- Cafe Hayek - https://cafehayek.com -

Blinded by partisanship

Tweet [1]

When I first took economics, I learned from my textbook (Samuelson) the fallacy of post hoc, ergo propter hoc. After this, therefore because of this. Alan Blinder commits this fallacy in this New York Times article [2] (HT: James Gambrell).

After noting that Democrats and Republicans have different economic policies, Blinder argues, drawing on work of Larry Bartels in Unequal Democracy, that Democrats run the economy better than Republicans:

Data for the whole period from 1948 to 2007, during which
Republicans occupied the White House for 34 years and Democrats for 26,
show average annual growth of real gross national product [3]  of 1.64 percent per capita under Republican presidents versus 2.78 percent under Democrats.

That 1.14-point difference, if maintained for eight years, would yield
9.33 percent more income per person, which is a lot more than almost
anyone can expect from a tax cut.

Blinder is aware of the fact that the President doesn’t run the economy. He adds:

Such a large historical gap in economic performance between the two
parties is rather surprising, because presidents have limited leverage
over the nation’s economy. Most economists will tell you that Federal
Reserve policy and oil prices, to name just two influences, are far
more powerful than fiscal policy.

Most economists will also tell you that Presidents don’t even control fiscal policy. Here in the United States we have three branches of government. The Presidency is one of them. Then there is what is called the Congress. They have a say, too. Then there are external events besides fiscal policy and monetary policy and oil prices that affect the economy and that are beyond the President’s control. Demographics. Cultural trends. Technology. None of these are controlled by the President. There’s also war. You can argue the President controls whether we go to war, but I’d argue you’d want to factor in war separately if you want to assess the quality of a President’s economic policies.

Blinder does admit that the future may not be like the past:

Furthermore, as those mutual fund
prospectuses constantly warn us, past results are no guarantee of
future performance.

But then he reassures the reader with this jaw-dropping sentence:

But statistical regularities, like facts, are stubborn things. You bet against them at your peril.

What? Statistical regularities are stubborn things? No they’re not. They are dominated by randomness almost by definition. That’s why they’re called regularities. They reveal a pattern in the data. Nothing more. Nothing less. Without a theory (and saying Democratic presidents are better at running the economy than Republican presidents is not a theory) it’s just a regularity.

And what does that last sentence mean? Bet against the statistical regularities of the past at your peril? So he’s saying that if McCain is elected, you can be pretty sure that he’ll do a worse job than Obama would have. You can bet on it. It’s a result you can rely on.

That is going to be a difficult bet to enforce. I know it’s an idiomatic express to mean it’s practically a sure thing. But thinking about the impossibility of determining the winner of such a bet makes it clear that the whole argument is meaningless.