Saturday, May 5, 2007

Our next president

No, I'm not going to make any predictions, nor am I going to laud my favorite candidate.

I met two economists today, and we got into an interesting discussion. Eventually, they asked me the question, "Should our next president be a monetarist or a fiscalist?"

Caught off guard, I offered a throw-away answer, a joke. They chuckled. But the question isn't so easily answered. The terminology was easy enough to see through--should our next president try to use monetary policy or fiscal policy to keep the economy on its feet?

The question, of course, is inherently flawed. The president does not have direct control over either set of policies. Monetary policy is controlled by the Federal Reserve, and fiscal policy is the domain of congress. That is, of course, academic, and avoid the issue. Regardless, the president has sway--potentially strong sway--over both organizations, and thusly the policy it produces. Still: should our government try to use fiscal policy or monetary policy to keep our economy strong?

The answer I ended up going with was a monetarist. It's a good answer, and I think I want to stick with it. In the long run, there is evidence to show that fiscal policy has a minimal effect on the economy. That, in the long run, it's all a wash. So, monetary policy is the way to go, and thus was the support for my answer. Solid support, and the couple I met showed their approval with smiles and nods. I think we all made a fatal assumption, though: that our next president would know how to properly use said policy wisely. Maybe a fiscalist president is a safer bet for the country.

I haven't taken the time to do the research, but I wouldn't be surprised if we've never had a president with a degree with Economics.

I know, your faces are filled with shock.

This leads to a question I've been pondering: why is fiscal policy so weak? Shouldn't it make a difference where billions of our dollars are going every year?

The answer is, of course, yes.

So what am I getting at? Over the long run, our politicians go back and forth between policies. Sometimes it's a Democrat running things, other times it's a Republican, and it's certainly never the same. Back and forth, over time, it's a wash. A post-1900s president with nothing but good economic policy is hard to find, and he'd also be pretty unpopular. Go figure. More than that, most politicians (and congressmen) don't know anything about economics at all. Monetary policy is a different story. They, at least, have some training in their field. More than that, governors of the Fed tend to last for a pretty long time. Fed governors have a pretty decent track record past the Great Depression. Congress, on the other hand, is notorious for horrendous fiscal policy on all sides of the political sphere.

If the controllers of fiscal policy were not only educated, but rigorously tested in their fields and tenured (that is, they don't have to worry about politics as much), then fiscal policy would probably be much stronger. Moreover, the strength would probably lead to it making a difference and helping the economy out.

A novel idea, to be sure.

So, as it stands, I'm for a monetarist president, based on the overly optimistic assumption that the president will know what he's doing. Would a fiscalist president help? It would to some extent, though congress has too much power to let a fiscalist president have too good a time.

My initial response, though, was probably the best.

"We just need any economist."

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