Bryan Caplan  

Are Governors and Mayors Scapegoats for the Fed?

Technological Unemployment: A... FP2P Kindle Price Cut...
Here's a passage from the discussion section I'm writing for "Systematically Biased Beliefs About Political Influence":

On the economy, the public overestimates the role of the President, Congress, and especially state and local governments, while underestimating the role of the Federal Reserve.  One surprising but plausible implication is that incumbents in state and local government will frequently be scapegoats for the mistakes of the Federal Reserve.

For now, this is just speculation.  Anyone know of any evidence pro or con?  Is it even generally true that reelection rates for governors and mayors fall during national recessions?

COMMENTS (8 to date)
Rob writes:

I've pondered that question before as well. I think it's tough to measure for a couple reasons. First, we would have to look at the state recession as compared to other states. For instance, Michigan incumbents have probably fared worse than Alabama incumbents. This can be controlled for though, perhaps by making the dependent variable the difference between national and state growth. Next, I would be curious to know whether the incumbent success rate is symmetric with Fed policy. Do local mayors get the same boost when there is a boom as when there is a bust? Finally, I think the length of the recession might have something to do with blame the Fed mentality. This is purely anecdotal, but it seemed like very few people knew or cared about the job description of the Fed. For the last six months though, if you turn on Fox, QE2 is treated like a plague. I don't know what the evidence is during other recessions.

John Thacker writes:
Is it even generally true that reelection rates for governors and mayors fall during national recessions?

It is generally true that the party in power in Washington gets blamed at the state level, even for things that the state and local politicians have no role over. Look at the difference in gubernatorial races in 2006 and 2010. There were quite a few voters who voted against Bob Ehrlich's re-election in 2006 because of Iraq.

I don't have the data you ask about, but I can say with absolutely no fear of contradiction that the Fed's discretionary manipulation of interest rates, monetary aggregates, and new credit money throws a monkey wrench into all manner of economic events at the local level, state level, national level, and sadly enough, global level.

It's no stretch to imagine that the fate of particular politicians could hang in the balance joggled by just seven people.

Philo writes:

@ David L. Kendall:

"[T]hrows a monkey wrench into," or "provides a welcome boost for"? It depends on whether the Fed is doing a good or a bad job of manipulation.

OneEyedMan writes:

Governors and mayors could always try to run a countercyclical fiscal policy with surpluses in boom years and deficit spending in recessions. Then the Fed would matter much less. In aggregate this would be much less efficient, but it could work.

@Philo, Hope springs eternal, I guess.

I'm unaware of the Fed's having ever executed a helpful manipulation of interest rates, monetary aggregates, and credit money creation. Probably just a bias on my part, of course.

The Fed leads people to believe they can borrow income that has not already been produced and saved. That problem lies at the base of what we're seeing in the Euro Zone with the PIIGS. It is the same problem that lies at the base of the Great Recession we are still far from free of.

I know; I can buy an argument on just about any economic street corner with such statements. Nonetheless, I'd like someone to explain just how it is that someone can actually borrow income that hasn't been produced and saved.

I have written about this idea at length on my blog, so I won't bore readers of this excellent blog further in this space.

Stephen Kirchner writes:

[Comment removed pending confirmation of email address. Email the to request restoring this comment and your comment privileges. A valid email address is required to post comments on EconLog.--Econlib Ed.]

mdb writes:

I wouldn't use the term scapegoats. All the politicians run on platforms that they will make life better for their constituents. When they fail due to fed policy or anything else, the voters hold them accountable for their words. If they succeed (really the economy - they had little to do with it) they will take credit - as you will undoubtedly see in 2012. So scapegoat no - held accountable for something they have little control over but promise to fix - yes.

Comments for this entry have been closed
Return to top