The leader's effect on the economy is 'at the margin', writes Jeff Ostrowski
For two decades, US presidential candidates have followed a pithy edict: "It's the economy, stupid."
But economists have a different take on the outsized role the economy plays in presidential elections. It goes something like this: You'd have to be stupid to think the president controls the economy.
Jobs are perhaps the biggest issue in this election. But, economists note, the president doesn't hire or fire workers.
"Political leaders have no business taking credit for job creation," the chief economist at SunTrust in Atlanta, Gregory Miller, said.
Nor does the commander-in-chief buy or sell houses, or stocks. Aside from a brief Depression-era experiment when Franklin D. Roosevelt set the price of gold every morning over breakfast, the president's power is limited.
"The president has much less influence on the economy than we think," said Stephen Dubner, co-author of the bestsellers Freakonomics and SuperFreakonomics. "It is the ultimate in figurehead politics."
While Dubner's books are known for their contrarian bent, traditional economists agree with his assertion. Don Boudreaux, at George Mason University in Virginia, said it's hard to imagine anyone - even someone as powerful as the president - controlling the nation's $US15 trillion ($14.2 trillion) economy.
"What happens day to day in the economy is largely out of the control of the president and the Congress," Boudreaux said. "The economy is so darn complex. The economy is not run by the president, it's not run by Congress - it runs itself."
Economists say the most economically influential man in Washington is the chairman of the Federal Reserve, Ben Bernanke. The Fed controls the money supply in an effort to set interest rates.
"Monetary policy is a major issue, and of course the president has no control over that," said the dean of the business school at St Thomas University in Florida, Antonio Villamil, who was also an undersecretary of commerce during the George Bush snr administration.
The president isn't powerless, of course. If Congress is on his side, he's a powerful player in tax policy, federal spending and sweeping initiatives such as President Obama's health care overhaul.
"The president can set the tone," Villamil said. "A president can create a lot of uncertainty in the marketplace, and that uncertainty can be translated to lower job growth."
Even so, many economists use phrases such as "at the margin" to describe the effect of presidential initiatives on the economy.
Despite economic reality, presidential candidates from both parties talk endlessly about their plans to spur spending. They leave voters with the clear impression that job creation and economic growth are simple, predictable things that the guy in the Oval Office can control.
During the Republican National Convention Mitt Romney touted his five-point jobs program that he said would create 12 million jobs.
Obama countered that he would place the nation on "a path to grow this economy, create good jobs and strengthen the middle class."
Economists consider this sort of talk little more than pandering to a public that doesn't understand the limits to the president's role in the economy. Hiring and GDP growth are dictated by the business cycle, the ebbs and flows in demand for products and supply of products.
"The prototypical business cycle will happen independent of who's in the White House," the chief economist at Comerica Bank in Dallas, Robert Dye, said.
The economy long has played an important role in presidential elections, but it's a role that seems to have grown since 1992.
That was the year Democratic strategist James Carville coined the phrase, "It's the economy, stupid." Bill Clinton unseated George Bush snr, a victory attributed to Bush's alleged lack of concern about the struggles of the middle class.
Candidates know voters assign responsibility for the economy to the president, so Obama and Romney have little choice but to play the part of economist-in-chief.
"When the economy is good voters re-elect incumbents, and when the economy is bad they throw them out," the managing director at Mason-Dixon Polling & Research, in Florida, Brad Coker, said.
The election looks so close that it's likely to be determined by the Labour Department's monthly employment reports released on October 5 and November 2, Coker said.
The economy is the rare issue that affects voters of all ages, races, religions and ideologies. Only part of the electorate cares about Medicare, and only some voters have kids in school or obsess over foreign policy. But everyone is affected by the economy.
So it follows that presidential candidates perpetuate the myth that they control the economy, Dubner said.
The US economy is so complex, and the law of unintended consequences so strong, that government rarely musters a clean solution to an economic problem. SunTrust's Miller said sometimes the president does fix things - but the effects are as likely to be measured in decades as in months or years. For instance, he said, tax cuts during the Reagan administration boosted production - but took 10 years to show up in the economy.
The bottom line, Miller said, is that voters would be wise to treat economic promises from either candidate with scepticism.