The Myth That the President Can Save the Economy

Hillary Clinton wants to bring back the 1990s. She has touted her husband’s economic record—“the longest peacetime expansion in our history”—and promised to put him in charge of fixing the economy because, in her words, “he knows how to do it.”

Donald Trump wants to resurrect the 1950s. With his promises to bring back manufacturing jobs and flip the U.S. trade deficit with China, Mexico, and other countries, Trump is calling for a closed economy not seen since the U.S. was the industrial colossus of the world. “We will have so much winning if I get elected that you may get bored with winning,” he said.

Both decades are worthy subjects of economic nostalgia. But as the country enters a general election in which promises about saving the economy will become more debased than Venezuelan currency, this is a good time to revisit an old truism: Presidents don’t shape the economy as much as the economy shapes presidencies. Although the office of the presidency has become imperial when it comes to surveillance, security, and foreign affairs, it remains relatively weak when it comes to single-handedly bending the GDP curve upwards.

The 1950s and 1990s are both good examples of the many ways that circumstances outside of any one individual’s control determine economic growth far more than policies originating in the Oval Office.

In the 1950s, Dwight Eisenhower was considered a responsible steward of an economy that was poised to convert wartime productivity into peacetime bounty. During World War II  American factories had learned productivity lessons that they later applied to making cars and refrigerators. The economy benefited from the mass adoption of several technologies, such as television and air conditioning, which had been invented decades prior but had not caught on because of the war and Depression. With much of the world still coping with the aftermath of war, the U.S. was the world's factory, and wages for middle-class workers soared. (To be fair, Dwight Eisenhower was not an entirely passive observer of the economy; he built a 40,000-mile Interstate Highway System, with debatable benefits, and expanded Social Security, but the economy would have been sterling without these measures.)

Hillary Clinton offers up the ‘90s as evidence of her husband’s economic savvy. But he, too, was a beneficiary of historic good fortune. Clinton passed some policies that helped the economy flourish, but the middle class was bound to flourish right then thanks to “the rise of the internet and the entrance of the baby boomers into their peak earning years,” as Ben Casselman wrote in FiveThirtyEight. (Moreover, just as later generations criticized the ​effects of Eisenhower’s ​Interstate highway project, many would argue that Clinton’s welfare reform and financial deregulation also had extremely negative consequences.)

Ronald Reagan savior act is so widely worshipped that people call the 1980s “the Reagan Recovery.” But the Gipper also occupied the Oval Office at an auspicious time. Today, even some Reagan supporters acknowledge that the most important contributor to 1980s recovery wasn’t his vaunted tax cuts or stimulating defense spending. Paul Volcker, the chairman of the Federal Reserve, had triggered the recession with restrictive monetary policy in the early 1980s to tame inflation. When inflation has sufficiently dropped, he loosened monetary policy, and the economy sprung back to life.

At extremes, presidents have hurt the economy or, with the help of Congress, rescued it from catastrophe. But these are extraordinary cases, and they’ve typically required extraordinary help from Congress. Most recently, the 2009 stimulus act—the largest such measure in American history—increased short-term growth and blunted the Great Recession. But Congress obstructed his later efforts to expand the stimulus, another reminder of the presidency’s limits. The U.S. government is like an ocean liner and the presidency a small rudder; by design, it is difficult to turn dramatically, and impossible to turn quickly.

If it doesn’t make sense to see presidents as heroic saviors of the economy, then what’s the right way to see their contribution to the economy?

First, when it comes to growth, the modern presidency is more like a tinkerer than a chief engineer. Factors like monetary policy, demographic changes, the invention and implementation of new technology, and housing policies are typically more important contributors to long-term growth than the president’s budget and executive orders.

Second, when evaluating a potential president’s taxes and budget, it’s more important to focus on values and feasibility than the elusive question of which budget plan will unlock mysteriously missing growth. A 2016 paper by William Gale at the Brookings Institution and Andrew Samwick found that it is "by no means obvious" that tax cuts grow the economy. Similar studies have found sketchy evidence that cutting taxes unleashes significant business activity. In the big picture, it’s unrealistic to expect that there is a secret fiscal combination to prosperity, as if 5 percent growth will suddenly appear if somebody thinks of the right marginal tax rate. Taxes are an indirect way to nudge GDP, but they’re a very efficient way to do something else: collect money and spend it on things that the public considers important—like guaranteed health care, poverty alleviation, education, defense, infrastructure, and so on. The president might not be able to conjure GDP growth out of thin air. But he (or she) can shape how the winnings are distributed. Don’t vote for the conjuring act. Vote for the distribution.