Beyond economic magic wands
Through their first year in office, the federal Liberals sailed aloft in the public opinion polls — at more than 45 per cent, on average, roughly 20 points ahead of their Conservative rivals. Since then, however, their support has dropped markedly, while the Tories have gained ground. The latest polls now have the two only about five points apart.
This seems odd. For all the while Liberal support has been slipping, the economy has been roaring ahead. Over the last half of 2016 and first half of 2017, real GDP grew by 4.2 per cent, the fastest 12-month growth rate since 2000. Unemploy- ment, at 6.3 per cent, is not far off its mid-2000s lows. Yet here the Liberals are, despite the hot economy, at distinctly lukewarm levels of support.
What explains this seeming anomaly? Isn’t the economy supposed to be the decisive factor in voting intentions? One possibility is that it isn’t: that in fact political preferences are influenced by all sorts of things, of which the economy is only one, albeit the predominant.
A second possibility is that people don’t believe the numbers: either they don’t feel as prosperous as all that, or they don’t think it will last. It seems hard to argue with the data on rising median incomes and record household net worth. Then again, the public has been told often enough that, notwithstanding the statistics, middle-class incomes are still lagging, or feel as if they are — maybe they’ve come to believe it. Or maybe they see the storm clouds gathering around the economy — rising public debt, declining private investment, the possible collapse of NAFTA — even with interest rates at record lows, and wonder how sustainable the boom is.
Or maybe, as a new poll for Bloomberg News by Nanos Research suggests, the public doesn’t just automatically credit good times to the party in power.
Surprisingly, the poll found just 25 per cent of Canadians rated Justin Trudeau’s economic management as good or very good, versus 36 per cent who said it was poor or very poor (another 36 per cent cent assessed it as average). Of course, maybe that just reflects souring public perceptions of Trudeau generally, whose image has taken a bit of a beating of late.
Or maybe, just maybe, the public does not share in the belief, apparently universal among the political class, that everything that happens in the economy is because of the government. It is a delusion in which all the parties collude, and have for decades. Governments, of course, like to claim credit for any jobs that are created, as if they had personally hired every one of them.
But the opposition is every bit as much in on the game, as it is equally in their interest to blame every bit of bad news on the government. They may be playing different parts, but both sides are essentially trying to put over the same con: that as the government is in control of the economy, so the economy lives or dies depending on which party is in power. Each party insists that they and they alone have the formula that will cure our economic ills, but they are alike in the belief that such a formula exists, or at least in persuading others to believe it does.
The truth is rather different. Whatever may be claimed to the contrary, governments can do relatively little about the economy, at least in the short-term sense everybody means. Well, check that: there is a great deal they can do to the economy, even in the short run, from inflating the currency to racking up ruinous debts to imposing costly barriers to trade and investment. But beyond not stepping all over it, there is not much they can do to make the economy grow faster.
It is in the long run that government matters — matters, not in the pull-a-lever-onthe-wall, hey-presto-a-recovery sense that politicians pretend, but in the compounding over time of small annual improvements in national productivity, the sum of a hundred little changes in policy. These are not the sort of big-ticket measures — Thirty! Billion! Dollar! Deficits! — so spectacularly deployed at the aggregate or macroeconomic level. They are rather the stuff of microeconomics: changes in tax rates, in trade and regulatory policy, that are concerned with how markets work, or could be made to work better.
Again, these are mostly in the nature of tearing away the accumulated underbrush of past, ill-considered policies. But they are of far greater impact in the long run. Alas, as the long run is typically taken to mean “after the next election,” these tend to be little discussed. I recall seeing it once put this way: Economists know the most and are in most agreement about microeconomics — for example, on the benefits of free trade, or the evils of rent controls — matters on which they are routinely ignored. By contrast, they know the least and are least in agreement on matters of macroeconomics — on which they are treated like seers.
I blame Keynes, the father of macroeconomics and the profession’s first superstar, for this. How much more exciting it made the “dismal science” seem, to possess such powers for good! And how attractive to politicians, as his great rival Hayek observed, to be told that what was once a vice, a congenital inability to balance the books, was now a virtue. If the public is beginning to see through the act, so much the better.