Really, how much do presidents influence the economy?

January 12th, 2016 at 9:01 am

A commenter, after gazing at these figures, asks: how much influence do presidents really have over the economy anyway?

I dove deeply into this here, riffing off of an academic paper comparing economic outcomes between terms when D’s or R’s controlled the White House. The economy grows faster under Democrats, which is good to know, but it’s virtually impossible to untangle any sort of causality. So, in general, I wouldn’t give presidents as much credit as they will always take for good economies or blame for bad ones.

There are, however, important exceptions. The Obama team came on the scene in the depths of the downturn and punched back hard. Mistakes were made (I made some of them), some measures didn’t go far enough, and the Fed helped too, of course. But the results were positive and while it’s unknowable how a President McCain would have responded had he won–one definition of a Keynesian is a Republican in a recession–I think it’s entirely fair to credit Obama with influencing the economy in a big way in those respects.

Second, while you can’t typically link presidential actions to the variables in the academic study cited above–growth, jobs, productivity, price of oil, etc.–regulatory actions and big policy accomplishments can make a big difference in the future. Here, I’m thinking about Dodd-Frank and the Affordable Care Act. If the former can dampen the economic shampoo cycle (bubble-bust-repeat) and the latter can continue to hold down the growth of health care costs, they will very much deserve to be called economically transformative policies for which I’ll give Obama and his team boatloads of credit.

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4 comments in reply to "Really, how much do presidents influence the economy?"

  1. dwb says:

    This indicator is about as reliable as the Superbowl indicator: if the AFC wins, it will be a bear market for stocks; if the NFC wins, it will be a bull market. The Superbowl indicator has been right 32 out of 48 times (67%).

    And: we have far less data on “Democrat” vs “Republican” presidents during the period of an independent Fed. The only mystery about why the economy appears to grows faster under Democrats is why the obviously partisan confirmation bias does not get called out more.

  2. Amateur says:

    Recently US presidents have not been personally responsible for most economic results. There haven’t been any policies on the table in the last 35 years that would have improved the situation of most workers.

    The most powerful effect a president can have is in setting a vision of what is possible. Obama didn’t do that, Clinton didn’t do that, the Bushes certainly didn’t do that, and Reagan went way backwards.

    They don’t do it because it might sacrifice the short term goals for the long term goals. It is the same problem that Obama accuses corporate board rooms of, that is placing short-term goals ahead of long term goals.

    Any president that sets vision based upon what they believe can get through the congress today or tomorrow is not someone I can vote for. It only proves they’re more concerned about winning than they are with the results.

    • DonB says:

      Just as corporate board rooms supposedly respond to the “demands” of stockholders for immediate gains, presidents and legislators look to give immediate tax cuts and increased benefits (tax loopholes, benefit increases) to their constituents. The wealthy have their rationalizations that their increased income is deserved and their spending may help some others while the middle and lower classes simply accept what they are told, that the increased wealth of the wealthy will trickle down to them.

      Until the electorate is better educated this is unlikely to change. Of course the wealthy see no reason to educate the general populace better, as they have been doing fine up to now. However, the popularity of Donald Trump (and even Ted Cruz) is an indicator that the general populace recognizes that they have been taken for chumps, but they have little idea of how to change course so they are going for the most charismatic and authoritarian people to lead them. The one time, thankfully, that the people elected someone who was able to find a path through the chaos to prosperity, however timorously, was Franklin D. Roosevelt (who actually rejected some of his advisors’ recommendation to assume a sort of dictatorship to avoid the populace turning to communism).

      F.D.R. really did save the country for (and from) capitalism.

  3. eFiling Plus | print 1099 form free says:

    Presidents have a huge influence when it comes to economy. Although they’re not solely the one who drafts the law, they are the ones who decide whether or not a certain law will be beneficial for the country. And one wrong move can turn the entire economy upside down. There have been instances wherein we’ve seen the economy at a downfall, and its not solely the stakeholders to be blamed but the person who actually enacted the law (aka the President). But we have to give them some credit because despite all the negative things that happened in the past, they still managed to keep the country running, in a efficient and cost-effective way that is. Besides, all bad Presidents are there for a reason — the people. Voters should be educated because believe it or not, the President definitely affects the economy.