Sunday, October 19, 2008

Can a President Affect the Business Cycle? Yes.

The excellent graphic in the New York Times yesterday asked: "Can a President Tame the Business Cycle?" Provocative. Draws attention to the graphic. But it's like asking "Can a President End Poverty?" Unfair. Invites a shrug of the shoulders.

The text accompanying the chart - which depicts the consequences of the economic policies of rec ent presidents - asks a more reasonable question:
Today, Americans save less and earn a lower minimum wage — in real, or inflation-adjusted, terms — than at nearly any other time since 1950. Can voters reasonably expect these and other indicators to change significantly after a new president takes office in January?

But the appropriate question is not whether one can always “tame” a tiger. It is whether we have to feed people to it.

Voters reasonably can expect better policies than the disastrous laisser-faire policies of the last eight years.

By ignoring the unsustainable runup in asset values (especially housing values) that occurred under George W. Bush, recent policies have invited the collapse of these values in recent weeks. In Keynesian terms, Dubya had the furnace running during the month of August. Allowing and encouraging the extreme increase creates the probability of an extreme correction. Dubya is responsible for the economic hardships and inefficiencies that accompany the correction.

Starting in January under President Obama one can expect a move toward less inequality of income and a less extreme business cycle.