Six Ignorant Beliefs About the Economy (that Politicians Want You to Accept)

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      It seems that we’ve found ourselves in another US election year. As Advanced Mustachians, we realize that the ongoing rivalry between Harris and Trump shouldn't take up too much of our attention. While we do our homework and vote, we quickly shift our focus to things we can control in our personal lives.

      Among the numerous topics debated by politicians, there’s one area where MMM needs to clarify matters: money. Specifically, your finances, the economy as a whole, and the nation's wealth. Politicians are typically not regarded as experts in fields like science, technology, or economics. This year, however, the conversation has taken a particularly low turn, as candidates seek to sway undecided voters in swing states with emotionally charged, rather than economically sound, arguments.

      For example, you might have observed that the rival party (Trump in this instance) is criticizing the incumbents (Biden/Harris) regarding a so-called “bad economy.” In reality, the US economy is currently at its strongest point, featuring unprecedented low unemployment rates. It’s challenging to envision a better situation than what we have right now; in fact, the recent rise in inflation suggests that everything has been so favorable that we needed to apply brakes through increased interest rates.

      Nonetheless, many people still perceive the economy as “bad.” A Gallup poll reveals that while 85% of individuals are faring well, they attribute their circumstances to personal luck, with only 17% believing the economy is on solid ground. This is mathematically contradictory; if the majority is doing well, it inherently indicates a strong economy! Alarmingly, this widespread misconception aligns with the surge in misinformation disseminated through social media.

      Politicians and the media are not doing what they should in an ideal scenario—disseminating accurate information. While it's easy to ignore their speeches and continue with our lives, understanding economics is key to empowerment (and financial gain). The more we grasp how the economy functions, the wealthier we can become.

      With that said, I present to you my list of the…

      Top Misleading Ideas Politicians Want You to Believe About the Economy

      1: The President Controls the Economy

      When there’s a recession, the opposition party often implicates the sitting president, whereas if the economy thrives, the current president eagerly takes credit. However, the US economy is far too vast—and thankfully too free—for any president to control or heavily influence.

      In truth, our economy is a massive system that transforms labor and resources into products like iPhones, hospitals, and pumpkin pies. Although we represent 26% of the global economy, we are significantly affected by the greater 74% of economic activities conducted by the other 7.6 billion people worldwide.

      During our inevitable cycles of booms and busts, these are mostly due to the typical patterns of irrational exuberance (and greed), exemplified by the 2007 housing boom, followed by short spans of intense fear and pessimism, as seen in the 2008-2012 financial crisis.

      The government certainly has a role, such as determining tax rates and regulations. However, the outcomes of these policies are often delayed and unpredictable, making it impossible to draw a direct correlation between the current president and the state of the economy. Essentially, the government tries to steer our enormous ship, but in the short term, our economy experiences ups and downs caused by external forces.

      2: The President Controls Interest Rates

      This idea is particularly amusing to me, as candidates express sympathy for the struggles of middle-class Americans facing rising borrowing costs. They claim they will work to lower interest rates. Notably, Trump has even threatened to take over the Federal Reserve Board, which should operate as an independent authority.

      In reality, while it would be disastrous to let a sitting president control monetary policy (just look at Argentina), this policy serves as an effective economic regulator when applied correctly. A reduction in interest rates can lead to job creation and rising stock prices during downturns. Conversely, if the economy overheats, rapid inflation can destabilize the system.

      3: Inflation Has Made Life Harder for Americans (and the President Can Fix It)

      This reasoning is even more misguided than the previous one. Following the Covid pandemic, inflation surged due to a rare blend of supply shortages, increased demand from government funding, and low interest rates. Thankfully, those factors have stabilized, bringing inflation back to a low 2.4%.

      Steve Ballmer addresses the debate over inflation and wages in his informative video series, USA Facts (see note below). Most notably, wages have increased at a rate surpassing inflation, leaving us in a better position than before! Since 2019, prices surged 19% while wages rose by 21%. Yet candidates continue to argue about inflation as if it were a pressing issue, even suggesting they could lower prices. They’ve misled voters into thinking “higher wages and prices” constitutes “a bad economy,” which is simply incorrect.

      Additionally