Freakonomics Radio

Does the president actually influence the economy?

Stephen Dubner Mar 7, 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. is the website. See you in a couple weeks.

Dubner: Thanks Kai.

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