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Brooks Wilson's Economics Blog: Political Vs. Economic Outcomes

Wednesday, October 6, 2010

Political Vs. Economic Outcomes

Peter Beinart’s article, “How the GOP Could Blow It,” published the Daily Beast exemplifies a problem that I have with much of the news published by corporate media.  For every article that focuses on the economic consequences of an event, ten focus on the political consequences.

I do not mean to pick on Beinart.  I found his article as I was considering the exaggerated importance of political consequences of events relative to the economic consequences.  Beinart is a professor of political science and I teach economics.  His interest is shaped by his education and taste as is mine.  He should focus on his expertise as should I.      

Why do so many article focus on the political consequences of events and not the economic?  Maybe news producing corporations don’t understand the market and they would make more money if they focused more on reporting likely economic consequences.  This is dangerous territory for someone who believes that markets are efficient.  News producing corporations are market driven and probably select their news content based on what sells and not what an economist would like to read or thinks that people should read.  News producing organizations have a better idea of what drives their bottom line than I do.  My beef then is with consumers who do not prefer the news that I would prefer for them.Why don’t consumers want to read more about the economic consequences of news events?  Three answers come to mind.  First, consumers are illiterate about economics.  Second, there are so many contradictory views that it is impossible to conclude which ideas won and which lost.  The stimulus debate may fall into this category.  Economists’ opinions range from it didn’t work to it didn’t work because it was too small to it worked wonderfully because we would have had 14% unemployment without it.  Conversely, determining political winners is easier.  Two years ago, Democrats won and this November, Republicans will.

Meanwhile back at the ranch, Beinart argues that an anti-government Republican electoral victory followed by promised budget cuts will result in electoral losses shortly thereafter because the American middle class loves its entitlements.  I fear that Beinart is correct.  Although I am out of my area of expertise, I also believe that a similar conclusion to Beinart’s can be written for the Democrats.  The pro-government electoral victory of 2010 followed by higher taxes to pay for expanded entitlements is the cause of the pending electoral defeat of Democrats in 2010.  Voters want benefits but don’t want to pay for them. 

The economic result of the political stalemate is unsustainable deficits and an eventual debt crisis.  We will not be able to use time as a fulcrum to leverage change.  When push comes to shove, we will probably follow the European model by cutting benefits and raising taxes.

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