Presidential Influence on the Economy: Myths and Realities

Americans often overestimate a president's control over the economy, believing their decisions have immediate impacts.

### The Complex Influence of U.S. Presidents on the Economy
* 💰 "**50% of Americans** believe that the result of the 2024 presidential election will **directly impact their personal finances**."
* 📊 Nearly **99% of voters** consider the economy an important factor in their voting decisions, indicating a **strong connection** between presidential performance and economic perceptions.
* 🎩 Voters often view presidents as economic leaders, akin to "**economic wizards**," despite the reality that their influence is often **overstated**.
* 📉 The president's direct control over monetary policy is limited, as it falls under the authority of the **Federal Reserve**, which operates **independently** to manage **interest rates and inflation**.
* 🏛 While presidents can appoint leaders to key economic agencies, their ability to influence fiscal policy is constrained by the **need for Congressional approval for spending initiatives**.
* 🚢 The U.S. economy's size and complexity mean that **external factors**, such as global events and state policies, significantly affect economic outcomes, often **beyond presidential control**.
* ⚠ During crises, such as the Great Recession, presidents can enact **significant measures**, but their overall influence is more **nuanced and less immediate** in normal circumstances.
* 🤔 Voter expectations about presidential power can lead to misconceptions; while the presidency is crucial, the belief that presidents can **single-handedly resolve economic issues** is a delusion.

50% of Americans believe that the result of the 2024 presidential election will directly impact their personal finances. While about 99% of voters say that the economy is at least somewhat important in influencing their vote for the next president. Voters absolutely are using the economy as a metric by which to evaluate presidents. It's something that they encounter in their day-to-day lives. You know, what their bank accounts look like, what their grocery bills look like. And so it's very natural to start to wonder, well, who's responsible for this? And so people can eventually get this sort of picture in their minds of a president as a kind of economic wizard behind a curtain that's pulling levers. And we're just all on the receiving end of this when the reality is something like presidents are basically a roulette ball spinning around a wheel, desperately hoping

that their presidency lands on black. So how much influence do U.S. presidents actually have on the economy? There has been a tendency on the part of our society, led by politicians, to exaggerate the amount of power that the president wields, and that's encouraged by participants in these campaigns. You've got a problem? I'm going to solve it. Policymakers have two main tools to influence the economy: monetary and fiscal policy. Monetary policy is one important tool that the government has to try to prevent the economy from overheating too much, or from cooling off too much, to find that nice, perfect sweet spot of low unemployment and low inflation. What it really has to do with kind of interest rates, right? The cost of borrowing money. If interest rates go up, for example, people will be more willing to save, less willing to make new purchases, less

willing to take out big loans. And this should help to kind of cool off the economy if inflation is running high. But by design, power over monetary policies falls under the authority of the Federal Reserve rather than the president of the United States. Monetary policy is the sole domain of our central bank, and we do have a politically independent Federal Reserve, which the data and history show is more effective when those who are in office have no real control over what the central bank does. It's almost inconceivable that the president would ever want higher interest rates, right? Those higher interest rates are going to influence credit card rates, the amount of money that the federal government spends on its debt. It will influence the rates and amount of money that students have to pay if they're taking out loans for their education. If people are purchasing homes, mortgage rates. People want those rates lower, not higher.

The Federal Reserve is empowered with this ability to make the decision that even though no one wants interest rates to be higher, sometimes that is the best policy to prevent these other problems. However, presidents can also get a chance to appoint the leaders of agencies like the Federal Reserve or the Federal Trade Commission, which still needs confirmation by the Senate. These leaders go on to make important decisions that greatly impact the economy. We can see a little bit of their influence happening for sure. Ideologically, we'd expect these people to be similar to the president, which is why the president picked them in the first place. And so we can expect the president's ideology to matter there. Presidents could have more influence over fiscal policies, which is all about how the U.S. Government makes and spends its money. But ultimately, the president can't achieve much alone without the approval of Congress. The president can talk until the proverbial cows come home.

about what they're going to do, but it requires Congress to open the gate for those cows to allow the federal spending to occur. So a president does not have the power to propose a program to attach federal spending to it and then enact that spending because constitutionally. The Congress must approve the spending, and the president then has to approve what Congress essentially checks off. The president's role is even more minimized when the president and Congress are at odds. The president comes in, or after two years, let's say Congress now switches political power. What happens, right? The president, it doesn't matter what they want anymore, right? It has to get through Congress. And so if Congress is shutting down the president's agenda, nothing gets passed. Beyond policies, many other variables make it challenging for the president to steer the economy however they see fit. The US economy is like a giant supertanker, and that

supertanker is going to have a great deal of momentum by virtue of its size and velocity that a president simply has no control over. What's going on in the global economy with supply chains, of minerals, or oil, or oil prices, or wars, or pandemics. All of these can really have a big influence on what's happening in the U.S. economy. And yet they're very much outside of the president's direct control. Even beyond that, individual states within the United States, they have influence over their state tax policies, unemployment insurance in different states. The president doesn't control a lot of what goes on in each state. And yet what goes on in each state can have a lot of influence on the overall national economy. The president's influence on the economy, it's not zero, but it is highly contingent and also not necessarily immediate in terms of what can be done.

The president's role can become more important during times of crises. I think the president's powers are most important when the country has an identifiable crisis. In 2008, we had the Troubled Assets Relief Program signed into law by President Bush. One year later, we're still in the midst, in the throes of the Great Recession. President Obama comes in and signs Congress's Reinvestment and Recovery Act, the stimulus package of 2009. These were major spending bills to try to stop the economy from going into just freefall. And so, in those particular moments, the president can have an influence. In theory, had President Bush or President Obama decided not to sign those bills, I think most economists would tell you that it would be pretty scary. The president can figure out where the guardrails allow them to insert some special policy or initiative without the involvement of Congress.

If a president is well served by essentially their advisers, they will know where executive action can apply or where they think that they can essentially make a move without the approval of Congress. But those are really special situations. Presidents also play a large role in negotiating trade deals and imposing sanctions or tariffs that can influence the economy more directly. In theory, presidents could have a pretty big effect were they to do something pretty extreme. And so using tariffs, for example, if enormous 100% tariffs were imposed on any imports coming from particular countries, that could matter a lot. I mean, consumers purchase these products. Businesses in the US rely on these products as inputs for their own businesses. It's just that in normal practice, presidents don't do this. Experts also suggest that the outcome of an election could also have an impact on consumer sentiment. In our polarized era, a question that sometimes comes

up is, might consumers actually change their spending habits or their habits for the future based on who is running, right? So if someone believes that a Republican president would be better for a business, will they hold off on investment or something until that president comes into office? Because they'd feel more secure about the economy. And so in this way, some have been interested in researching this idea that consumers change their behavior in ways that can affect the economy based on who is in office. It's important for voters to have accurate expectations of what the president is actually able to do. If you have this idea in your head that presidents wave a wand and they'll make the economy wonderful, and that everything will turn around in a few months and just be great. Well, it's kind of a delusion of sorts. There is no overstating the importance of the presidency, but we can overstate the powers that we think the

President can wield. And that's a problem.

Does The President Actually Control The U.S. Economy?

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The Impact of the 2024 Presidential Election on Personal Finances

Half of Americans believe the 2024 presidential election will affect their personal finances, with 99% of voters prioritizing the economy in their decision.

The perception of presidential influence on the economy is often exaggerated, with policymakers using monetary and fiscal policy as their main tools.

Interest rates play a crucial role in influencing people's saving and spending habits, aiming for a balance of low unemployment and low inflation.

The Federal Reserve's Role in Monetary Policy

The Federal Reserve, rather than the president, has the authority over monetary policy in the U.

Higher interest rates, a tool used by the Federal Reserve, can have a significant impact on credit card rates, government spending, and loan payments.

While presidents can appoint leaders to agencies like the Federal Reserve, they ultimately need Congress's approval to influence fiscal policies.

The Limited Power of the President in Shaping the Economy

The president requires Congress to approve federal spending, minimizing their power, especially when the two are at odds.

The US economy's size and global factors, such as supply chains and pandemics, make it difficult for the president to exert control.

Individual states also play a significant role in shaping the national economy, further limiting the president's influence.

The president's role becomes crucial during crises, as seen with the major spending bills signed by Presidents Bush and Obama during the Great Recession.

They have the power to implement special policies and initiatives without Congress's approval, especially if advised well.

Additionally, presidents can directly influence the economy through trade deals, sanctions, and tariffs, although extreme measures are rarely taken in practice.

The Impact of Presidential Leadership on Consumer Behavior

Consumers may alter their spending and investment habits based on the political party of the president in office.

This behavior can potentially influence the economy, as individuals seek security in their financial decisions.

It's crucial for voters to have realistic expectations of a president's power to effect economic change.