How Much Power Do Presidents Have Over The Economy?

You hear complaints about the unemployment rate among Hispanics, or how this other group lost their jobs, and everybody's immediate reaction is to blame the Presidents. What is left out of discussions like these is the question of exactly how much power does a President have over the Economy?

Not much says Russell Roberts, professor of Economics and the Smith Distinguished Scholar at the Mercatus Center at George Mason University. He writes,

The President hardly even runs the government. He certainly cannot direct the fortunes and failures of millions of workers, managers, investors and entrepreneurs.

The quickening pace of our times creates an impatience with delay. We want our food fast and our email messages now, on our phone. We want everything yesterday if we can have it that way. The idea that we can do very little about stimulating the economy in the short run is simply unacceptable. Surely there is some policy lever, some economic button to push that can speed things up. But the lesson of the swimming pool and the broken window is that the fundamental constraint surrounding the system make it very difficult to change events in the short run. A President can no more stimulate the economy in the short run than you can make a child grow a foot in a week. Genuine growth takes time. The most a President can do is to help create an environment for that growth to take place by unleashing the creativity inherent in a nation’s people and those they trade with in other countries.

Rearranging resources will not stimulate the economy even in the long run. But that is not to say that there is nothing a mayor or President can do to improve the economy. A city can always improve how it runs its schools, polices its streets or picks up its trash. It may decide that some of these tasks can be done more cheaply or effectively by private organizations or left to the private choices of the marketplace. Appropriately-designed tax cuts or tax reforms allow a city or a nation to finance its activities in ways that encourage wise and beneficial decisions. Any of these improvements will make the city a better place to live and will lead to economic growth. But all of these changes take time.

And why do a lot of people have a hard time understanding this limitation Presidents have over the Economy? Professor Roberts explains it this way,

The low level of economic discourse in Presidential campaigns is our fault. The economists among us must do a better job reminding us of the constraints that inevitably constrain us in the short run. And we as citizens could be a little more skeptical of claims of blame when things go poorly or bragging rights when things go well. Let us expect a little less of our politicians in the short run and we will find a little more contentment with their performance.