Why Don't Politicians Listen to Economists?

This is a frustrating topic for me. Those of us who understand economics – especially those of us who appreciate liberty – cheat. We already know the answers ahead of time. Okay, well not really (the old saying “If all economists were laid end to end they still wouldn’t reach a conclusion”…). But I do think that those economists that neglect liberty are missing a big part of the picture.

Economics gives us a blueprint for how the world works. Really. If we know how to read the blueprint, we can identify what policies are good and what policies are bad. It’s funny because usually the first thing out of a first year economics student is “Man! Why do politicians keep instituting policies that clearly don’t work?!”

That seems a befuddling idea. Here we have an entire discipline that is dedicated to studying how our economy works, how people behave when confronted with incentives, and how to best allocate scarce resources. These people have doctorate degrees. They are smart! Why on Earth, then, don’t politicians listen to them?!

The answer to that question is simple. Unfortunately it does nothing to relieve our frustrations.

I’ll begin with a quote by Henry Hazlitt, "Economics is preeminently a practical science. It does no good for its fundamental principles to be discovered unless they are applied, and they will not be applied unless they are widely understood."

This is a simple place to begin. Most people simply do not understand economics. Economics, though mostly common sense, is something that can be confounding at first glance. It’s a reality of economics that the consequences of our actions are often the exact opposite of what we intend.

For example, let me illustrate with basic minimum wage. This is a politicians’ seemingly great solution to a terrible problem. When the politicians say, “It’s wrong that you’re not receiving a living wage. I have enacted a policy to give you more money!” the people say, “More money?! Wow! What a great idea! Who could be against giving people more money?”

This unfortunately puts the economist in the awkward position of actually being the person arguing against giving people more money. It’s no wonder people listen to politicians over economists. Politicians tell people what they want to hear; economists tell people the truth.

The fact is, minimum wage artificially raises the wage above the market rate. As labor is now more expensive, companies demand less of it. The result is they pay a few workers more money, while laying off even more employees. Minimum wage was meant to help the worker, but it actually did more harm by making it harder to find a job.

This argument is the same for many political “solutions” to problems – they cause more harm than good. Tariffs, rent control, agriculture subsidies, Medicare, “cash-for-clunkers”, bailouts, welfare, unemployment, capping-salaries, certain taxes, social security… this list could go on and on. Even ignoring their effects on liberty, these policies have disastrous economic consequences.

All of the above programs sound good and are doubtlessly implemented with the best of intentions. Therefore it’s easy to understand and empathize with the politician that wants to pursue these policies, and it’s equally easy to understand why nobody listens when economists speak out against them. To argue in favor of these policies is easy, takes just a few minutes and requires no advanced education. To argue against them can be complicated, lengthy, counter-intuitive and requires an education that most Americans just don’t have.

This is not to say that Americans are stupid, for that clearly is not the case. America is one of the smartest countries in the world. Americans, in spite of their intelligence, are just simply ignorant of economic principles. Is it any wonder people listen to politicians ahead of economists?

That said, there is also another force working against sound economic policy: the nature of politics. What I mean by this is that the incentives created by our political system work against economics.

Most economics works in the “long-run”. That is, it takes time for prices and supply to adjust to bring the economy into equilibrium. How long does it take? Nobody really knows. What is certain though, is that while the economy is in disequilibrium, it is painful. Politicians feel the duty to “save” us from that pain so they enact legislation that “fixes” the problem. All this really does, though, is to draw out the disequilibrium and delay the economy from self-correcting. Since we’ve now extended the painful period instead of just enduring it for a short while, the politicians feel the need to re-“save” us. Oh what a vicious negative cycle it turns into.

There is an inherent conflict in politics and economics. As mentioned, economic policy requires a long view. Politics, however, requires a very short view. Political terms range anywhere from 2 years to 6 years. As such, politicians are only looking, at a maximum, 6 years into the future.

In order to get elected, the politician must prove himself capable, he must be a problem solver, he must have “vision.” Ambition may be a good thing politically, but economically it’s not always so positive. A politician might see a “crisis” unfolding and shout, “Don’t just stand there, do something!” This leads to politicians clamoring over each other to be the first to “do something.”

An economist might just look at the same “crisis” and shout, “Just stand there!” Often more damage is done by acting hastily and in an economically reckless manner than if we just did nothing. This works in the politicians’ favor. By “solving” the first problem, they can take credit for action. Conveniently, their solution only delayed the problem or created another one for them to “solve.” This puts politicians in the enviable position of ensuring they have job security while constantly looking like the hero to their constituents.

But what’s good for the politician may not be good for us.

So, we’re left with a seemingly unsolvable problem. Oh sure I think we can go a long way by ensuring economic education becomes a pillar of our school system, with continuous economic education from middle school all the way through high school; thus ensuring we’re at least economically literate enough to recognize a poor policy when we see one, but that only solves half the problem.

Politicians, regardless of their economic education, will never “just stand there.” But I suppose that’s a pretty good problem to have, for it’s a reminder that we are living in a thriving democracy with regular elections and freedom to choose our government. If our only complaint is that our society is so free that it’s hard to look beyond the next election, that we want to replace our politicians with someone more like ourselves, and that it’s possible to do so, then I suppose we have nothing to complain about at all.