What is meant by the statement, “Politics Trumps Economics”?

The answer is very simple: the political environment we all live in – “politics” – affects everything we do.

Political policies set by the President, Congress, the state’s Governor, the state’s legislature, by the County’s Council, and by your town’s City Council set the impediments that limit what you can do and the ways you can do it.

The examples are all around us. The local, state, and Federal taxes we pay is money that we cannot spend on expanding our business, to have more of everything to sell to our customers.

Those same taxes reduce the amount of money each of us has as individuals to buy the things we need and want for ourselves and our family. Our choices for the home or apartment we live in, the car we buy – our entire budget plan – change depending on whether taxes go up, down, or stay the same.

And when the Federal government spends more money than it receives in taxes, inflation goes up. The price of everything goes up, which means that your employer must spend more for raw materials, and give you a raise just to keep things affordable.

Those increased costs reduce profits. That means the company’s stock price grows more slowly, or (as at present) stagnates or declines.

Stagnating or declining stock prices make profitable investments more difficult to find. You as an investor suffer.

Who is an investor?

“Investors” include not just a group of “pros” who buy and sell stocks for a living, but everyone who has a 401k or an IRA.

Only the Federal government can have a nation-wide impact. So, when the economy – i.e., your financial well-being – has a problem, it is easy to know who to blame: Congress, the President, or both.

From 2021 through the end of 2022, both houses of Congress were controlled by the Democrats. So by and large, whatever programs President Biden wanted, whatever they cost, Congress gave him.

Politics promptly trumped economics

The result was the worst inflation in the lifetimes of people under forty. Baby Boomers, however, had seen the same problems wrought by inflation before: in the 1970s, thanks to President

Jimmy Carter – another Democrat. The inflation due to President Biden’s actions was nothing new for them.

In contrast, most of the policies of President Trump were good for businesses and Americans in general. The result was several very profitable years for businesses, and also for investors.

The election of 2022 gave the Republicans control of the House. That has thrown a monkey-wrench into President Biden’s spending plans, but, combined with the efforts of the Federal Reserve to repair the damage done by inflation, the economy is showing the first small hints of improvement.

Politics – in the form of those Republicans in the House who put a stop to Biden’s spendthrift ways – is once again trumping economics – but, for now, at least, in a good way.

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