Talk Is Cheap: Campaign Promises And The Economy

By Michael Schmidt AAA

Promises made during any presidential candidate's campaign should really be called proposals. After all, campaigning for president of the United States is essentially a marketing process, in which candidates present themselves as products, differentiate themselves from the other products and make proposals on how they will perform if they get the job. This is why campaign promises are such an important part of the election process, especially if they revolve around issues that divide a nation or create emotional interest. Most often, these issues involve money.

Tutorial: Economics 101

While campaign promises can be enticing, talk is cheap, and even presidents with the best intentions can have difficulty making them happen. Let's take a look at some of the most common economic campaign promises that presidential candidates make and evaluate what it takes to make these promises a reality. (For related reading, see For Higher Stock Returns, Vote Republican Or Democrat?)

Reasonable Promises
Campaign promises may change slightly from election to election, but they are almost always related to changing current issues that are on the minds of voters. Some may be ideological in nature, like "implementing governmental fiscal responsibility," or more specific, like proposing precise cuts for tax rates per person. However they are proposed, there are promises that are credible and reasonable and those that are just shots in the dark.

Tax Cuts
While taxes are inevitable, you don't see candidates proposing to raise taxes during their campaign - usually it's quite the opposite. However, the majority of a new president's financial promises, including tax cuts, will be paid for by way of fiscal policy. (For more on this, see What is Fiscal Policy? and Formulating Monetary Policy.)

The president does have significant powers, in conjunction with Congress, to use fiscal policy, whereas monetary policy is controlled by the Federal Reserve Board. In other words, the president does have the power to directly influence tax rates. But, while a campaign promise to cut taxes sounds like the candidate can just press a few buttons and lower taxes, it's a little more complicated than that and requires legislation as well as offsetting legislation to raise revenue or lower spending. In other words, the tax cuts need to be budget-neutral, especially if they are proposed outside of the annual budget resolution process. Campaign promises to cut taxes are quite common and appealing, but they are rarely proposed without the offsetting legislation or solution that will enable the cuts. So, as a promise tax cuts are reasonable, in order to achieve any desired result beyond wooing voters, the cuts need to be far-reaching and based on reasonable expectations. (For further reading on this, see Do Tax Cuts Stimulate The Economy?)

Job Creation
Promises of job creation are very popular for the campaigning candidate, especially if the current economic environment is weak and unemployment is an issue. A promise to create jobs can be both reasonable and unreasonable. To be reasonable, the promise should include how the candidate proposes to achieve results and falls into the fiscal policy arena. Jobs can be created by direct government intervention and spending, a strategy that was successfully deployed by President Roosevelt (president from 1933 to 1945) in the first 100 days of his presidency, when he established public works projects such as the Works Progress Administration and Civilian Conservation Corps, which created jobs for the large numbers of unemployed citizens. This was an extreme example and was not short of controversy, but it did succeed in reducing high unemployment rates and provided significant hope for the struggling economy. (For more on the unemployment, read Surveying The Employment Report.)

Past Promises
Let's take a look at a couple of past campaign promises by Democrat and Republican candidates and why they weren't implemented.

  • Presidential Candidate Bill Clinton's Universal Healthcare System Promise
    Bill Clinton promised a national healthcare system in his 1992 presidential bid, and during his administration, he attempted to implement the system. Instead, he was met with major resistance from Congress and cost the Democrats dearly in the 1994 Congress election. It also indirectly created a dramatic drop in healthcare stocks and the plan came to a halt soon thereafter.

  • Presidential Candidate George H.W. Bush's "Read my lips: No new taxes" Promise
    President George H.W. Bush created this famous sound byte at the 1988 Republican National Convention. Unfortunately, once in office, he had no choice but to raise taxes in an effort to reduce the budget deficit and provide needed funding. This failed campaign promise was used against him by his Republican opponent Pat Buchanan during the primaries and Bill Clinton used this against Bush as part of his successful campaign to win the White House in 1992. The promise that may have helped him get elected backfired, costing him a second term in office.

Conclusion
It's interesting to see how history tends to repeat itself and how short-term our memories can be. With good intentions, presidential candidates stage their platforms with campaign promises designed to sway voters' opinions and get elected. Some of the promises are ideological in nature and difficult to quantify, while others are more direct and accountable. In an ideal world, each campaign promise would be presented with the complete story, but the political process doesn't seem to promote that concept. Campaign promises can create controversy, evoke emotions and can tilt an election toward the candidate that either has the best promise or markets the ideas the best. It would be ideal for all presidential candidates to just tell us that we will have to raise taxes and cut spending to make ends meet, but unfortunately, what candidates promise and what they are able to deliver can be very different things, particularly when candidates are met with unforeseen political or economic hurdles once in office.

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