Jim McTeague of Barron’s asked a question that led to an even more interesting question. It started as the usual Presidential Election and the stock markets related inquiry — Is President Obama a positive or negative for stock and bond markets? — as I thought about the question, it devolved into something entirely else.

I had several thoughts that unintentionally skirted the question, but stimulated a deeper discussion:

1) Do Presidents get too much blame and/or credit for the Economy?

Generally speaking, this tends to be true. We focus lots of energy at the top, but the broader economy is part of a massive set of forces, much of which is typically beyond the White House’s ability to deal with.History shows that some Presidents have had major impacts, but that seems to be the exception, not the rule.

2) Why do some Presidents significantly impact the economy positively?

It appears that a combination of two factors: Luck, and the proper response to existing circumstances. That is what separates the great economies from the middling ones. Look at the circumstances that met FDR, Clinton and Reagan. Big challenges, appropriate responses.

Take RR is a good example: He had the luck to come into office in year 14 of a 16 year Bear Market; he also had Paul Volcker as Fed Chief who forced a wrenching recession early in his term. But Reagan’s response to those circumstances — significant tax cuts and Federal spending, followed by gradual tax increases, helped add up to a booming economy.

3) Why do some Presidents seem to do such a bad job for the economy?

Similar answer: Luck, and an inappropriate response. Hoover, Carter, and Bush 2 are examples.  Hoover came into office 8 months before the 1929 crash; Carter took over after the malaise of Vietnam war and Watergate; Bush 2 came into office a year into the dotcoms implosion and at the start of a recession.

Note that the response by each was a failure: Bush for example, started a costly unnecessary war in Iraq, cut taxes, blew up the deficit, and added tot he ongoing financial deregulations. Given an opportunity to instill Capitalistic discipline on Banks, he went all socialist on them instead.

Ultimately, the right combination seems to be Luck + the right response. Most Presidents seem to lack one or the other (or both).

4) Can we predict how well any Presidents economic policies will play out?

Here is the kicker: All of the above is meaningless, for we have little ability to forecast how ANY president will do economically. The economic performance of both Reagan and Carter surprised most forecasters. Expectations for Clinton was that he would fail, cause a recession, explode the deficit — the opposite happened. And Bush seems to have defied even his worst critics — to the downside.

All told, we are not very good at forecasting these things.

Category: Economy, Markets, Philosophy, Politics

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

33 Responses to “Presidential Blame & Credit”

  1. Taliesyn says:

    1st reaction: President is not just a president , but an *administration* meaning his cabinet member & chief dept. enforcer choices. So it’s not just Clinton, but Clinton-Rueben/Summers/Levitt/Greenspan , etc.
    With G Dubya Bush it was O’Neil/asleep at the switch John Snow/Paulson/Greenspanto Bernanke , etc.
    So technically *the buck stops* with the President because , like a CEO should be , has to be held accountable for the people *they* submit to Congress for hire. Case closed.
    Now, all being adults here , we know that the president himself doesn’t hand-pick all of his cabinet.Certain personages are recommended by their Party ,favored think tanks , and whatever lobbying engines have the heaviest influence at the time. You know , name your industry starting with Wall St, Big Banks ,Big Oil ,Defense ,Pharma , shall I go on. I always judge a President on whom he ultimately chooses for his cabinet as best as one can and thank God for the iNet for ability to allow instant cross-referencing research. with CSpan online broadcasts always being on the top of the list as source of choice. Cheney/Rumsfeld repercussions leading to any & all pretenses for massive military ( thus budget -busting ) was inevitable the monent Dubya was sworn in .
    My failure was the degree to which Republicanscan ratchet up War spending and *not * pay for it. At leastPapa Bush got the rest of the oil-based world to pony up the cash to pay for the 1st Gulf War. There a far more examples , but this one major example makes the point that presidents *are* whom they choose.

    BTW: Am listening now to 1 hour Manchester Editors interviewwith candidate Newtgrich which iwill be *very* interesting to quote.
    Just in case there’s any possible interest whatsoever: http://www.c-spanvideo.org/program/LeaderEdi

  2. [...] Barry on whether presidents get to much credit or blame for the economy.  (TBP) [...]

  3. wunsacon says:

    >> Take RR is a good example: He had the luck to come into office in year 14 of a 16 year Bear Market; he also had Paul Volcker as Fed Chief who forced a wrenching recession early in his term. But Reagan’s response to those circumstances — significant tax cuts and Federal spending, followed by gradual tax increases, helped add up to a booming economy.

    Reagan lucked out:
    - Volcker cut interest rates. That started the gradual reinflation of asset prices and a new expansionary cycle.
    - Oil glut!

    The tax cuts and even bigger deficit-spending? We would’ve been better off without that. Even worse, now the (reversion-to-mean, interest-rate, oil-glut)-unaware Cargo Cult of Reagan thinks “tax cuts and military spending cures cancer”.

  4. BusSchDean says:

    Predicting what he or she will do relates to their willingness to own and skill at solving problems. They all want to “own” a great reputation but really, after stripping away their handlers and influential supporters, in situations when it was their call to make and the result would be laid at their feet what did they do? Accountability and integrity have real value though current practice seem to make an art of avoiding either.

    No one gets to be President without a formidable skill set — though they obviously differ (Reagan — communications; Johnson — inside politics and arm twisting; etc.). When a President owns a problem they turn their skill set and their talent pool on the problem. But when, as seems to be increasingly the case, no one owns the problem then their skills and talent may as well be at playing skee ball.

  5. theexpertisin says:

    We have never had the perfect President. During my lifetime, probably the best administrator was Eisenhower. No doubt his military experiences served him well for two terms. He inspired confidence in every sphere of his governence. Eisenhower also had the will to take on corporate America, especially those who had an interest in perpetuating the so-called military industrial complex. As a military insider, he saw the issue first hand. I was too young to fully appreciate his contributions as President during his tenure, but I fully appreciate them now.

    President Obama? Probably the worst American President since Jefferson Davis. But I do not doubt his sincerity and political skills. Ufortunately, as with Cleveland and Grant, his appointed underlings are doing him no favors.

  6. Conan says:

    Excellent analysis!! However I would like to express it just a bit differently.

    Instead of saying luck let’s say taking advantage of a situation. A good President takes even adverse circumstances and turns it to their favor. A less apt one can turn even minor set backs into big problems.

    The cumulative effect of this type of behavior is what makes some Presidents seam to be more successful and some to be poor performers.

  7. amboycharlie says:

    Much of what Obama has been blamed for is the result of compromises forced on him by Members of Congress from both parties. He wanted a bigger stimulus package, but Congress said No. So he should not be held accountable for what he was able to get not having been the quick fix everyone expected. This thing goes so much deeper than any amount of stimulus could easily correct. When you look at all the leverage combined, it dwarfs the size the economy and most of it has to be repaid before we get ourselves out of this mess. There is nothing any President, of either party, or independent can do about any of that, except to declare a debt holiday and wipe out all the creditors. We know that’s not going to happen. The only other thing we can do is to raise salaries for workers, and lower executive salaries and returns to investors, which would make it easier for people to pay off debt and consume again. But that’s not going to happen either. So the minions will all be out on the street, unable to pay their debts, and markets will crash, and wipe out everyone anyway. Then we can all wonder why we didn’t enact a debt holiday and get over it that much sooner.

    http://bonalibro.us

  8. budhak0n says:

    Obama in terms of economic impact has been neutered by these midterm elections.

    I actually believe the Big O has the right idea here but gridlock is going to prevent him from getting anything concrete done. You can’t simply disarm war chests that have been built up over decades, and you waste your breath trying to convince them of any other method than that which brought them to power.

  9. mathman says:

    Going beyond this to the species of homo sapiens as a whole – we’re really not very good at looking for anything other than what we want to see or hear (confirmation bias, among others) or seeing consequences before embarking on our desired adventures. Even when the boss has a “team” they are usually “yes – people” and will try to confirm and conform to what he/she wants. Dissenters are generally “let go” or shunned for being “contrarian.” Science is about the best we can do as humans, but as we’ve seen over the years – he who funds it runs it more or less (like in the big university sciences). Then we wonder “how did we get here?” when the SHTF, as in climate change, global finance, etc.

    Maybe next time we evolve . . .

  10. budhak0n says:

    Oh and the very last thing we need these days is a call back to the days of Reagan.
    Small gubbermint coupled with smaller minds equals big progress.

    That’s funny I don’t recall any of the bankrupt mansion owners out of control nonsense trickling down on me

    When we elected Obama, we chose a new course. It’s a very natural desire when you’re involved with a new approach to want to hearken back to the good ole days.

    Only one problem, the good ole days are gone and they weren’t all that good.

    We already have…. evolved that is.

  11. phb says:

    @amboy- serious? It’s everyone else’s fault but Obama? Really? Debt holiday? How about a simple principle of Adam Smith’s invisible hand of capitalism instead? Let’s take our medicine as a nation and quit blaming the other guy for our own problems.

  12. biscuits says:

    One complaint with your remarks. I am getting tired of crony capitalism misnamed socialism. Socialism gets a dirty name when you use it that way. There may be other complaints with socialism, but at least be honest. The bank bailouts were crony capitalism, collusion with the banksters solely in the interest in the large multinational banks. The people/voters were not considered.

  13. Ahhh, I see your point — what I have been calling “Socialism for the rich” is really crony capitalism at its best!

    See this:
    http://www.ritholtz.com/blog/2008/12/socialism-for-the-rich/

  14. biscuits says:

    I think calling it crony capitalism focuses us to examine the flaws in the capitalist system instead of redirecting criticism to socialism. I see very little socialism in this country and what there is is being threatened by crony capitalism. Follow the money.

  15. biscuits says:

    wake and bake strikes again. s/b:

    I think calling it crony capitalism forces us to examine the flaws in the capitalist system instead of redirecting criticism to socialism.

    I think of myself as a libertarian socialist. Trying to figure out what that is.

  16. Jim67545 says:

    In my view Obama’s problem lies with the Democrats as much as the Republicans. He was betrayed right at the start of his presidency with TARP and the opportunity the Democrats took to grab money for anything and everything porkish. No plan other than to throw money around. Then the predictable backlash and undermining of respect. Since then the Democrats have generally not enthusiastically lined up behind the President, perhaps aside from the Health reform.

    There is a method to Obama’s madness but you have to read the tea leaves to discern it. Today, a typical TV news treatment: On CBS they showed Obama speaking about the failure of the Super Committee but there was no sound. Instead their correspondent told us what Obama said. Obama gave a 3 minute speach and they wouldn’t play it. He gives weekly radio addresses. Anyone hear these anywhere? Instead we hear R and D legislators and others expressing opinions – often not particularly accurate or objective – of what they think the President is doing. Actually, if you watch Faux News or CNBC you hear almost only Rs which, to say the least, results in a rather biased and critical message. Why doesn’t the media get it from the President? Is Obama making himself too hard to get?

  17. Taliesyn says:

    theexpertisin Says:
    ” President Obama? Probably the worst American President since Jefferson Davis. ”

    I agree that his not yet completed presidency is economically a failed administration , but worst American president since the Confederate president.
    Question 1: Is this just beer-hall belched opinion or just what measurement do you apply , as a self-declared *ex-partisan* , to make such a statement. ( and , I dunno., I guess I’d just like to read just how informed that opinion is ). In other words ,care to back that up compared to you-know-who for 8 years?
    Question 2: How is your presidential metrics fails to consider the previous *failed* presidency when the public record is already *in* ?
    Inquiring minds want to know.

  18. efrltd says:

    Presidents really need to confess–”I can’t do anything about jobs!” They need to get out of the way most of the time. If they’re really lucky they can bail out a GM or a TBTF bank. Anything more micro than that, say John Doe’s job, they can tax, not create. What’s even more sad than the President who says he’ll “create jobs” are the hordes standing in line expecting that to be true. “Sorry folks that’s all up to you” is what President’s should say.

  19. efrltd says:

    Franklin Pierce. John Tyler. Now there’s two presidents who were really awful, and BO has reached their debts of divisiveness and ineptitude on all fronts.

  20. GuinnessFan says:

    I very much agree with Barry’s premise. Being in the right place at the right time and having the skill to leverage that advantage goes a long way towards success, both in politics and in business.

    I’ll slightly disagree with TheExpertisin about Obama being the worst president since Jefferson Davis. I believe that Obama and Bush II are running neck and neck. I grant you that Obama still has time to pull into the lead, but it will probably be years before we can truly assess the “winner”. During that time, given that we pick presidential candidates similar to the way we pick winners of American Idol, I”m sure there will be new candidates that emerge for the “worst ever” label.

    As the corruption of the system has grown over the years the effectiveness of the presidency to deal with the economy has been diminished. The economy is now goverened by the political contribution machine of the PACs, superPACs, and K Street lobbyists. Could Reagan have goverened as he did on tax policy with a Congress beholden to their special intersts as exists today?

    One can only hope that someday we have a system that will “shrink K Street to the size where it can be drowned in a bathtub”.

  21. Taliesyn says:

    Jim67545 Says:
    November 22nd, 2011 at 10:17 am

    “In my view Obama’s problem lies with the Democrats as much as the Republicans. He was betrayed right at the start of his presidency with TARP and the opportunity the Democrats took to grab money for anything and everything porkish. No plan other than to throw money around. Then the predictable backlash and undermining of respect.”
    Absolutely Agreed! The old Liberal Bulls of the Dems already had their agendas worked out when they took back the Congress in 2006. IMO they as absolutely *blew* a perfect opportunity to do the right thing and make their own “Contract with America” to do no new programs until they had cleaned up the abysmal economic mess and all of the $trillions in *new debt since Clinton/Newtgrich gov’t that one-party Repub rule had thorough stewardship of and *failed* miserably to address until it got blown all out of proportion and cost us *all* dearly. But no , the Barney Fanks & Christopher Dodds were all of a sudden committee chairman now and were also in charge of writing legislation that Bush would not sign nor regulatory responsibility that Bush utterly failed to enforce . So now these old Dem Bulls were back on the top of the list for all the tools at the disposal of the financial industry Abramofs .
    Needelss to say the economy *hit* the wall under Dems Congresswhen the whistle could have been blown on what was already in motion , the histle that was never heard. Obviously the lobbyist corrupting fix was in as the White House dumped John Snowand Broguht in both Sachsman Paulson & *the Depression * expert Bernanke.
    OBama was a goner before he ever got into office a full 2 years later. For his responsibilty he started with an already agresssive Congressional insider , Chief of Staff Rahm ( now Mayor of Chicago ) as gate-keeper to all whom Obama meets and reads while the rest of his economic cabinet did their part *for* Wall St. after the Bushy Paulson had already done his job and a Dem Congress failed to do the right thing when it could.
    Sad commentary , but now you have an idea why I’m a staunch *swing vote* Independent since Reagan.
    Worst mistake was replacing Volker with Ayn Idolator ( according to W.F.Buckley no less ) Greenspan and we inherited the results as a result of that cult of *Objectivism*.

  22. wnsrfr says:

    GuinnessFan, I like that K-street drowning goal. Watching Grover Norquist on 60 Minutes, I had a very strong desire to pay $1000 for the chance to deliver one solid punch to his gut. Not that it is possible, but one can only dream.

  23. Conan says:

    I think these labels are all wrong, Socialism, cronie capitalism, etc. I think Barry has well documented case after case where the law was flat out broken or regulatory enforcement wasn’t even made.

    So what we have here is a very serious break down in the rule of law. No system other than anarchy can function without rules.

    Now let’s take this one step even further. The people with power see that the laws and regulations aren’t being enforced what do they do?? they push it to the hit. Being shameless what else do they do, but push to have laws changed and even more watered down, why not?? Who cares? Who is screaming for there to be any prosecutions or enforcement???

    Just look at what the “Free Money” of low to zero interest rates did. Huge masses of all segments of society went drunk and partied like crazy. The same can be said for the lack of enforcement of laws and regulations.

    If there is no cop on the beat and no penalty to be paid, then just rape and pillage and have all the debauchery that you can get away with.

  24. GuinnessFan says:

    wnsrfr, if you ever get that chance to punch Grover for $1000, I’d be more than happy to split the cost with you. I’d just aim a little lower than the gut.

  25. znmeb says:

    As we near the end of the third year of the Obama administration, the comparisons between Obama and Reagan are impossible to avoid:

    Reagan was a master at talking directly to the people on television. Before going to Congress with his plans, he went to the people. Obama never learned that. His inaugural speech was somber, and he used his 60-vote majority in the Senate and majority in the House to get stuff done. He never went to the people and said, “This is why we want to do this, this is why Republicans should get on board.” He just did stuff because he thought it was right and because he could.

    Do I think the resulting legislation – the stimulus, the health care act and Dodd-Frank – saved us from a depression and laid the groundwork for sustainable growth? Absolutely! And they were the best he could get. Appropriate responses, to use your terminology.

    But they weren’t *sold*. President Obama didn’t ring the opening bell at the New York Stock Exchange as the good news started to build up in mid-2010. The Democratic House and Senate members up for re-election didn’t seize what successes there were and retain Congress. In short, they utterly failed to be positive, proactive cheerleaders. And after the GOP took back the House and the Senate super-majority, they refused to admit that they’d screwed up.

    Yesterday’s debacle of finger-pointing and refusal to acknowledge that they had contributed to the problem is about as low as Democratic leaders have ever sunk in my memory. Only the 1967 – 1968 stubborn support of the Vietnam War ranks lower. The Democratic Party is dead – long live the *new* Democratic Party!

  26. theexpertisin says:

    Taliesyn:

    To your points.

    No. I prefer a really good Spanish Rioja. And the comment regarding Obama is a thoughtful view. Taking into consideration his henchmen, who are ideologically as extreme as Davis’ cabinet was in it’s time, his propensity to invoke class warfare (as did Davis), his insistence on high taxes for productive mebers of society (as did Davis with numerous forms of taxation including particularly savage ones of commodities), and his refusal to communicate with members of his party on important issues of the day (ditto, Davis) are but a few of the similarities. There are many others.

    I recommend reading Davis’ two volume History of the Confederacy, which is a fascinating look into his mind.

    Point Two: Obama, as was Davis, was so ideologically driven that they could not change course even when presented with a national calamity. Obama’s spots will not change. Simply…he cannot change. As Davis.

    I recommend you pay a call to the first Confederate White House in Montgomery. Leave a donation at the door.

  27. Taliesyn says:

    theexpertisin Says:
    “Taking into consideration his henchmen, who are ideologically as extreme as Davis’ cabinet was in it’s time, ..”
    Lately apparently neither party has had a monopoly on *ideological extremism* , but it’s predominance certainly begins with the high ideologies of the so-called Reagan Revolution that started us down the road of deficit spending in the multiple trillions if this debate is to be relevant to the back-to-back twin recession causes.

    “his propensity to invoke class warfare (as did Davis), his insistence on high taxes for productive mebers of society…”

    Do you consider Bush’s pals, like Kenny Boy Lay , founding CEO of Enron who was Bush’s pal when he was still governor of Texas , to be *productive members*? How about Bernie Ehbers of WorldCom . This list can go , but I’ll assume you get the point. ”

    “(as did Davis with numerous forms of taxation including particularly savage ones of commodities), and his refusal to communicate with members of his party on important issues of the day (ditto, Davis) are but a few of the similarities. There are many others. ”

    You remind me of the saying ” If you’re a hammer , the world looks to be made up of nothing but nails” comes to mind. You may have indeed many other rationalizations for comparing OBama to Davis , but you hasve failed to make , let alone back up with cross-referenced proof, that OBama is , even in your mind , the worst president ever, especially with the previous presidentiall failure staring us all in the face and frankly insults one’s intelligence. That you completely ignore Grant’s abysmal administration belies a more cognizant dissident’s ignorance in favor of your preferred partisan ideology & thus calls into question your case , which you failed to back up , right out of the gate, sir.

    “I recommend you pay a call to the first Confederate White House in Montgomery. Leave a donation at the door.”
    I know of that work thanks to a truly non-partisan interview by CSpan’s Brian Lamb on his old Booknotes series. Even have av-tape of that segment in my library amongst 100′s of others , but I’m afraid understanding the Confederate leader’s *worst* president ( your words ) is *irrelavent* in the understanding of the causes of this double economic crisis as the economics are so far removed form the Old South in countless ways that your suggestion of it renders your contribution to understanding the solution as irrelevant.
    BTW: Now why would a northern boy bother to leave a donation for a *failed* regime’s worst president ,suh

  28. GuinnessFan says:

    theexpertisin,
    I always love it when the argument of taxation of the “productive members” of society is invoked. Please define who those “productive members” are. The banksters?

    Your definition of “productive members” appears to revolve around one’s income. Thus, how would you classify the productivity of the U.S. military forces who have served in Afghanistan and Iraq? Their pay scales wouldn’t meet your standards.

  29. dancingdiva says:

    One reason we cannot predict how a president will do is quite often he campaigns differently than he governs. In order to win elections candidates pander to the voters. Once they become president, they pander to their monied backers (ah, that crony capitalism again) or party ideology. Sometimes we get lucky, like in Clinton’s case, where he realizes party ideology isn’t necessarily good for the country and he backs down.

    Unfortunately when the country isn’t doing well it’s easy to persuade voters the other guy will do a better job; much like the backup quarterback is the most popular guy on a losing team. The other guy says the right things, gets elected, then faces the same challenges. And we then wonder why he disappoints us.

    Obama faced the same challenges. I didn’t vote for him although I was empathetic to his rhetoric and didn’t particularly like McCain. However, when I thought of the combination of Pelosi/Reid/Obama – it scared the hell out of me – held my nose and voted for McCain.

    This time I don’t care who the other guy is, he gets my vote. Anyone who spends the last 18 months campaigning to stay in office doesn’t deserve to remain there.

  30. dancingdiva says:

    And while I’m at it, let me point out while expectations for Clinton were low, he was extraordinarily lucky. He benefitted by the “peace dividend”, ie, the fall of the USSR. He benefitted by the growth of the computer age and the internet which led to a booming economy. He benefitted by changes in the law (1982) which allowed individual IRA’s, which also helped the stock market, which in turn helped the economy, which in turn helped the stock market…

    And why does no one ever point out that the economy didn’t suffer under the Clinton tax increases because it had so much going for it at the time, namely, the buildout of the computer, internet and telecommunications age and the fact military spending under him was very low because he didn’t have the Soviet threat.

  31. [...] at across-the-board cuts set off by the supercommittee’s failure. Barry Ritholtz says don’t blame the president. Michael Moran says it’s just politics. This guy doesn’t believe they failed at all. Kent [...]

  32. [...] Presidential Blame & Credit (November 22nd, [...]

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