Worlds Apart

The chronic clash between sound economics and good politics frustrates economists who venture near the political world. Much more important, it often blocks the road to better policy. The chasm is wide and won ' t be fully bridged. But with much effort and a modicum of goodwill, we may be able to shrink it.

Let me start by dispelling a myth. Perhaps because economists are frequently trotted out to support or oppose policies, perhaps because we have a Council of Economic Advisers right in the White House, perhaps because most powerful central banks are dominated by economic thinking, many people believe that economists have enormous influence on public policy. In truth, they don ' t.

In a book seven years ago, I argue that economic policymaking often adheres to the Lamppost Theory: Politicians use economics the way a drunk uses a lamppost-for support, not illumination. Economists and politicos-by which I mean not only politicians, but the entourage of advisors and message meisters who surround them-hail from different civilizations. They speak different languages. They define success differently. They have dramatically different time horizons. They even employ different logic.

Political logic

I once thought " political logic" was an oxymoron. Many economists still do. But I ' ve learned there is a logic in politics that I ' ll illustrate with a trivially simple arithmetic example.

Imagine a tax break that would yield $1 million in gains for each of 10 people but cost 20 million people $1 apiece. Economic logic clearly counts this as bad policy. To pursue it, there would have to be some persuasive noneconomic reason.

But political logic is different. The 20 million people who lose $1 apiece will barely notice. The 10 million-dollar winners, by contrast, will not only notice this newfound largesse but will be grateful to the politicians who bestowed it. To the politicians, the gains in terms of support, campaign contributions, and the like will dwarf any political losses. Only the most highly principled politician would resist such a trade-off.

This illustrates why so many policy decisions seem so wrong to economists, not just in tax policy, but also in trade policy, regulation, antitrust, and many other areas. It would not help much, by the way, if the politicos understood economics better. Economic and political logic often point in opposite directions, and politicos will follow the latter.

A suggestion for politicos

Can we at least narrow the gap between the two worlds? Can we get politicos to put a bit more weight on the economic merits? Can we get economists to understand the political world a bit better? I think-or hope-we can. I am not naive about this. I realize that economists must do most of the changing. So I ' ll suggest one change for politicos and two for economists.

Politicians often can ' t see past the next election, but the truth is far worse. The political pros who advise politicians often can ' t see past the next opinion poll, or even the next tweet. Their time horizon extends only until that evening ' s news broadcasts, if that long.

But getting politicians to think longer term may not be hopeless. After all, politicians are adaptable. If they can be persuaded that current political habits are counterproductive, they may change their ways-not because of a sudden burst of idealism, but because they want to win elections.

One fortunate fact is that a US president ' s four-year term is long enough for the major effects of most economic policies to be felt. So sound economic policies enacted during, say, the president ' s first year or two in office are likely to show major benefits before the next presidential election. Within that window, good economics can also be good politics.

Of course, this happy coincidence in time shrinks as the president ' s term progresses. But that ' s where the crazy US electoral calendar comes to the rescue. By the 18th month of a new presidency, attention turns to midterm congressional elections. After that, midterm losses typically make it hard for the president ' s party to push major initiatives through Congress. Instead, political minds turn away from policy and toward the next presidential election. Put all that together, and you see that the policy phase of a new presidential term rarely lasts more than 12-18 months. During that brief period, economic and political time horizons arguably dovetail reasonably well.