Why a President Cannot Whip Inflation

Sep 26

One of the greatest challenges facing the administration of US President Gerald Ford when he assumed office in 1974 was the poor state of the US economy, which was suffering from a condition dubbed stagflation – stagnation and inflation. Ford attempted to tackle the latter through a program he dubbed “WIN,” for Whip Inflation Now. However, the nation’s economic woes only deepened further, resulting in its worst recession since the Great Depression. This led Ford to switch from a policy of hiking taxes to tax cuts, attempting to stimulate the economy. What he and his critics seemed to forget, however, are the limits on the economic influence of the president.

When some Americans picture the president’s economic powers, they envision the economy as an aircraft and the president as the pilot, exercising tight control over both direction and velocity. Viewed from the flight deck, however, it becomes apparent that the president is piloting not a jet aircraft but a glider. When the winds of economic change are blowing in a particular direction, there is relatively little the president can do to resist them. Preferring personalistic explanations for the nation’s fortunes, many in the news media tend to shower praise on the current officeholder when the economy is doing well but pile on scorn during a downturn, but they merely perpetuate a misconception.

Today pundits praise or criticize the Biden administration’s economic policies. The president himself argues that Bidenomics has been quite successful at reducing inflation and unemployment and promoting economic growth. On the other side, former president Donald Trump has recently argued that GDP growth is poor, gasoline prices are spiking, and the stock market is crashing. What all such analyses fail to capture, however, are the inherent limitations on the president’s ability to sway the course of the nation’s economy. Blaming and taking credit are natural parts of political life, but we should not mistake what is politically expedient for what is true and fair.

There are numerous reasons that presidents exert much less control over the economy than many commonly suppose. For one thing, the presidency represents but one branch of the federal government, and it is not the one designed to control taxation and spending. According to the US Constitution, funding power lies with the legislative branch, composed of 435 members of the house and 100 senators. The president can create and lobby for economic programs, such as Ford’s WIN initiative, but ultimately the “power of the purse” lies with Congress. Especially when one or both houses of the legislature are occupied by the opposing party, the president’s influence on economic policy can be quite constrained.

Yet even Congress’s power to influence the economy is more limited than many commonly suppose. The largest items on the federal budget, such as Social Security and Medicare, are relatively fixed, affording legislators relatively little short-term control. More recently, the federal budget deficit has grown so great that merely making required interest payments now consumes more funding than national defense. In these respects, the federal budget resembles a vast sea-going vessel, in comparison to which those holding the government’s purse strings represent a tiny tugboat, able to exert substantial influence only in the longer term.

Another limitation on presidential economic influence is the fact that the federal government is a relatively small player in the nation’s economic affairs. For the past few decades, federal spending has accounted for only about one-fifth of US economic output. To be sure, some would argue that this represents far too much, but the fact remains that other factors, such as energy and housing prices, technological innovation, and domestic and international competitive forces exert a far greater effect on how the economy performs. People naturally look for someone to hold accountable, focusing on Congress and the president, but vaster and more impersonal forces are at work.

This does not deny that the political incentive to hold the president accountable can be substantial. Those contesting an election with a president have ample inducement to blame the current officeholder. Yet the pace of economic change is sufficiently slow that sitting presidents are often reaping the economic consequences of conditions set in motion during their predecessors’ terms. When things are going badly, opponents can characterize the incumbent as misguided or even incompetent, implying that were they in office, things would be better. Conversely, those in office during economic upturns often claim the credit, hoping to curry favor with voters.

Consider the campaign of Ford’s opponent in the 1976 presidential race, Jimmy Carter. Contrasting himself with Ford, Carter indicated that he would aim for a balanced budget, full employment, and a reduction in the rate of inflation to 4%, with an equivalent rate of economic growth. In fact, however, the budget deficit grew to $59 billion, unemployment increased to 7.5%, inflation reached 12.5%, and the US gross domestic profit decreased by 0.3% in Carter’s last year in office. It would be easy to blame him for failing to deliver on his promises, but the real issue is less Ford or Carter than forces beyond the president or any part of the federal government.

Scapegoating, blaming someone for something for which they are not responsible, has its roots in Biblical times. The Book of Leviticus describes the practice of sacrificing a goat to which the sins of the Jewish people were attributed. It is a fallacy to assume that problems such as inflation or unemployment can be resolved simply by replacing the person in the Oval Office. And the same goes for the facile supposition that economic prosperity can be preserved simply by retaining the current chief executive. Villainizing or canonizing people may satisfy certain deep-seated psychological needs, but it should never interfere with the search for genuine understanding.

The economy is the product of many forces largely beyond the understanding, let alone control, of any single person, even the chief executive. No one really knows what the inflation rate, the unemployment rate, or the stock market will do, let alone how the economy as a whole will fare, and the notion that a single person or group could command it is even more preposterous. No one can criticize Ford or any other president for wanting to see the economy thrive and taking measures to move it in that direction, but attributing economic performance to the will of a single person is no more reasonable than crediting or blaming someone for the weather.

In fact, the inability of the president to control the economy is a feature, not a bug, of the US system of government. If a president such as Ford, Carter, Trump, or Biden truly wielded the power to pilot the economy like a jet, the founders’ vision of a limited government composed of branches that jealously guard their prerogatives through a system of checks and balances would be betrayed, and democracy would give way to tyranny. To sustain such a limited government, it is vital that citizens resist the temptation to demand that presidents overstep their constitutional bounds, instead remembering that the office of the chief executive is designed to wield limited economic influence.