Economics and Politics: Ignorance is bliss
Get free updates of new posts here

First, a little back story. I began studying Economics during the 2008 election season. I regularly found myself debating some economic idea or another, and wanted to understand the subject better so I could evaluate my intuition and form more-educated opinions. I began reading books and blogs, following economists on Twitter, and studying for my MBA.

Rather than becoming more comfortable with the subject, I’ve become frustrated and regret taking the red pill.

I could probably write thousands of words on this ¹, but here’s a quicker way for me to express this frustration:

• Listen to this Planet Money podcast on Chinese-tire tariffs.
• Note how recently the Obama quotes were made. ²
• Note how proud the President is of this policy.
• Note how awful the policy has been for Americans. ^{3 4}

The surprising part isn’t that the policy ended up being bad, but that President Obama ever believed it could possibly be good. Politicians promote bad policies all the time. But this one is such an obviously-bad policy that it gives me pause – it’s literally an Econ 101 mistake whose awfulness is self-evident. I usually suspect politicians understand that the policies they push aren’t optimal for everyone, but they support those policies anyway because they benefit their constituents; they don’t really think the policy will be good for everyone, but maybe it won’t be bad for everyone, and their constituents will benefit, so it’s ok.

But in this case – the Chinese-tire tariff – I think it’s obvious that President Obama thought this policy would be great for America. He bragged about it in a recent speech. So the problem doesn’t seem to have been his intentions, but his understanding of very basic economics. The problem wasn’t with his spin of the policy, but that the policy was simply an awful policy with a bad economic outcome for Americans.

If the President’s intuition is this bad on basic economics, how much worse is he at predicting the economic effects of routing federal dollars to specific areas research? Fiscal policy? Labor policy?

Nancy Pelosi, when promoting Obamacare, said overhauling healthcare would provide “lower cost, improved quality” healthcare“, and it might… or it might not. The issue for me is that I don’t believe the President understands basic economics well enough to do a real analysis of the possible effects of such complicated policies. If he couldn’t predict that a tariff on Chinese tires would cause prices to rise for Americans – a prediction most first-year, Econ 101 undergrads would’ve made – then how could he possibly predict the economic impact of capping profit margins for health insurance companies (only a few of the 2,000 pages in the ACA) on healthcare costs?

Footnotes