Economic Attribution Error
During an election year, a President is assumed to control the economy. For example, Paul Krugman writes,
For three years many economists have argued that the most effective job-creating policies would be increased aid to state and local governments, extended unemployment insurance and tax rebates for lower- and middle-income families. The Bush administration paid no attention — it never even gave New York all the aid Mr. Bush promised after 9/11, and it allowed extended unemployment insurance to lapse. Instead, it focused on tax cuts for the affluent, ignoring warnings that these would do little to create jobs.
On the other hand, Russell Roberts writes,
Bastiat used the example of the a broken window. Repairing the window stimulates the glazier’s pocketbook. But unseen is the loss of whatever would have been done with the money instead of replacing the window. Perhaps the one who lost the window would have bought a pair of shoes. Or invested it in a new business. Or merely enjoyed the peace of mind that comes from having cash on hand. The repair of the window is seen. The loss is unseen and therefore easily goes unnoticed. So it is with most actions of the government to “stimulate” the economy. It is easily forgotten that the resources to do the stimulating must come from somewhere
I call the tendency to overstate the importance of the President as a determinant of growth and employment the Economic Attribution Error.
For Discussion. Many economists have pointed out that the most striking feature of the economy under the Bush Administration has been the rapid pace of productivity growth. What are the policy implications, if any, of this fact?