The Effects of Politics on Fiscal Policy over the Last Seven Business Cycles :: Macroeconomics Research Paper

Abstract Being an election year, all you hear is the incoming presidential nominee bashing the policies of the current president. Of all of the administration policy, his economic stance, the health of the economy under his administration, and this fiscal policy are among the most prevalent. Does the possibility of losing an election affect how administration reacts to a recession? This paper shows that out of the last seven business cycles, during the last five, politics does not seem to be an issue when administrations consider what needs to be done to boost the economy. Though Kennedy and Nixon both tried to use fiscal policy to further their own position and ensure re-election, the administrations of late have understood that the economy is not a re-election tool and that what-ever need to be done to bring us out of a recession is necessary, even if it means they may risk not getting reelected. Reelection be Damned One might wonder how politics plays into fiscal policy. Does the possibility of not getting reelected affect the choices a president makes? No, in fact, the administrations of the last seven business cycles usually make fiscal policy decisions that prove to be political suicide, yet are best for the economy. Started with the farthest back, John F. Kennedy is an exception to this rule. In his campaign, he promised tax cuts, but by the time congress got around to it, the economy was obviously expanding. Seeing as this would be embarrassing to the administration, congress went ahead and approved the unnecessary tax cut. Richard Nixon, whose reelection was a non issue due to his resignation, also played the political game. Though his administration say that wage/price control would be ineffective at controlling inflation, they went ahead and implemented them with the goal of â€Å"gently tighten monetary and fiscal policy, which they thought would bring down inflation without a big incr ease in unemployment† (Hebert, 1984, 4). This proved to be detrimental anyway because wile people expected prices to stabilize, they failed to realize that this meant that the prices they charged would stop rising as well. Ronald Reagan took a huge leap of faith when his administration introduced supply-side economics. Although it didn’t work in the way that he wanted it to, it helped greatly to boost the economy. However, had it been a horrible flop, His administration would have been highly chastised for it.