Inevitably, the economic policy will play a major role in voting decisions, but wise voting and wise policy require us to recognise two central, almost contradictory, truths about the government and the economy: economic policy does affect people’s lives and the economy, and, less obviously, most of what happens in the economy has little to do with government policy.
A company’s Chief Executive typically enjoys plenty of control over employees and operations, which makes it natural to judge that executive on the company’s performance.
Our president doesn’t really control the government, much less the vast private sector that really determines national economic performance. It is unwise to assign either President Obama, or President Bush, too much responsibility for our current economic troubles.
Elected officials have a strong incentive to overstate the great things that they will accomplish or the bad things that will follow their enemy’s election; they’ve got to persuade people to show up at the voting booth.
Listening to the Democrats, you’d think that a Republican-controlled House of Representatives would plunge us into a new Great Depression. Listening to the Republicans, you’d think that their victory would save us from a continuing Obama-exacerbated recession.
Voters certainly seem to have been persuaded by these sorts of arguments. The groundbreaking work by Ray Fair of Yale on predicting elections overwhelmingly documents the link between economic growth and the share of votes received by an incumbent president. At the state level, governors are also re-elected when the state economy is doing well, both in absolute terms and relative to the nation.
But research by Justin Wolfers of Wharton on state-level elections also finds that voters respond to economic shocks that clearly had nothing to do with their governor. No matter how wonderful the governor of Texas or Louisiana may be, it is implausible to think that their actions boosted the international price of oil.
Yet when an increase in oil prices causes the economies of oil-producing states to boom, voters are more likely to re-elect their governors; when oil prices plummet, voters in oil states are more likely to oust their incumbents.
Is it any more rational for national voters to believe that presidents can determine the unemployment rate? Monetary policy is the one public activity that is routinely found to affect the economy, but even its ability to explain the business cycle is modest.
We still need to have more reasonable expectations. There are plenty of good reasons to dislike and like the administrations of President Bush and President Obama without blaming either one for the current unemployment rate.
(The writer is an economics professor at Harvard.)