ignorance. To wit:
Obama: Let’s give a $1,000 “emergency rebate” to consumers. This rebate will be paid for by taxing the “windfall profits” of oil producers.
McCain: Let’s have a “gas tax moratorium.”
You may also recall that not a single economist had anything positive to say about either of these goofy ideas. Most of them were scratching their heads, trying to figure out which poli sci campaign intern thought these ideas up and convinced Obama and McCain to spit them out. You also will recall that neither Obama nor McCain bothered to introduce legislation that implemented these great ideas of theirs. That would have been embarrassing for everyone involved.
Let’s Give Them This Basic Economics Test
I think that every politician should be given a short test in basic macroeconomics. In fact, I have prepared such a test, along with answers that I believe that an economist and politician would give to a few questions. It would go something like this:
Question 1: Who was John Maynard Keynes?
Economist: Keynes was a British economist who is one of the fathers of modern theoretical macroeconomics. Keynes advocated interventionist government policy, by which the government would use fiscal and monetary measures to offset adverse effects of recessions, depressions and booms.
Politician: If Keynes were famous and alive, I would know him. I’ve never heard Keynes’ name which means he must be dead. If he is dead, he can’t vote. If he can’t vote, I don’t care who he is.
Question 2: Who was Milton Friedman?
Economist: Milton Friedman was a Nobel prize-winning American economist best known publicly for his libertarian philosophy that stressed the need to minimize the role of government in favor of the private sector. Friedman was a “monetarist” who disputed Keynes ideas of the government using “fiscal policy” in regulation of the economy. Friedman instead favored the government’s use of “monetary policy.”
Politician: Milton Friedman? Isn’t he my assistant campaign treasurer?
Question 3: What is meant by government “fiscal policy” and “monetary policy”?
Economist: “Fiscal policy” is when the government adjusts its levels of taxation and spending to stimulate or slow down the nation’s economy. The government is using “monetary policy” when it controls the supply or cost of money in the banking system and in the open markets to regulate the economy.
Politician: My fiscal policy is to have the government take money from the people who probably won’t vote for me and give it to the people who probably will vote for me. My monetary policy is to say and do what is necessary to increase the flow of money donated to my campaign fund.
Question 4: What caused the market crash and Great Depression of 1929?
Economist: There are different economic schools of thought on this, but many economists believe that the Federal Reserve’s overly restrictive monetary policies caused both events.
Politician: This is an easy one. What happened was this: I wasn’t President then. If I had been, the crash and depression never would have happened. So vote for me.
Well loyal readers, could you have passed this economics test? Do any of you know any politicians who could pass Economics 101? If so, Mr. ToughMoneyLove wants their names. I’m not holding my breath.