Does the president actually influence the economy?

Freakonomics Radio's Stephen Dubner says the president's influence over the economy is actually close to zero. Here, President Barack Obama speaks on his FY 2013 Budget to students in Virginia on Feb. 13, 2012.

Kai Ryssdal: Time now for a little Freakonomics Radio. It's that moment every couple of weeks where we talk to Stephen Dubner, the co-author of the books and blog of the same name -- it is the hidden side of everything.

Dubner, how are ya?

Stephen Dubner: I've been worse.

Ryssdal: You have? All right, OK.

Dubner: I'm doing all right.

Ryssdal: You know why you're doing all right, though? Because Super Tuesday's behind you, man. You don't have to worry about politics anymore.

Dubner: That is a big part of it. You know how I feel about the presidency.

Ryssdal: That's where I was going, because generally, you think it's overrated, right?

Dubner: I do. I believe that the office of the president of the United States, it just matters a lot less than most people think. Now I will say, when I make this argument, I get hate mail from both sides of the aisle. Conservatives accuse me of "covering" for President Obama, and liberals accuse me of kind of preempting criticism of some future Republican nominee.

Ryssdal: Well the man is the leader of the free world, so to speak. So what's the actual truth here, dude?

Dubner: Look, personally, I have no horse in any race -- I dislike both political parties about equally. But here's the thing: We're heading into a presidential campaign now that is likely to focus on the economy, and rightly so. And I'm here to tell you and your listeners that of all the areas in which the president's influence is overrated, the economy is probably No. 1.

I'd like you here to listen to Austan Goolsbee, who's a former chairman of President Obama's Council of Economic Advisers.

Austan Goolsbee: I think the world vests too much power -- certainly in the president, probably in Washington in general -- for its influence on the economy, because most all of the economy has nothing to do with the government.

Ryssdal: I love the way he talks, by the way. Sounds like a mafia guy, doesn't he? But wait listen, you were around in the '92 election? You were paying attention, yes?

Dubner: I was a sentient being then, yes.

Ryssdal: So Clinton, "It's the economy, stupid" -- that's why the guy won.

Dubner: It's a fantastic campaign slogan -- you get to brag about how you'll raise employment and lower gas prices -- as if, Kai, there's some magical set of buttons in the Oval Office that you get to push once you're elected. A 'More Jobs' button.

But as Austan Goolsbee points out, the president's ability to actually change the shape and direction and velocity of the macroeconomy is extremely limited.

Ryssdal: Let me go back then to the actual politicians who say otherwise. You had Clinton and now you've got Mitt Romney -- former CEO, a business guy. Goes out, every stump speech he makes and says, 'I know what to do in the economy. I've been there, I've created jobs, I've fired people, blah blah blah.' You're not buying that?

Dubner: I buy that he believes that to be true. A lot of people have believed that to be true in the past; this kind of common idea of the last 10, 15 years is 'president as CEO.' But it doesn't work that way. We set it up to not work that way. When it comes to unilateral decision making, there's no comparison between what a CEO can do and what a president can try to get done. Here's another way of looking at it, with some actual data, which is what we like to do.

Ryssdal: I was waiting for the data, man.

Dubner: In the 2004 Bush-Kerry election, you may recall there was a little bit of a snafu concerning the early exit polls.

Ryssdal: Oh yeah, Kerry was the winner for like, three-something hours, four hours?

Dubner: That's exactly right. It was announced it was Kerry but it turned out to be Bush. And the economist Justin Wolfers took advantage of that mix-up for a study he did.

Justin Wolfers: 2004 was a social scientist's dream. What you have is four hours -- I'm a Democrat, so I'll say four beautiful hours -- in which we basically had a Kerry presidency. And it was random.

Dubner: So what Wolfers did is he looked at how the stock markets reacted to first the news of a Kerry presidency, and then the new -- turned out to be correct -- news of a Bush presidency.

Wolfers: You see, in fact, that stocks fell a little bit during the four hours of the Kerry presidency and then they rose a bit when it became the Bush presidency.

Dubner: Now, the difference between a new Democratic president and a new Republican president in the space of four hours was actually pretty small -- about 1.5 percent. That is just a sliver of evidence, but it does suggest that the people who pay the most attention to the working economy -- which is to say the Wall Street investors -- didn't really care all that much about which president they got. And most economists will tell you that the president's role when it comes to the economy is much closer to let's say a cheerleader than a CEO.

Ryssdal: Yeah, but you're never going to see Obama or Romney out there saying, 'I can do nothing!' Right?

Dubner: No, you won't. They've got their self interests, but just once I'd love a presidential candidate to get up there on the stump and say: 'My fellow Americans, I can't control the U.S. economy. I've got a little bit of influence but mostly it does what it does. So if it gets worse on my watch, you shouldn't blame me -- and if it happens to get better, you probably shouldn't give me too much credit either.'

Ryssdal: Ladies and gentlemen, the next president of the United States, Stephen Dubner.

Dubner: I think not. Now you know why I'm free to be on your radio show -- nobody in Washington wants to touch me.

Ryssdal: That's exactly right. Freakonomics.com is the website. See you in a couple weeks.

Dubner: Thanks Kai.

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You mean starting wars on foreign soil and running up the national debt -- neither of those affects our economy all that much?

How about appointing the Board of Governors of the Federal Reserve or even the Secretary of the Treasury? Those guys don't have that much to do with our economy, do they?

Nope, though their duties include setting interest rates, controlling (or not controlling) inflation, printing money, selling bonds, bailing out banks and corporations, bailing out foreign governments, ruining the credit rating of the U.S. etc., etc., etc., and in the case of the Secretary of the Treasury being "responsible for formulating and recommending domestic and international financial, economic, and tax policy, participating in the formulation of broad fiscal policies that have general significance for the economy, and managing the public debt" -- not even all of that gives the President all that much say in the economy. He's just a guy doing some unimportant administrative stuff.

Nevermind whom he appoints to the Fed or his cabinet and nevermind the foreign entanglements and endless spending; it's all obsolete when it comes to the market.

Let's get real.

@andy_colver: You should really consider what he says before trying to ride an assumption the length of your post.

If you really think that when a President appoints a member to his cabinent that they are President-incarnate and will act absolutely to the power of his will then you live in an interesting place which is not the U.S.

Furthermore if you truly believe that a president controls each member of the Board of Governors this is news to me. Contrary to popular belief the president does not run the Federal Reserve and even if he appoints a member of his home party it does not guarentee his will be done. Our nation's government is based on a system of checks and balances which by definition makes it so that no one man has powers that you enumerate in what you might consider an argument, those who know better would consider it a list of falsehoods or possibilities.

If you think that bailing out foreign governments who literally exist off of us and export us raw materials which we can refine into finished goods hurts our economy you have not spent enough time practicing macroeconomics on the grocery list. Alternatively maybe you don't watch the news and have no clue which of these 'Foreign Governments' are getting the bailouts. If I recall all of them created net swings on the loans profiting the U.S. over $3.4 Billion in 2010*. If you think that a president is able to execute bailouts by himself you are also mistaken. He has to pitch and make deals with congressmen as well as convince several layers of multiple legislative bodies (and sub administrations) that his idea is genuinely beneficial to the country. I don't need to tell you that the Secretary of Treasury is not the President, so need I remind you that he will never act in accordance to the President's absolute desire. The President has the advantage of hiring a cabinant member who he thinks will not only cooperate with him and the other members but also will push the country politically in the direction he would like. When a President wants to make something happen and his S.Treasury is in complete disagreement chances are he will have a tough time executing his plan.

Next I will move on to your little uncited quote which in summary says two main things about the responsibilities as president. He is responsible to both formulate and reccomend policies. He is also responsible to participate in the formulation of broad fiscal policy. Now if you look at these two dumb downed sentences extrapolated from your uncited no source indicated quotation, you can easily see that he, the president, only makes propositions to the other legislative and administrative bodies. Now you have to realize the difference between making a postulate of a plan (aka a proposition) versus actually executing said plan through passing it through Congress. When the president formulates a policy and reccomends it, Congress does not have to agree at all. When he formulates broad fiscal policy Congress can deny his ideas and send him on his way. This leads me to wonder why you think that all of these things are total up to him, as though at a whim his will be done shadowing jesus himself. This is not the case and it never will be, as long as the U.S. exists and we follow our current Constitution.

Now, now,
the strongest power of Presidency really boils down to three things and I think that our interviewee really hit one of them on the head. You hit the other on the head, and one has yet to be mentioned.
-(Interviewee's point) Foreign Policy (Not economic)
-(Your only good point) Power to appoint (which is not the same as having the positions himself!)
-(Unmentioned) Power to veto Congress (which can prevent legislation that he finds undesirable unless his veto is overuled)

Now you might disagree. You think that when a president gives a speech or says certain things, promotes certain bills in Congress, that he has a rippling effect on the economy. You might even go so far as to assume that this is a direct control (which it is not). This would not be incorrect but to attempt to quantify his power, or assume the power exists just based on the implications of words that every citizen of our country can interpret in their own fashion and may pay absolutely no attention is simply ludicrious. The powers of the president are not unlimited. Your original argument makes it sound like the President runs the Fed, the Board of Governors, micro-manages his entire cabinant, choses the rates of inflation, etc.

I just got real.

*Cited from Import Administration / 2010 census.

Note: Before you try to blast me out of the water as a O'Bama promoter, or anything of the sort you should know I am politically unaffiliated and I am disgusted with the politicians of our time. Politicianship has sunk below the surge of big business and money making the decisions in this country. Even if I might not convince you, I am not going to sit idly by and watch you spin myths.

PS: People always respond better to the truth and without bias - Fact over philosophy - This is because everyone should be able to find their own beliefs - Dum Spiro Spero

I must say that the quote from Austan Goolsbee has to be one of the most irresponsible statements I have ever heard on the show. The notion that the Federal Gov'ment has little to no effect on the economy is preposterous. 25% of each and every dollar in circulation passes through the hands of the Federal Government EACH YEAR! They control 100% of commerce legislation, and this policy is directed by the President. I work for a large multinational, and guess who our biggest customer is? You guessed it - the US Government! So the projects they decide to spend money on (think green or defense projects) have a HUGE impact on our bottom line and our hiring outlook. Sad that NPR is pushing the big myth to give Obama a pass, after the man himself blamed the entire economic mess on his predecessor.

Barack Obama does not need "a pass." Obama has already created more jobs in the past 3 years than George Bush did in 8. But I agree with you that Dubner's proposal that a president has no effect on the economy is preposterous. So the rational interpretation is that he is attempting to withold credit from Obama for the clearly expanding economy and to give Bush a pass for the economic destruction of the previous 8 years. Or maybe Dubner has no agenda and is just unschooled in this matter?

Thanks to Mr. Dubner for addressing the "President as CEO" fallacy. As noted in the segment, almost every Mitt Romney stump speech includes a reference to his success as a private sector CEO, to justify his fitness for the Presidency. As a private sector CEO, Mr. Romney's decisions were final. His employees either fell in line or found new work. The President has no such control over the elected members of the House and Senate, whose majority approval is required, to enact any public policy. Therefore, the most effective President is one who possesses the political skills to pursuade the House and Senate that his/her policies are worthy of enactment. Although "politician" often is used as a pejorative term, it is more important for a President to be an effective politician than an effective CEO.

Pardon my saying, but consumer saving and spending habits are demographically driven, largely dwarfing the policy initiatives of a standing president. Therefore, because the last of the Baby Boomers have just passed their peak spending years, there’s now nowhere for the economy to go but down. So, if the economy is like a cruise ship riding on the ocean swells, with the president as captain, then . . . “the former captains, Ronald Reagan and Bill Clinton, deserve no credit for the rises that occurred while they were at the helm. Likewise, George W. Bush should not be blamed for the current downturn. And as for Captain Obama . . . so sorry, Mr. Limbaugh, there’s no point in hoping for his failure; the new captain has zero chance of keeping the boat aloft because the demographics are entirely against him.” (This quoted passage comes from the 2009 book “The Redesign of Tomorrowland.”)

What information is there to indicate the influence of Congress on the economy?

One more point: Stocks moving up or down in a four hour window on election day has absolutely NOTHING to do with the underlying state of the US economy.

It is certainly the case that the US economy has a certain inner mechanism that at various times in our history is driven by this dynamic and diverse society. But to claim that presidential policy has no effect simply belies demonstratable outcomes from identifiable policies. Such a claim seems to be neo-sophistry.
It sounds like wanting to withold credit from a certain president for clearly improving the US economy the past 3 years and wanting to hold another president above reproach for tanking the US economy in the previous political term. From the 60 year residual economic dynamo rooted in New Deal policies to the recurring time-bombs of Reaganomics from 1980s through the present, presidential policies clearly matter. Other than sounding cleaver to the economically uneducated, why would one say otherwise?

this is a lie the president has a lot of control over the economy so dose the fed they all work for the same bankers in fact I think they are keeping the US economy down on purpouse they get to tell us how mutch our money is worth and how mutch we get for our labor. have you ever played chess they are sacraficing their queen to win the game basicaly so they can shut down the last remaining independent countrys that wont play ball. do you realy think money means anything to the power holders. We are a big stick that can be bought and used by any major power. just look at our elections its a joke if the president decided to boot the foren banks and corperations and let the people run things we would not be in this mess


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