Every leap year, especially when economic insecurity is high, the question surfaces: When it comes to jobs and growth, do presidents really matter?
Already we're hearing at least three separate responses to that question. First comes the claim that the whole question of presidential impact on the economy and jobs is silly and politically, not economically, motivated. As Robert Samuelson put it in his Washington Post column, “Electing a president based on job creation makes as much sense as selecting a doctor based on palm reading.”
Next is the “but for” argument from the incumbent's team: We would have created scads of jobs but for September 11, the Iraq War, and corporate wrongdoing.
Then there's the Tweedledee versus Tweedledum attack from the left, à la Ralph Nader. According to this argument, it doesn't matter who wins because choosing between the Republicans and Democrats on economics is like choosing between a grade of D- and D+.
Do Presidents Really Affect the Economy?
Samuelson and others argue that it's the business cycle, stupid. When the economy is expanding and consumers, investors, and employers are flush with Keynesian “animal spirits,” things tend to work out pretty well as long as the government stays out of the way. Like the rooster who claims his crowing caused the sunrise, presidents may try to take credit for such periods, but both roosters and presidents are pretty irrelevant to the outcome.
Yet history is full of examples of presidents making a big difference, even in a relatively unregulated market economy like ours. During recessions, there is a well-established role for the government to step in and try to restart the virtuous cycle described above.
If ever a president should have been able to accomplish this goal, it's this one. His tax carry a 10-year price tag of more than $3 trillion, and, as you'd expect, expenditures of this magnitude have made some difference. They've helped to lift the gross domestic product, but they haven't produced job growth.
That's not because presidents can't create jobs but because this president's spending packages have consistently been poorly structured to do so. Cuts in dividend or capital-gains taxation, or accelerated business expenses, aren't a good way to create jobs in general, and certainly not in a demand slump. This doesn't mean that Samuelson is right, however. It just means that this administration was using the recession as an opportunity to do what it wanted to do all along: shrink government by reducing revenues and shift the tax burden from wealth holders to wage earners.
If the administration had spent the money on state fiscal relief, direct funding for social needs, benefits for the unemployed, school renovations, and tax cuts for the least well-off, history suggests that jobs would have followed.
Yes, Virginia, presidents can make a difference, but they've got to make the right choices.
It's Not About Me; It's About 9-11
The administration tries to explain away economic failures by blaming events beyond its control, such as 9-11, corporate scandals, and the war. This argument has a superficial plausibility that has given the administration some cover.
The tragic occurrence of 9-11 set back travel and tourism, and hurt particular regions, such as New York City, Las Vegas, and Orlando, Florida. However, that setback was temporary. The real damage to tourism and travel came from the recession-induced cutbacks made by businesses trimming costs.
As for corporate scandals, financial markets appear to have absorbed this long ago. There's no evidence that these wrongdoings are still holding us back in any way.
As for the war, uncertainty probably delayed some spending on investment, and rising energy prices may have hurt the economy a bit. Yet victory certainly did not unleash a wealth of pending investments, and the government's war spending (most of it in the United States, by the way) actually helped boost the economy in both 2002 and 2003.
Presidents Matter But Both Sides Are Republicrats
This view largely grew out of Clintonomics, with its centrist emphasis on free trade, welfare reform, and the primacy of markets. And it may well be that there's less space between, say, George W. Bush and John Kerry than between party representatives of years past.
But this argument contains a hole wide enough to drive a Halliburton-powered SUV through. Bill Clinton pushed NAFTA, but he also raised taxes on the rich, greatly expanded the Earned Income Tax Credit (an important wage subsidy for the poor), and lifted the minimum wage.
President Bush has handed the surplus to the wealthy and cut revenues so much as to jeopardize the future viability of domestic social programs. The administration is about to change regulations to take away the right to overtime pay for millions and has already blocked new ergonomic regulations that would have prevented serious workplace injuries. It threatens to privatize Social Security and has passed Medicare legislation that may sabotage that program's future. It is hard to identify any area of economic policy that the administration has not tried to radically reorient to favor business and the richest Americans.
Perhaps it comes down to this: More than two years into an economic expansion, we're still stuck with the worst jobs recovery on record. Our guess is that the economy won't change much by November -- deficits will still loom, unemployment will probably be too high, and for those with jobs, wage growth will be unimpressive. Could it really be that it won't matter who is president?
Presidents certainly do matter when it comes to job creation in a weak economy. And it would help immeasurably to have one who is sincerely interested in using the immense power of the office to create economic opportunities and help working families.
Jared Bernstein is a senior economist at the Economic Policy Institute (EPI) in Washington, D.C. Lawrence Mishel is the EPI's vice president.