Presidents and the Economy

Matthew Yglesias has some smart things to say about the somewhat wishful comparisons between Obama and Reagan's somewhat similar poll numbers:

But I think Andrew Sabl draws too much solace from this fact. Look at how robustly the economy rebounded from that downturn:

FRED Graph 1

The Office of Management and Budget projected real growth rates of 4.3%, 4.3%, and 4.2% for 2011, 2012, and 2013 which is much worse. OMB's forecast is also generally thought to be overly optimistic. The "Morning in America" year of 1984 featuring a real growth rate of over seven percent. If that happens in 2012, Obama will indeed cruise to re-election, become incredibly popular, and make fools of his rivals. But the administration's economic policymakers don't believe that will happen and don't have a strategy for attempting to make it happen.

It's sad, but the economy makes presidents seem like geniuses or clowns more than it should.  I think FDR basically did a good job with the banking system, but the fact remains that after 3 years of recession, the economy had probably bottomed out; if Herbert Hoover had taken office in 1930 instead of 1928, he might well have gone down in history as a great president.  Carter, too, got painted as an economic clown, even though he started the deregulation and liberalization that Reagan finished. Unfortunately, he also presided over an ugly, ugly recession induced by Paul Volcker's war on inflation.

Conversely, Bill Clinton may have done many good things, but he didn't make any meaningful contribution to the tech bubble, which drove the economy, and especially tax revenues, to soaring heights.

On election night in 2008, I saw a bunch of people twittering some variant of "It's 1932!"  This also seems to have been what Democrats in Congress thought--they seem to have believed that they had near-FDR levels of political capital to work with.  But as I said at the time, the relevant comparison was not 1932, but 1929.  Financial crises take a while to work through, and this one may well see Obama leaving office after one term, many of his policies tainted by association with a recession he didn't cause and couldn't ever have done much about.

(It also may not.  I think the economy is going to be stagnant for a few years as we work out our balance sheet issues and reallocate labor from the housing market.  But economic prognostication is a dismally poor science.)

Whichever way it works out, one side or another will overattribute the 2012 economy to Obama and the Democrats.  The fact is, the president can't do much more than tinker around the edges of a $14 trillion economy--for which we can humbly thank God every day.  If presidents really did have the kind of power over the economy that their friends or enemies try to claim, the world would be a much more terrifying place.