Do Presidents Matter?

By Justin Fox

For decades, scholars have been churning out studies on the impact the economy has on presidential elections. The not-very-surprising message of most of them: economic trouble is bad news for the party that occupies the White House.

The seemingly far more important question of what impact Presidents have on the economy has been studied less, with far less conclusive results. See, it's not just journalists who obsess over campaign horse races and neglect issues. It's economists and political scientists too.

The reason is that separating cause and effect on Presidents and the economy is hard. Yes, over the past half-century, Democratic administrations have seen faster economic growth--and better stock-market performance--than Republican ones. But the sample size is so small that you really can't rule out luck.

A perhaps more solid result, because it jibes with the parties' priorities, is Princeton political scientist Larry Bartels' finding that income inequality increases more under Republicans than under Democrats. But a case can also be made that it doesn't matter who's in charge. A study of political leadership and economic growth around the world by economists Ben Jones of Northwestern University and Ben Olken of Harvard found that changes at the top made a big difference--but only in dictatorships.

Still, even in this democratic nation of ours, Presidents have a big imprint on economic policies, if not necessarily outcomes. If Al Gore--or even John McCain--had been the one who moved into the White House in 2001, big tax cuts would not have been at the top of the presidential agenda. But with George W. Bush, who never met an economic problem he didn't think could be solved by reducing tax rates, they were.

The Republican-Democratic split in 2008 won't be quite that dramatic if McCain wins his party's nomination, as now seems likely. But it will still offer significant contrasts. Democratic rivals Hillary Clinton and Barack Obama have big plans for universal health care and want to allow parts of the Bush tax cuts of 2001 and 2003--mainly the parts that apply to the affluent--to expire, starting next year. And Clinton and Obama say they will push for tax breaks and other perks for the poor and middle class. McCain's pronouncements on taxes have meandered so much that one can't predict his actions with confidence, but he is more likely to extend the Bush tax regime and has less dramatic plans for health care. If you don't like the way things have been going with the economy, the Democrats clearly offer more in the way of change.

Between Clinton and Obama, the differences are of degree and style. Clinton has offered more specifics, particularly on health care. For Obama, wonky proposals obviously aren't the core of his appeal--although he has been more explicit than Clinton about raising taxes on the rich. Both voted against the Central American Free Trade Agreement in 2005, but neither is what you'd call an anti-free-trade activist. Clinton, it appears, would be likelier to enter the White House with big legislative proposals ready to roll. Obama might be better at forging the compromises needed to turn them into laws.

This isn't the stuff from which stark conclusions can be drawn, I know. In search of more clarity, I called Jim Leach, the former Republican Congressman from Iowa who has long had a reputation as one of Capitol Hill's deepest thinkers.

Do Presidents matter to the economy? I asked. "In normal times they modestly matter. In abnormal times--and this is abnormal--they matter a great deal," said Leach, currently director of the Institute of Politics at Harvard's Kennedy School of Government. "The importance of the President vis-`a-vis the economy hasn't been this consequential since the Great Depression."

Leach worries that the U.S.--and its financial system in particular--faces a global crisis of confidence that could end really badly if mishandled. So which candidate and which policies are best suited to address it? Leach, who hasn't endorsed a candidate (although his wife has been campaigning for Obama), told me the crucial trait for the next President will be the ability to inspire confidence. That was it. No laundry list. Just confidence.

Is it any wonder that we keep returning to the easy economic questions? Go ahead, ask me if a recession is bad news for McCain. I can answer that!