The Lag Effects and Politics

Having observed politics for quite a few years can give one a perspective that most voters don’t have. That perspective can also be rather frustrating.

Right now, the United States is experiencing higher inflation rates than at any time since the period from the mid-1970s through the early 1980s, and polls show that inflation is the greatest concern of most Americans coming into the mid-term elections. Because the Federal Reserve is deeply concerned about the economic impact of continuing inflation, the Fed has increased interest rates sharply over the past six months, which effectively increases costs for consumers in addition to already increasing prices.

The major causes for inflation are the massive government aid during the COVID epidemic, the historic low interest rates [which spurred increasing housing demand and boosted prices and inspired other purchases], and the Russia/Ukraine war. Now, most Americans were happy about the first two causes, but they’re unhappy with the longer-term costs of higher prices and higher interest rates to damp inflation, and many will vote against Democrats in the mid-term elections as a result. But the majority of causes were begun by the previous administration, and people generally supported the continuation of aid and low interest rates by the present administration.

This is a pattern that has recurred over much of the last century, where the administration in power gets the blame or credit for actions undertaken by the previous administration. President Carter got blamed for situations created by previous administrations, while Reagan got credit for the impact of Carter policies. The first President Bush had to deal with the excessive spending of the Reagan administration by increasing taxes, and lost his bid for a second term, while Clinton got credit for the better economic conditions created by the Bush reforms.

The reason this happens is because the fundamental economy usually doesn’t change that quickly, except in the rare cases such as COVID, and people vote on what they see and feel NOW, not on whose policies and actions created the present economic conditions, which means that many of those voters are, in effect, voting for or against the previous administration, not the present administration.

6 thoughts on “The Lag Effects and Politics”

  1. Darcherd says:

    Not to mention the fact that most people assume the president and congress have a lot more under their control than they actually do, so it’s easy to blame them for the current situation, whatever that may be.

    It takes effort to consider complexity and nuance and it takes intelligence, education, and experience to have long-term perspective, which is why they are all so rarely encountered.

    1. Postagoras says:

      Excellent point!

      I’ve heard this described as the “Green Lantern view of the Presidency”.

      In the comics, the only limit on the power of Green Lantern is the limit of his own willpower.

      So the “Green Lantern view of the Presidency” refers to folks that have this same comic-book feeling about the US President. That there’s nothing stopping his success but his lack of will.

  2. MRE says:

    While I agree with this, don’t underestimate the Trump effect. Ray Fair has been correctly predicting presidents for decades (including predicting Trump’s election), but his econometric model, which includes a variety of lagged economic variables like GDP growth and inflation, had far larger errors during the 2016 election. Fair argues it was because of Trump’s personality, and that if the Republicans had nominated a more mainstream candidate they would have beat Hillary Clinton by an even larger margin.

    All this suggests to me that we shouldn’t underestimate Trump’s corrosive effect on our politics. Both the negative AND the positive effects. His continued presence in the news could be what the Democrats need to overcome the usually powerful predictors of inflation and poor economic growth.

    I can’t say I’m not worried about what will happen if the Democrats come out losers in the next two election cycles. But after four years of Trump preceding Biden, I guess we can’t say we weren’t warned.

  3. Jeff says:

    Sadly, few voters understand economics. Thanks for sharing this.

  4. KTL says:

    I agree with all the points made; however, I would emphasize that the current inflation we are seeing in the uS is NOT limited to the US, but is global. Many countries have had higher inflation than the US. It’s not hard at all to find coverage of this issue if one looks, but US citizens can be extremely US-centric in both their views and the news they digest. Here, for example is coverage of global inflation in 2022 and predicted inflation in 2023.,growth%20exceeds%20consumer%20income%20growth.

    So what one asks? Well, battling an issue that falls both within and without one’s countrie’s borders can be especially difficult to do by any administration. Explaining it on the campaign trail is even more difficult.

  5. Tom says:

    Since it seems that: –

    The effect lag is the amount of time between the time action is taken and an effect is realized. Monetary policy involves longer delays than fiscal policy; the time between a change in monetary policy and its ultimate effect on private investment may be between one and two years.

    Since money drives decisions for most people is this an argument for longer periods between elections perhaps accompanied by restriction in the specific number of consecutive terms of service in politics at any level?

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