Do politicians really have an immediate effect on the economy?

Question

When politicians are running for office they often claim
that the they should be elected because of the short term
effect of their policies on the economy. How valid are these
claims? Does the state of the economy have a long memory?
(i.e. depends upon the policies of political predecessors?).
How can we evaluate the claims of politicians to be responsible
for a good economy?

Good point about the short term effect
on speculators.

But does say a small tax cut or raise have a strong immediate effect aside from speculation?

Answer 1

I can think of at least one very compelling argument why they do. The economy is very greatly affected by sentiments and psychology. This may be the reason why recessions are sometimes called self-fulfilling prophecies. If the people are optimistic about a particular politician, you can expect that optimism to be reflected in the economy. (Converse also true). Many or most who play the stocks market casually, as well as professional traders pay very close attention to changes in the government AND what is the likely reaction of others to them.

Of course, I have not even mentioned the actual things that a politician can do. Assigning priorities, acting as a figurehead, affecting legislation and so on....

Answer 2

If government actions could really control the economy we would not have recessions. Mostly they just use it as an excuse for policies they were going to propose anyway. There are things they could do that would cause real long term harm to the economy, but in the US mostly they don't so we just muddle through. I suspect even the effect of monetary policy is over rated and we could just grow the money supply at a constant rate and get pretty much the same results..

Answer 3

Definitely not much of an impact. For one thing, few if any politicians even understand economics, so if they lived up to their rhetoric they'd usually just do harm. And no politician is going to do something so radical it could have an immediate measurable effect one way or the other, such as nationalize a major industry, or immediately privatize social security.

The one government (or quasi-government) entity that does have great influence is the federal reserve -- and they're not elected politicians.

I think politicians at the state level can have more impact, but that largely comes at the expense of some other state.