We often attribute the current state of the economy to the president. During recent inflation, the Biden administration has often gotten the blame for soaring gas prices and the rising prices of eggs. In regards to the upcoming presidential election, the presidential impact on the economy is the most important issue for swing-state voters.
However, presidents do not necessarily have as much direct power over the economy in the short term as most people think. Presidential decisions–including tech, health care, foreign policy, trade, agriculture and more–often have long-term effects on the economy. Even financial regulations or trade deals may not show notable effects until years down the line.
Another huge factor that blurs how well we can measure presidential impact on the economy as noted by Neil Irwin, senior economist for The New York Times, is the business cycle. He notes that when a president comes into office at the trough of the business cycle–the lowest point of a recession with high unemployment–there is only room for expansion, and vice versa. Irwin attributes their relative position to the business cycle to Clinton’s popularity and H.W. Bush’s poor economic reputation.
There are also countless external factors outside of the president’s control. While the president can appoint Federal Reserve governors, they don’t have direct control of the Fed–which controls the interest rate to curb inflation or recession. They’re also limited in their control of the global economy–one example being the global effects of the pandemic.
So why do people attribute economic growth or stagnation to the president? First of all, it’s easy. When the economy fails, it is easy to blame the president of the opposing party for all of your troubles. Not only is it human nature to attribute blame to individuals–but it's also helpful for politicians of the opposing party to exacerbate the situation to their benefit. Alternatively, when your party succeeds, you want to take credit.
However, this isn’t to say that presidents don’t have any power over the economy at all. In terms of fiscal policy, the Chief Executive is often known for his role in shaping tax and spending policy. Each year, the president sends his annual budget proposal to the House of Representatives. With that information, Congress then negotiates its budget proposal, which the President can then veto if he so chooses. Still, even in this sector, the president has to rely heavily on Congress.
As mentioned, presidents also have the power to appoint the chairman of the Federal Reserve. For example, President Biden reappointed Jerome Powell as Federal Reserve chairman in the Fall of 2021. Powell, a member of the Republican Party, was originally nominated to the board of governors by President Obama and later nominated for his first term as chairman in 2017 by President Trump. It is interesting to note that the Fed, which has the majority of control over regulating inflation, had the same leadership throughout the Trump and Biden presidencies. Still, polls show the majority of Americans have more trust in a Trump economy than a Biden economy.
One area where the president does have the power to shape the economy is their response to crises and external shocks. A major part of both the Trump and Biden administrations’ economic policies were their responses to Covid-19. Both presidents signed relief packages that helped stimulate the economy at a time of high unemployment. While Trump was criticized for too little relief and excessive unemployment during the pandemic, Biden was criticized for too much relief and high inflation rates post-pandemic.
However, the unemployment and inflation regulation is ultimately up to the Federal Reserve. Under Powell, the Fed has kept interest rates low amidst post-pandemic inflation—valuing job growth over lowering prices. According to Powell, current inflation is largely due to pandemic-related factors and should improve naturally over time. Ultimately, monetary policy is the responsibility of the Fed, not the president.
When evaluating a president’s economic performance, it is important to take his power over the economy–or lack thereof–into context. Whether or not the Biden administration is responsible for recent inflation, public opinion of his economic performance will most definitely come to influence the outcome of the presidential election.
The opinions expressed in this article are those of the individual author.