Let’s Make the Politicians Take Economics 101

August 27, 2008 by  
Filed under Economics, Money and Behavior

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?

Exactly what does it mean when one U.S. Senator says that another U.S. Senator is “out of touch” on the economy?  (Obama also said that McCain “just doesn’t get it.”  Wow – that zinger really drives the point home, doesn’t it?)  Don’t these Senators work in the same organization, read the same committee reports, hear the same speeches from their colleagues?  Yes, I am afraid they do.  And it hasn’t taught them anything about the real worlds of money and finance.

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.

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11 Responses to “Let’s Make the Politicians Take Economics 101”
  1. MasterPo says:

    Well said. Politicians live in a vaccum when it comes to public economic policy.

    I’d go further and ask them to explain (justify) their own personal investment and money management approach vs. what they are proposing for the country. Shouldn’t they practice what they preach?

    ps- What’s so wrong with McCaine’s gas tax proposal?

  2. The problem with McCain’s gas tax proposal in that is a raw attempt to buy favor with voters but does nothing to solve the underlying economic problems. Same with Obama’s idea.

    And I agree with you – they definitely should practice what they preach.

  3. That article is such the truth. I’ve been so sick of politics recently. And the reality of it is that it doesn’t matter what the politicians say during the campaign because they will most likely do something different when they get into office.

    I voted for Bush the first time due to a few key policies he wanted to see go through. Unfortunately those things never were even brought to the table. Now I’ve basically given up on caring who to vote for. It’s not even a “lesser of two evils” type of vote anymore. Both candidates are just puppets.

  4. Wise – Not caring about the election is a natural reaction and one that I fight constantly. It has tempted me to become a libertarian because it’s philosophy is essentially “just leave me alone.”

  5. MasterPo says:

    Being libertarian/”just leave me alone” is as good as putring your head in the sand. The system isn’t going to radically change overnight without a revolution and I don’t think anyone is really seriously considering that (save for a few nuts in the Northwest). So like it or not this is the system that’s going to be around for some years to come. You may not like it but if you don’t participate you have no leg to stand on to complain about policies later.

    On another note: Politicians (and most people too) don’t understand that the economy and person’s financial decisions aren’t static. They are dynamic. They change with the environment. So when the pols salivate at the idea of raising taxes on something and all the money they will get from it, they don’t realize that people will just stop buying/doing whatever it is and all that tax revenue won’t materialize.

  6. Matt says:

    I would love to see this happen. Sadly, it never will.

    The last time politicians spoke the truth about the realistic nature of our economy was Jimmy Carter in his infamous “malaise speech” regarding our reliance upon foreign oil. Obviously, he was replaced and we haven’t had a political speech to talk tough money love since. These days, we get force fed optimism in every mind numbing political rant and they’re hardly worth listening too. Ex) how many times did Hillary say she would be the Dem’s nominee during her campaign? Too many to count.

  7. I actually have voted Libertarian for a while now. I haven’t done so in the Presidential elections yet but I’m thinking I’m going to be doing that pretty soon. I already know McCain will likely win Arizona (barring something really stupid), so my vote is less effective either way. I might as well vote 3rd party to work towards changing the system a little.

    I vote because it’s my duty to vote, but it’s been getting so disheartening these days. It seems like the only votes that really count nowadays are the ones with the largest bank accounts.

  8. It can also be said that “politicians just don’t know anything at all about taxes!”

    Congressman Rangel’s attorney said of the House Ways and Means Chairman’s recently reported failure to report rental income on his 1040 that Rangel “did not realize he had to declare the money as income”. Isn’t the Ways and Means Committee the one that deals with tax legislation?


  9. Robert: Thanks for your comment. Charlie Rangel scares me. He has said many times that he has “the mother of all tax bills” ready to go if a Dem is elected to the Presidency.


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