Elections have Consequences

Kennedi Stewart-Honorbound

What is an externality? Well according to Charles Wheelan, an externality is “the private costs of my behavior are different from the social costs” [1] or in other words it’s a consequence of a person’s action experienced by unrelated third parties. The unrelated “third parties” are not a part of the initial transaction but receive the effects know as externalities. Externalities can be either positive or negative; for example, a positive externality has a constructive impact on society without the third party being compensated for it, while negative has a destructive impact on society. A prime example can be seen today in the presidential election as the society as a whole is once again seeking change; however, this change brings with it concern and caution about the future path of our economy, which results in both business and everyday Americans cutting-back on spending.

The heated battle between Hillary Clinton and Donald Trump has been forefront in the news for the past year. The one piece of information that has been overlooked by the media is the effect of the election on the economy. The American economy “only grew 1% in the first half of the year, well below the historic average of over 3% (and even below the not so great 2.4% of the past two years).” [2] One of the main reasons behind this slow growth is companies and consumers restraining from big purchases because of the uncertainty of the US election. Not knowing which candidate will win and how/when their policies will take hold can produce a rippling effect on the economy. For those business owners, a new president can mean new tax rules and government regulations that could alter the way they operate their business. The biggest fear is that the mayhem of the election will cause Americans to keep their wallets shut and it’s already happening among CEOs. Although business are still hiring workers (U.S. job openings are at a record high), companies aren’t spending much on new equipment and research and “a candidate like Donald Trump is the mother of all uncertainties.” [2] Recently a BJ’s Restaurant CEO, Greg Trojan, thinks “that the tone of this year’s political season, regardless of where your allegiance may lie, has generated what some would call a nearly unprecedented level of negativity and doubt in the minds of the everyday American citizen. During the quarter, many preferred to stay home versus going out.” [3]

The Fed, whose main purpose is to control the money supply and interest rates in an economy has to be very aware of the current changes of business owners and consumers so that the economy does not plummet into a recession or experience widespread inflation. Although the Fed doesn’t like to admit that it takes U.S. politics into account, the Federal Reserve is expected to delay the rise of interest rates because of the perceived economic slowdown. “Between now and [the election,] CEOs and consumers will scale back spending, especially if polls show the race is a tight one,” this will inevitably have an undesirable short-term effect and therefore shows that this year’s presidential election has a negative externality on the economy. [2]

 

 

[1] Wheelan, Charles.2010. Naked Economics: Undressing the Dismal Science. New York: W.W. Norton & Company.

[2] Long, Helen. 2016. CNN Money. September 21. Accessed October 19, 2016. http://money.cnn.com/2016/09/21/news/economy/us-election-economy/.

[3] Jennings, Lisa. 2016. Nation’s Restaurant News. October 20. Accessed October 20, 2016. http://nrn.com/sales-trends/bj-s-restaurants-blames-presidential-campaign-consumer-negativity.

 

 

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