A good percentage of the US populace believes that the President of the United States actually controls the economy. The experts often say that “people vote their pocketbooks” meaning that voters will choose a candidate based on their views on a candidate’s position and success with the economy. In reality, say those experts, the president has limited control over the national economy but at the same time, they say, the president can set some economic priorities. One good example is how the president deals with inflation which is at a 24-year high and shows no signs of abating. Some political pundits say that uncontrolled inflation may either convince President Biden not to seek a second term in 2024 or if he chooses to run, cause him to lose. That’s how much stock they put on inflation as a potential game changer.
The Russian invasion of the Ukraine sent fuel prices to record highs. The president had one quick option to relieve the pain at the pump and that was to release fuel from the national reserves, thus making more fuel available. Although prices came down it was short lived, and the prices continue to rise once again just as the weather warms up and a record number of Americans take to the road.
It is fair to say that while the president may not “control” the economy, he and the government do have certain options to help the economy. The U.S. government controls part of the economy with restriction and licensing requirements, which includes involvement in such areas as education, courts, roads, hospital care, and postal delivery. The government’s role in a mixed economy can also include financial policies, such as monetary and fiscal policies. A mixed economy consists of both private and government/state-owned entities that share control of owning, making, selling, and exchanging good in the country.
Most people readily acknowledge the president as the commander-in-chief, which means that he has control over the military and military policy. They will also readily associate foreign policy with the president, but few appreciate his role as the “Chief Economist,” which means that he is responsible for the condition of the economy. Thus, he Is charged with making decisions which indirectly affect the finances of the nation.
The reality is that presidents have far less control over the economy than people imagine. Presidential economic records are very much dependent on the luck of where the nation is in the economic cycle. And the White House has no control over the demographic and technological forces that influence the economy. Even in areas where the president really does have power to shape the economy — appointing Federal Reserve governors, steering fiscal and regulatory policy, responding to crises and external shocks — the relationship between presidential action and economic outcome is often uncertain and hard to prove.
Things were rolling along fine for President Donald Trump. Unemployment was at record lows, inflation was under control, the stock market was booming. He was credited with even bringing the US closer to being totally energy self-sufficient. Yet economists were predicting that the nation was on course to a recession. President Biden who inherited these conditions introduced a new economic stimulus. Yet, as luck would have it, he was beset by a whole new set of economic problems.
The optics told a dismal story: Empty shelves, thousands of tankers waiting at ports to be unloaded, the ongoing Covid crisis with its ensuing labor shortages, and most devastatingly record high inflation. If all this was not enough, the Russian invasion of Ukraine set off shortages in many categories and further fueled inflation. As far as the president is concerned, perhaps blame it on luck.
President Obama’s luck on this front was somewhere between those extremes; he took office in the middle of a steep downturn. But some simple math shows just how much the timing of the 2008-9 recession relative to Inauguration Day mattered. Mr. Obama was set to leave office with cumulative job growth of 8.4 percent over his eight years in office. But if he had taken office 13 months earlier in December 2007, he would have presided over a putrid 3.4 percent growth. If he had taken office in February 2010, when employment hit rock bottom, he would be on track to see blockbuster 14 percent job growth in eight years (assuming 2017 job creation turns out to be equivalent to 2016).
Some people say that a president can do much for the economy just by being the cheerleader. Others say that without concrete economic policy no amount of cheering can help. When President Ronal Reagan was elected, his economic policy was dubbed as Reaganomics. It consisted of four major components: reduce the growth of government spending, reduce the federal income tax and capital gains tax, reduce government regulation, and tighten the money supply in order to reduce inflation.
Was Reaganomics successful? It ignited one of the longest and strongest periods of economic growth in the US. The result of tax cuts depended on how fast the economy was growing at the time and how high taxes were before they were cut. Cutting taxes only increases government revenue up to a certain point. Lowering tax rates for individuals, corporations and capital gains does spur the economy and boost tax revenue. They offer incentives to people to work harder and invest more, therefore expanding the supply of labor, investment, and savings.
By now the White House and even Congress must recognize that their biggest economic nemesis is inflation. While the President has tinkered with rebuilding the infrastructure as a means to not only repair the crumbling state of our roads and bridges, he and Congress have offered no remedy for the American consumer who is burdened by rising prices. Middle America can only watch in disgust as their grocery bills soar.
While it may be true that the president cannot control the economy, in the very least Americans expect him to show more concern. Recently, President Biden acknowledged that inflation was a major problem for the country but his suggestion to be patient is not resonating with those of us who are paying dearly for this patience.