Much has been made of the influence of “moral values” in determining the outcomes of the recent elections.
According to exit polls, that factor accounted for more than 20 percent of decision making by voters. Yet the factor that ranked second in the polls was the economy, and it is important to understand the relationship between the two motivations.
On the one hand, voters were asked to make a statement on the current state of the U.S. economy, and by and large they disagreed with the Democrats' charge that the economy is in bad shape and getting worse. The three conventional measures of the strength of an economy are the rates of gross domestic product growth, inflation, and unemployment, and here in 2004 all three have been tracking at very acceptable rates. GDP is growing in the range of 3½-4 percent, the rise in the consumer price index has been kept in check at around 2½ percent and unemployment has come down to 5½ percent.
One way to boil these data down to a single statistic is the “misery index,” combining the inflation rate and the unemployment rate. At 8 percent, the misery index has been lower only five times in the past 35 years.
On the other hand, voters were asked to make a statement about current and likely economic policy, and once again they disagreed with the Democrats' charge that the current administration has blundered and economic Armageddon lies ahead.
Faced with an economic meltdown not of their making, the federal government and the Federal Reserve Bank used their respective fiscal and monetary policy instruments to pull the U.S. economy out of recession. Tax cuts were instituted across the board to support consumer spending, capital-gains tax cuts were instituted and capital-depreciation allowances were accelerated to encourage capital spending, and interest rates were rapidly brought down to historically low levels.
As a result, consumer spending remained buoyant throughout this difficult period, capital investment has gradually recovered, and job creation — traditionally the laggard — is finally materializing.
To me the issue of paramount importance emerging from this election cycle is that moral values and economics are not separate issues; rather they are intimately related.
The leitmotif of Bush administration policies and practices has been “freedom.” In foreign policy it means supporting free, democratic decision making in countries formerly controlled by tyrants. In economic policy it advocates giving people freedom to make decisions on matters that impact their standard of living, their health care and their retirement. It also espouses free trade as an instrument of not only sound domestic economic policy, but also sound foreign policy on the premise that foreign entrepreneurs and farmers free to capitalize on their comparative advantages in land, labor and capital are an effective antidote to terrorism.
The concept of freedom as a foundation of both foreign policy and economic policy has been with us for over two decades now, since the Reagan administration, and it has engendered a subtle shift within the economics profession. In the 1960s, when I was pursuing my doctoral studies in economics, we looked to macroeconomics to understand and foster the growth and development of nations. President Nixon famously intoned, “We are all Keynesians now.” Well, today that has changed as we devote far more attention to microeconomics — the daily dealings of consumers and producers in the marketplace — to achieve our objectives of sustainable growth, low inflation and job creation. We are slowly returning to classical economic doctrine that governments don't create jobs; jobs are created in economic environments characterized by small government, the absence of corruption and the freedom to compete. In effect, we are all Friedmanites now.
This is the microeconomic worldview we need to understand and adopt if we are to continue to improve economic welfare in this country. Every day people make decisions. Consumers make decisions with respect to maximizing welfare within their income constraints, and producers make decisions with respect to maximizing profits in good times and maintaining solvency in bad times. Their economic decisions are not always aligned with their “moral values.” Consumers would obviously prefer to buy goods and services supplied by their fellow citizens, yet they value the low-cost imports available at Wal-Mart. Producers would obviously prefer to employ their fellow citizens as plant operatives and administrative staff rather than outsourcing this work, yet they need to obtain products, components, materials, machinery and tooling at the lowest cost possible in order to stay in business. Economic history is replete with case studies (e.g., Japan and Western Europe) demonstrating that to thwart these motives by means of protectionism is ultimately self-defeating. Consumer choice is constrained, consumer welfare is reduced and unemployment rates approach double digits.
In the end, people voted their economic self-interest, whether or not consonant with their “moral values.” They rejected the politics of pessimism, entitlement and envy. They recognized that the policies that best promote the improvement of living standards and the creation of jobs are those which keep a low tax burden on families and a low regulatory burden on entrepreneurs, and which encourage individuals in their homes and places of work to take greater responsibility for their welfare. The majority of voters opted to accept the way the modern world works, casting aside the last vestiges of isolationism that have marked U.S. economic and foreign policy since the founding of the country and embracing globalization — warts and all — as the context within which their children and grandchildren will have to operate in the future.
Mooney is an economist and president of Plastics Custom Research Services, a consulting firm in Advance, N.C.