The President and the Economy

Question: what is more American than apple pie?

Answer: voters expecting Presidents to fix the economy during election season.

I am always amused when voters do this, because really, the President doesn’t have that much power to “fix” the economy and achieve Paradise on Earth. Yet every four years, voters pin their fears and hopes about the economy on presidential candidates, and the candidates too pose as populists, supply-side, demand-side, and so-forth.

They play right into the expectations.

But here’s the thing: if we Americans are so insistent on doing everything through a market mechanism, why are we also so insistent that our Presidents should interfere in that very mechanism? In other words, if we are so averse to any kind of, god-forbid, “political interference in the market”, then why are we so keen on a POLITICAL solution to our economic problems?

Then again, this only confirms the fact that American voters are ill-informed and inconsistent in their opinion and knowledge of how our economy, and more importantly, our political system, actually works.

But let’s assume that this contradiction doesn’t exist, for argument’s sake. Let’s see what the President can actually do to “fix” the economy.

First, he has budget powers as the head of the executive agencies. But that power is checked by Congress, so if we have a divided government, the President’s power is severely limited, i.e., Bush during his second term.

But other than that, what CONSTITUTIONALLY-endowed powers does the President have to fix the economy? I cannot think of anything else. Anything that the President might do, he must also content with Congress, so it’s really unrealistic to expect what presidential candidates say about the economy will actually be implemented once he is in office.

And whatever “meddling” the government does in the economy is, for the large part, done through the Federal Reserves, via monetary policy, which the President can’t really control since the Federal Reserve System is part private, part public.

So if voters are really concerned about the economy, and more importantly, INFORMED about how our economy works, they would be wise to ask presidential candidates what kind of people they will appoint to be the Chairman of the Federal Reserve. But then again, voters can’t really tell Presidents whom to appoint. Neither are they interested when an opening does come up, like when Greenspan retired. Instead, all the interest comes from those in the know–i.e., think tanks, Beltway insiders, Wall Street, and academics.

Therefore, voters are asking the wrong questions to the wrong people. It is plain unrealistic to expect presidential candidates to make good on what they say about the economy during election season, because there are way too many other political actors with more influence and power.

Asking presidential candidates what they will do about the economy once they are in office is kind of like asking a blind man how he’s going to fix a leak in the ceiling.

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