The Political Business Cycle in Reverse
In the late 1970s/early ‘80s the economic subdiscipline of public choice (the application of economic theory and methodology to the study of political decision making) spawned a body of literature on the “political business cycle.” The book Democracy in Deficit: The Political Legacy of Lord Keynes, by James M. Buchanan and Richard E. Wagner was the main inspiration for this. There are now hundreds of scholarly articles and numerous books on the subject.
At the time standard Keynesian macroeconomics held that selfless and omniscient public servants would manage monetary and fiscal policy in such a way as to stabilize the business cycle “in the public interest,” minimizing its peaks and troughs along with the costs of inflation and unemployment. Even by then, however, that notion had been proven to be a farce and a fraud. Keynesian economics was discredited by the existence of “stagflation” in the ‘70s which it had no explanation for and thought it to be an impossibility.
In addition to many other reasons why central planning under the guise of “stabilization policy” is an inherent failure, the theory of the political business cycle added a new twist: Politicians are not selfless and omniscient; they are rationally self interested just like everyone else. They want to keep their jobs, just like everyone else. One trick that they employ to achieve this goal, says the theory of the political business cycle, is to ramp up government spending just before elections, funded by debt and inflation. The perceived benefits to voters occurs in the short run, with the bills to be paid after the election. The conclusion is that political reality dictates that so-called stabilization policy will frequently be de–stabilizing.
The gist of the theory of the political business cycle is that politicians will “stimulate” parts of the economy in the months running up to an election with vast increases in government spending. But current events suggest that politics may also at times result in a very different kind of political business cycle – one that depresses the economy just prior to an election.
In America today President Trump and the Republicans control the White House a
Article from LewRockwell