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April 24, 2007

"Republican" economic policy vs. "Democrat" economic policy

From time to time we see attempts to compare how well the economy has performed under Republican presidents versus Democrat presidents. An example is this multi-entry extravaganza at Angry Bear. Michael Kinsley's analysis is here.

I've always thought such comparisons are at best extremely problematic and at worst completely useless. The problem is that most of the stupidest government actions have short-term benefits, but their large, painful costs don't appear until years, even decades, later. Inflationary pressure that begins late in LBJ's presidency becomes something Nixon has to deal with. Serious inflation under Carter becomes something Reagan has to deal with. Underfunding of defense and national security under Clinton becomes something GW Bush has to deal with.

Another example: it's taken almost 40 years for the bill from the dopey unindexed AMT to come due but now it has. While there's a certain grim satisfaction in watching Democrats from high-tax states try to fix the AMT, especially given their announced pay-as-you-go reform, it really isn't funny.

But perish the thought that I am partisan about this. This post is prompted by a Wall Street Journal editorial (may require subscription) about the action of a Republican governor. Florida governor Charlie Crist, in combination with a Republican legislature, enacted a

. . . "reform" designed to lower the price of insurance by making the state a larger player in the market and undercutting private insurers. The new law allows state-run Citizen's Property Insurance -- intended to be an insurer of last resort -- to compete directly with private companies. . . .

Large numbers of homeowners are now turning to Citizen's, which itself is only able to offer lower premiums because of its implicit taxpayer guarantee, and because its actuarial assumptions reside in la-la land. Citizen's likes to say it will have $8 billion with which to pay claims, but it rarely notes that much of this is a line of credit. Between such credit and its bonding authority, what Citizen's really has is the potential to rack up huge liabilities that will have to be paid by someone when the next storm surge comes ashore.

Right now Crist looks like a hero. But if some future governor--maybe a Democrat--has to confront a staggering cost from this foolish policy, will that governor be responsible?

At the very least, such "Republican vs. Democrat" comparisons should be computed on an almost program by program basis. Which would be enormously difficult. And which I haven't seen done.

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Ted Craig

Of course, all this assumes the government has a much larger impact on the economy than it probably does. For example, the glory days of Kennedy-Johnson were a time when U.S. auto companies controlled more than 80 percent of the U.S. market.

Richard

FYI - You can get free access to that Wall STreet Journal article with a free Netpass from http://www.congoo.com

This was on the news yesterday

david foster

Yeah, these comparisons fail to consider the time delays between decisions and their effects. An economy is like a large ship--you can call for "full right rudder," but it will be awhile before the course actually changes significantly.

"Selling the tracks" is an expression sometimes used in business in reference to those who show short-term results by harming the future of the enterprise. It's probably easier for a leader to get away with selling the tracks in government than in business--even though it happens plenty in business--because of the absence of accrual accounting and a market discounting mechanism in the former.

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