Yes, Politicians Do Matter In Our Economy


The other night, I linked to my friend Hannah’s very interesting piece about some areas where data influenced her life. It’s actually probably the most interesting thing I’ve read this week. One piece in her piece that I did not agree with was her estimation of the influence of politicians on the economy. She writes:

  1. Politicians have very little influence over the economy and business cycle. The less you rely on politics or ideology for your understanding of economics, the better off you will be. Even the Federal Reserve Bank doesn’t really understand how one thing in the economy directly affects another. Goldman Sachs doesn’t know. Hedge funds do no better than random chance at picking stocks. Those are the experts, and they don’t know. What makes you think a politician giving a speech can do anything about the unemployment rate, the national debt, GDP growth, or any other figure that tracks economic activity? Go ahead, write your Senator. They can’t do anything. They cannot change the interest rate or do anything about the business cycle. They’re probably just as frustrated as you. Factor in the nature of the global economy and the poor level of transparency from other sizable trading powers and there is really very little anybody in Washington can do to just “fix” the economy. It sucks, but it’s true.

There is macro, micro, and semi-macro economics. Macro is obviously the broader economy, micro is smaller sector and individual decisions, and semi-macro is a term I made up to define the in-between. Obviously government has some limitations with micro-economic policy and how much they can influence a stock. Even on the macro level, there are influences, such as China melting down right now, that are beyond the control of Congress.

It is an over simplification to say that government policy, and therefore the decision makers in government, don’t matter. First off, if that were true, I doubt we’d see billions of dollars spent on elections by outside groups and individual donors. Second, policy clearly does impact economic players. I don’t think that shifts towards alternative energy, especially solar, have been unsuccessful in moving the economy that way. I don’t think that broader based tax policy doesn’t effect the economy. Sure, there are lots of other factors in the economy, and some of them are beyond the influence of policy makers. It’s a bit much though to say that government doesn’t effect the economy.

I suppose this is about how you view “the government.” Individual Senators, and even Fed Board members, don’t implement policy on a day-to-day basis. They don’t get to make the decisions on a day-to-day basis. Congressmen only get to write laws. Clearly though, those who live within the economy care about those laws, based on the amount of money that infiltrates the process. Hannah is correct that the government can’t just “fix” the economy on it’s own, but they can do a lot to change the conditions within the market. That’s influence.


One Response to “Yes, Politicians Do Matter In Our Economy”

  1. […] now I’ve linked to my friend Hannah’s blog two times, and yet I still have more interesting stuff to touch on from it. Even after this piece, I have one […]

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