It’s not always the economy, stupid

By Edward Hadas
January 11, 2012

“It’s the economy, stupid.” The words date from Bill Clinton’s 1992 presidential campaign, but the basic idea that political shifts are the visible manifestations of hidden economic developments was first articulated by Karl Marx, who wrote before the word “economy” had its current meaning. When he declared, in 1848, that “The history of all hitherto existing society is the history of class struggles,” the notion was truly revolutionary. It has become a commonplace. Pundits ferret out economic causes for everything, politicians strive to present voters with economic good news, and careful studies show that economic trends influence elections.

Like most often-repeated generalizations (“Germans are orderly” or “an army marches on its stomach”) the claim that politics is fundamentally about economics has some truth to it. But I think pundits, politicians and voters would all benefit from a bit of revisionism. It’s not always the economy, and when it is, politicians cannot do much about it in a hurry.

Start with the expert commentators. I’m thinking of the people who confidently declare that the Arab Spring was caused by the increased cost of food. Or the ones who explain the poor performance of Vladimir Putin’s party in the recent Russian parliamentary election as a reflection of stagnating average incomes. The invasion of Iraq? It was the oil, stupid. The rise of anti-immigrant parties in Europe? Look no further than the job market.

Such claims cannot be disproved, since they concern motivations which are unknown to the actors themselves. I may “think” that I want to get rid of a kleptocratic government or that I’m uncomfortable with the president’s autocratic tendencies, but I’m just being, well, stupid. Idealism and xenophobia are mere covers for a calculation, possibly erroneous, of economic self-interest.

But it is the pundits who are being simple-minded, if not devious. Most of the leaders of the Arab revolts had prospered under the old regimes, and the recent elections in Tunisia and Egypt have been won by parties with a clear religious agenda but only vague economic plans. When protesters say they thirst for justice and when voters indicate they desire holiness, there is no good reason to think their stated views hide a more ignoble reality. An excessive focus on economic issues makes the pundits unreliable guides. They should remember that economic issues are sometimes crucial in people’s lives, but more often not.

Politicians do need to worry about the economy, if only because government spending in the G7 group of rich countries was equal to 45 percent of GDP in 2011, according to the OECD. The political decisions on how those sums will be extracted and spent – not to mentions the laws and regulations that shape the private economy – are crucial for the economy and important for the nation.

Politicians too often exercise their economic responsibilities in an irresponsible way. It takes years for policies that encourage investment, innovation and employment to bear fruit, but leaders often focus on creating enough good news to win the next election. That often leads them to increase fiscal deficits. These may seem painless for a while, but eventually politicians have to choose between fiscal austerity, which makes them unpopular right now, and continued fiscal recklessness, which will wreck the economy quite soon. Greek and Italian politicians were not up to making the choice. The best they could manage was an agreement to let non-political, technocratic governments introduce sensible but painful policies.

There is a better way. Politicians should stop trying to work economic magic. That means they should admit — publicly and loudly — that the only sustainable way to produce desirable statistics on incomes and unemployment in any month is to have made the right decisions many years ago. Consistent and sensible economic policy is the best support for durable prosperity.

Of course, politicians behave the way they do largely because voters seem to demand it. The American political debate is particularly disheartening to anyone with a minimal knowledge of economics. The nation’s combination of high fiscal deficits, stimulative monetary policy and a persistent trade deficit is an invitation for disaster, but neither Democrats nor Republicans are willing to admit it. They are following polls and focus groups, which tell them recklessness is all right.

The irony is great. If politicians were willing to teach and voters to learn, governments could put their economic houses in order. Of course, the transition would be much easier if politicians had not spent decades putting off virtuous behavior until after the next election, but in a rich country such as the United States the pain of getting policy right would still be modest, especially in comparison to the woes that will come whenever foreigners stop funding the government. Then it really will be the economy, thanks to some remarkable – and avoidable – stupidity.

PHOTO: Workers place construction chains at the Karl Marx sculpture of the Marx-Engels monument in Berlin, September 8, 2010. REUTERS/Tobias Schwarz


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So we can’t just keep voting for our own raises?

Posted by OneOfTheSheep | Report as abusive

The decision to export US jobs was made under the Clinton and Bush administrations. The decision to blow the housing bubble belonged to Bush. Corporate America with its’ focus only on profits provides a pretty good foot shoot. And wallstreet greed distroys any goodwill that the brokers seek to gain. You can’t pass laws that put fellowship and statemanship into people. A quality product must be provided before advertizing and profits are considered. Products and services must do the job and have an adequate lifetime. Making people buy the new model because the manufacturer does not provide the service and parts for the old one wastes time, money, and resources. We need a new direction for the United States, and Obama has shown that, ” he ain’t it”

Posted by fred5407 | Report as abusive

What annoys me is the excessive focus on GDP (legal economic activity). If we didn’t have large national debts to pay down, and if we stopped to think about what we really want, we might be more like Bhutan, where they talk instead of “Gross National Happiness”.

There is a solution to this tail-chasing behaviour.

Gordon Brown showed us the way when he made the Bank of England independent, accountable only for a narrow range of outcomes. He washed his hands of the responsibility for setting interest rates, and left that work to full-time economists. Ever thereafter, none of his political opponents could accuse him of having set the wrong interest-rate policy… Nobody criticised Mr. Brown for doing this: it was obviously for the good of the country.

Similar work is now being done by the UK Conservative Party with the new OBR (Office of Budget Responsibility), which is supposed to be an independent forecasting body that guides what politicians are allowed to spend in any given time period.

There are various other bodies that are widely respected, such as the Institute for Fiscal Studies. The Audit Commission did a wonderful job, but for some reason (probably to do with it being staffed by many former Labour Party politicians) the Conservatives shut that down. There should have been more of a public outcry over that in the UK.

We have most of the data we need now. What we need is technocratic bodies, charged with publishing realistic assessments of those data, to be placed on an almost equal footing with elected leaders (which they naturally will be, since opposition politicians will use the published data to hold their governments to account). Then, the politicians can rest well in their beds, knowing they’re less likely to be personally blamed for the foibles of the global free market, with all its fickle waves, tides and tsunamis…

They can instead stay on the territory where they’re most comfortable: ideology, and the continual rebalancing of the system so as to maintain fairness and productivity.

Posted by matthewslyman | Report as abusive

Mr. Hadas,

While I agree that, “consistent and sensible economic policy is the best support for durable prosperity”, you quite coyly do not state exactly what that policy might be, leaving your readers to wonder what “pearls of economic wisdom” you have.

One might expect at least a “eureka, I have it”!

But instead, you slip back into the guise of those “pundits who are being simple-minded, if not devious” that you apparently despise, and choose to disclose your “secret remedy” (one size fits all) near the end of your article.

I would venture that, per your website, since your background “before becoming a journalist in 2004, (you) worked for 25 years as a financial analyst for various firms, including Morgan Stanley and Putnam Investments”, and your “eureka solution” for the US economy is stated thus (couched in terms that would make a politician justifiably proud).

“Of course, the transition would be much easier if politicians had not spent decades putting off virtuous behavior until after the next election, but in a rich country such as the United States the pain of getting policy right would still be modest, especially in comparison to the woes that will come whenever foreigners stop funding the government. Then it really will be the economy, thanks to some remarkable – and avoidable – stupidity.”

Furthermore, while you have “degrees in philosophy, classics and mathematics from Oxford University and Columbia University and an MBA from SUNY Binghamton”, I do not see a PhD in economics, nor any other indication that have actually worked in the field, and so I doubt you really understand what you are touting (to the US, of course, but not the UK where you reside, as in “do as I say, not as I do”).

Working as a “financial analyst” for some of the most egregiously greedy people in the world, in my mind, certainly does NOT qualify you to give economic advice to the “rest of us”.

I assume, therefore, that by “in a rich country such as the United States the pain of getting policy right would still be modest”, what you really mean is for the US middle class to follow the path of the eurozone into disaster by forcing them to pay for what the wealthy have done to them, with the highly probablee result of a collapsed economy or “indentured servitude” to the wealthy class, for not only thier lives but the lives of their children as well.

Since your “advice” would clearly put the US into the same position as the eurozone and into the clutches of wealthy bankers — including people like you who are one of those ultimately responsible for having caused this worldwide economic collapsed, and have clearly prospered at the expense of everyone else in the global economy — I think it economically prudent for the US to avoid your “advice” and not make the same mistakes as the eurozone.

Stated plainly, your “simple-minded, devious advice” would cause the US economy to contract into another recession, or worse. And the only “pain of getting policy right” would mean our economic problems would worsen exponentially as the wealthy became “landed gentry”, and the rest of the US population sank into 3rd world poverty and misery.

Thanks, but no thanks!

We have already made enough mistakes on our own by bailing out the wealthy class — and continue to do so — in our own country. The real problem we have in this country is that Americans do not understand what Karl Marx said in 1848, that “The history of all hitherto existing society is the history of class struggles” is, if anything, much MORE RELEVANT today than it was in his time.

By the way, your use of tired cliches to illustrate your (erroneous) point is lacking a complete range of those dealing with money, like the wealthy favorite employed early to those not in their class, “money cannot buy happiness”. Really? Then all you wealthy people out there must be completely miserable.

I have a suggestion for you to relieve your misery. How about paying your fair share of taxes so this country doesn’t soon collapse? Your present tactics of attempting to force the shrinking middle class into paying your debts is clearly disingenuous and reprehensible.

I could literally write a book on what is wrong with your article and your entire point of view, Mr. Hadas, however neither time nor space permits it. But I could suggest you “go home” and peddle your remedies in the UK. Perhaps, you might find a more receptive audience there, but I doubt it. Though born here, you evidently prefer the class structure of the UK more than the US, so why not stay there permanently and leave us alone. We certtainly do not need advice from people like you, since we have enough devious people here to mislead us — perhaps, we might actually be over our quota, judging by how this country is being run currently.

One final comment on your choice of a title for this bit of propaganda, it should read “It’s ALWAYS the economy, stupid!” And its ALWAYS the wealthy class, who thinks ONLY in terms of money (i.e. the economy), that is always trying to convince everyone else that it money doesn’t matter — especially when the economy, in terms of the average person’s standard of living — ALWAYS matters, and is crucial to having even a modicum of security in this life.

Again, stated simply, you are “dead wrong” in your premise — EVERYTHING DOES flow from the underlying economic decisions a country makes, and if you understood economics as you claim, you would know that.

Your article is nothing more than a blatant scam that would make any politican proud.

What the American people really need right now is TRUTH, not more wealthy lies. If politicians told the “truth” as you advise, then the American people would understand clearly that our problems stem directly from the excesses of the wealthy classs, and “it really (is) the economy, thanks to some remarkable – and avoidable – stupidity” by the wealthy class.


p.s. one personal comment from me to you — economics is a “science”, and not some “moral philosophy” as you seem to think. The moment you introduce (per your website) a “moral and ethical basis for economics”, it ceases to be a “science” and becomes a “quasi-religion”, which is then subject to manipulation by people like you for their own gain.

Posted by Gordon2352 | Report as abusive

I am a small business person in manufacturing in the US that cannot agree with you more, Mr. Hadas. What you are talking about in this article is political courage, which is, of course, an oxymoron. I am 51 years old, jaded and cynical, and I have lost all faith in the hope that politicians will ever sincerely act in the best interest of ALL citizens without their own best interests at heart first.

True leadership demands that tough decisions be made even if it upsets some people. Leaders understand that they cannot make everyone happy and they accept the unhappiness some folks will undoubtedly express. Yet, they also understand that the tough decisions being made are for a greater good when others cannot see it. Leaders do not lead to win popularity contests, which is just what every election is.

Our elected leaders would stand up and say that that is exactly what they do. Yet, and, I speak for myself when I say this, I have not recognized any aspects of the definition above in any of the politicians I have seen lately.

The incumbent president will likely win this election. Even politicians know it is difficult to beat an incumbent and the candidates currently vying for the GOP nomination still leave much to be desired. Too bad, isn’t it.

Posted by alwayslearning | Report as abusive

@Gordon2352: !

Do you mean, morality (right and wrong) is irrelevant to economics? Or that the “science” of economics excludes the balance between the long-term public good, and the short-term imperative for re-election?

Rather than writing a book on what is wrong with Mr. Hadas’s article, may I suggest for you to write a book on the science of economics as you see it?

Posted by matthewslyman | Report as abusive