November 2, 2000
In several recent presentations, I have been asked if the election really matters to the economy. I normally quip that if elections do not matter, then why have them. I then normally paraphrase one of my favorite book titles, "If the gods meant for us to have elections, they would have given us candidates."
Nevertheless, the question about the importance of elections on the economy is one that requires some consideration. Normally, the person asking it believes that economic decisions and economic conditions are what are responsible for the economy, not political decisions. They want to believe that the 22 million jobs that were created in the past eight years had nothing to do with Washington. The rapid economic growth and strong productivity gains are assumed to be the result of the exploitation of technology and risk taking, not politics.
There is little doubt that economic growth in excess of 4 percent for the past three years with little change in inflation and an unemployment rate below 4 percent could not have been achieved without developing the new economy and exploiting new computing and communications technologies. The best decisions by Washington without access to that technology probably could not have achieved that record. Some pundits have argued that Bill Gates deserves more credit for the good economy than Bill Clinton.
Certainly, Bill Gates has received more rewards from the good economy than Bill Clinton.
However, to acknowledge that any economic growth path cannot soar more than our technological development will allow is to accept the obvious without addressing the issue of whether government policies have anything to do with how well we perform for any given technology.
A hint is provided by comparing the performance of economies around the world. To be sure, some infrastructure is necessary to exploit the body of knowledge that is available to all nations. Nevertheless, few advanced countries, who presumably have adequate infrastructure, have performed as well as the U.S. in the past decade. Growth in Europe is averaging more than a percentage point behind the U.S and unemployment remains at high single digit levels.
Japan has been struggling to break out of stagnation for the entire decade. Most of the Asian tigers are again growing, but only after a serious setback in 1998 and early 1999. Where we are finding consistent growth, such as in China or India, the development of infrastructure in a backward economy gets more credit than the exploitation of knowledge (although India shows some impressive stirrings).
In short, perhaps there is something different about the U.S. than other countries that cannot be explained by technology alone.
This still does not mean that policies in Washington should get the credit. Maybe our infrastructure in distributing capital is more advanced than in the rest of the world. Certainly, our capacity to exploit equity financing to develop new enterprises exceeds anything else in the world. Maybe this is what should get the credit that technology alone cannot garner.
And yet, I am reminded that currency traders examine government policies before they make their judgments about how to hedge currencies. International investors begin with policies in determining where they should send their next investments. They clearly believe that government policies matter.
Most economists believe the same. We are not predetermined by decisions in a market economy to arrive at the economic destinations that occur. Washington's decisions matter. Elections can alter those decisions. Therefore, they also matter.
When Thomas Jefferson was musing over the best form of government, he concluded that periodic revolutions were good for government. Obviously, actual armed conflict could not be good. Therefore, elections that were recognized by all as binding before they were held was what he thought was best.
There has been some corruption of that election process. Too many policies are designed to gain voting blocs rather than provide for the common good. Sometimes the electorate ignores the long run in seeking current benefits. Unfortunately, we too seldom ask what we can do for our country but expect our country to do something for us. Nevertheless, most Americans still think that Thomas Jefferson had a good idea.
Maybe we don't have "candidates" but the winner will be our President and that President's proposals and their disposal by our newly elected Congress will alter economic conditions. Yes, elections matter, and that should be enough incentive for virtually all registered voters to take some time to cast their vote.