NCPA - National Center for Policy Analysis


February 6, 2008

We have a $14 trillion economy.  The idea that presidents can control it lies between an exaggeration and an illusion.  Our presidential preferences ought to reflect judgments about candidates' character, values, competence and their views on issues where what they think counts: foreign policy; long-term economic and social policy -- how they would tax and spend; health care; immigration.  Forget the business cycle, says columnist Robert Samuelson.

True, presidents try to manipulate it:

  • In 1971, President Richard Nixon imposed wage and price controls in part to prevent inflation from jeopardizing his reelection.
  • The economy boomed in 1972, but the controls were a time-delayed disaster; when they were removed, inflation exploded to 12 percent in 1974.
  • In 1980, the Carter administration adopted credit controls to squelch raging inflation; the result was a short recession -- a complete surprise -- that probably sealed Jimmy Carter's defeat in November.

History's long view teaches the same lesson. No president tried harder, with good reason, to influence the business cycle than Franklin Roosevelt:

  • When he took office in 1933, unemployment was roughly 25 percent.
  • By executive order and congressional legislation, FDR effectively abandoned the gold standard, adopted deposit insurance, tried to prop up falling farm and factory prices, rescued many defaulting homeowners, regulated the stock market, and embarked on massive public works.

With what result?  Well, leaving the gold standard aided recovery.  But some economic research suggests that other New Deal measures may have frustrated revival.  In any case, all of them together didn't end the Great Depression.  World War II did that. In 1939 unemployment was still 17 percent.

Source: Robert J. Samuelson, "Why It's Not The Economy," Washington Post, February 6, 2008.

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