Economy & Business

Of Presidents and Economies

(Reuters photo: Jason Reed)
Our primitive belief: When the chieftain pleases the gods, we get bountiful harvests.

There was a scrap of good economic news this week: The GDP-growth figure for the last quarter has been revised upward to an annualized rate of 3.3 percent. That is the most robust GDP growth we’ve had since the third quarter of 2014.

Hurrah.

There was other good news: Corporate earnings were up 5.4 percent year-over-year, and while consumer spending slowed down substantially, investment in business equipment rose considerably, to an annualized rate of 10.4 percent.

You’ll notice the word “annualized” in there more than once. That’s because we are looking at the data from only one quarter, i.e., from a three-month period. That’s a pretty narrow view: No one remembers 2014 as a smashingly successful year for the U.S. economy, but it featured two quarters of growth far stronger than the one currently being touted by the Trump administration: 4.6 percent in the second quarter and 5.2 percent in the third quarter. Unfortunately, growth was negative 0.9 percent in the first quarter and 2 percent in the fourth quarter. This quarter giveth, and the next quarter taketh away. Or maybe it doesn’t.

But this isn’t about data. It’s about bug-eyed, bone-in-the-nose, bark-at-the-moon primitivism.

We like to think that we have left behind such ancient notions as divinely sanctioned kingship and rule by chieftains who propitiate the gods and therefore make the fields fertile and the livestock fecund — or else displease the gods and bring upon us drought and plague. But we haven’t.

One of the great enduring stupidities of the American presidential cult is the belief, rooted in invincible ignorance, that the state of the U.S. economy at any given moment is a reflection of the intelligence and wisdom of the chief executive of the federal government and a result of the excellence or insufficiency of his administration. “Sure, Bill Clinton may have been an intern-diddling hillbilly and maybe even a violent rapist, but, man, my IRA kicked ass in the 1990s!”

It’s dumb, but it rules politics.

There’s an upscale version of this stupidity, one you will hear repeated ad nauseam on outlets like MSNBC and in the virtual pages of Forbes, which really ought to know better. Here’s Jere Glover praising candidate Donald Trump for asserting

the same thing I’ve been compiling cold, hard government data on since 1980: By crucial metrics like GDP, job creation, business investment and avoiding recessions, the economy does a lot better with Democrats in the White House than with Republicans. Just one eye-opening example: Nine of the last 10 recessions have been under Republicans.

If you have a little basic mathematical literacy, you’ll see some problems. A little political literacy will lead to your detecting several more. But let’s consider it.

Ten recessions back gets us to 1953. Since then, we have had 30 years of Democratic presidents and 35 years of Republican presidents; if recessions were randomly distributed, we’d still expect to see more of them coinciding with Republican presidencies simply because there have been more of them. In fact, most presidencies have coincided with one or more recessions.

On the specifics, the argument is weak. But how much should we make of that coincidence in general? Democrats plead on behalf of Barack Obama that he came into office during a terrible economic crisis, and that he and his policies should not be blamed for the weak growth and disappointing labor-market performance that marked his time in office. That’s not unfair. But the same could be said of, e.g., Gerald Ford, who had to deal with an OPEC-inflicted quadrupling of oil prices in 1973. Does anybody think Gerald Ford’s policies caused that? John Kennedy came into office at the tail end of a recession, which officially ended in February of his first year in office. Does any serious person believe that in the course of less than a month President Kennedy implemented policies that ended the recession? That would be a deeply silly contention. Even more juvenile is assuming that business cycles are inextricably linked to election cycles — without offering a lick of evidence or even a plausible mechanism for that being the case.

Recession-counting also ignores the fact that some recessions are the result of excellent public policy. The Reagan administration came into office with the country suffering from a serious inflation problem, and the tight monetary policy that the administration undertook to rein in that inflation produced a recession, as it was expected to. The recession was the price we paid for getting inflation under control. Inflation rose again toward the end of the Reagan-era boom, and once again, monetary tightening was used to control inflation at the cost of inflicting the mild recession that Bill Clinton rode to power. Oddly, Jere Glover ignores inflation. I wonder why.

People talk about ‘Reagan deficits’ and the ‘Clinton surplus,’ but it would be much more sensible to talk about the Tip O’Neill deficits and the Gingrich surplus.

Besides the most obvious economic stupidity, there is some pretty deep political stupidity at work here, too. For one thing, presidents have to deal with Congress, which actually does things like set tax rates and appropriate money. People talk about “Reagan deficits” and the “Clinton surplus,” but it would be much more sensible to talk about the Tip O’Neill deficits and the Gingrich surplus: Reagan wanted substantial spending cuts that were never implemented, and Clinton resisted even modest fiscal reform until he couldn’t. These things get a little more complicated than the R-vs.-D, black-hats/white-hats mode of analysis would suggest.

And, of course, there’s the hard-to-quantify fact that Dwight Eisenhower, Richard Nixon, Ronald Reagan, George W. Bush, and Donald J. Trump (“One of these things is not like the others / one of these things does not belong!”) pursued radically different economic policies. As, indeed, did Democratic presidents: There’s a great deal of daylight between Jack Kennedy’s economic thinking and Barack Obama’s. On the GOP side, Ike was a Republican throwback who pursued a policy agenda that he himself described as “progressive” while keeping an eye on the nickels and dimes, and he presided over a federal government that, in 1957, saw slightly lower taxes than we have today, three times the military spending, and a modest budget surplus. (Modern conservatives could live with a progressive like that, I think.) Nixon was a Wilsonian statist who imposed price controls on the economy. Reagan was a libertarian optimist who put growth over balanced budgets. Trump is an economic illiterate with no substantive policy agenda at all.

But he will crow about that 3.3 percent GDP growth last quarter, and will insist that it is the result of his policies. Which of those policies, I wonder? He may get his tax cut, but, for the moment, Trump has done almost nothing of substance on the economy, and what his administration has done — a bit of excellent regulatory reform — is unlikely to affect growth dramatically in the short term. Regulatory reform is a good investment, but one with a long timeline for payoff. When you hear someone crediting a president with an economic boom or strong wage growth, ask them in some detail about the actual mechanism they believe to be at work, some plausible chain of causality. You’ll rarely get a satisfying answer.

Regulatory reform is a good investment, but one with a long timeline for payoff.

Presidents are one small piece of the public-policy picture — and public policy as a whole is only a small part of what shapes and moves a complex modern economy. We tend toward a destructively immature and ahistorical view: The regulatory reforms that made the Internet boom of the Clinton years began decades before; the confluence of terrible policies that created the subprime meltdown and financial crisis of 2008–09 began in the 1930s, with housing and banking reforms and regulatory development occurring under presidents and Congresses of both parties in ways that would frustrate any intellectually rigorous attempt at laying blame on a partisan basis. The Asian currency crisis of the Clinton years, Communist aggression and Mideast conflict in Eisenhower’s time, the terrorist attacks during George W. Bush’s first year in office: None of these was the result of some decision taken in the White House. George W. Bush wanted to be a school reformer and economic booster, not a president overseeing a long and thankless campaign against distant desert savages. But history doesn’t wait for anybody to vote on it. That affects everything, including the economy.

The belief that GDP growth or this month’s jobs report provides a meaningful judgment on the performance of the president isn’t economics — it’s superstition. It is the modern version of the ancient belief that a crop failure means that the king has displeased the rain god or the wheat goddess. It is a primitive disposition from which we should liberate ourselves — and could, if we were willing to do the hard work of citizenship rather than take our ease in lazy partisanship.

READ MORE:

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