Saturday, September 15, 2012

Question: How much does the US President matter to the US economy ?

From time to time we get a good question sent into our blog. This one came in this morning.

Question: Exactly how much power does the US president have over the US economy ? What power or influence does the president have over the economy ? Should we praise/blame the President for the good/bad economy ?

Answer:  The US president, has surprisingly little power or influence over the US economy.  His influence is has waned recently because of a deeply ideological split congress. It is congress which has the ability to spend money, pass laws and raise and lower taxes. This power is called "Fiscal Power". Historically, presidents, when they have had majorities in congress, have had more power over the economy by proposing where to spend money. Congress would agree approving the expenditure. There are lots of examples: the space program, the war on poverty, the Vietnam and Iraq Wars, and the Bush tax cuts.

Congresses "power of the purse" come from the US constitution. Article 1, section 9.  The constitution reads "No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; ..." Which basically mean all spending and taxing is done by congress. So the president has little direct ability to spend other than when congress has delegated the power. In the past, US presidents have had more influence over congress and thus more control over the economy. For example, Barack Obama was able to pass only limited spending bill during the current recession. Franklin Roosevelt, Kennedy/Johnson and Nixon, Clinton and George W Bush were able to exert a much wider effect on the economy through legislation. Many of Lyndon Johnson great society programs were passed during the Nixon administration.

The president does have veto power over congressional legislation which will stop a bill from becoming law. Veto power can stop a bill but it cannot pass a bill in congress.

The president does have some very limited spending authority where authorized by congress. The President can spend money on executive branch functions and national disasters. That's pretty much it.

Indirectly, the president has a much longer term and wider influence on the economy. They can influence congress to pass legislation to reduce the debt, spend money or make investments. The president has also come to own the budget process. He puts forward the central fiscal legislation for his political party and the executive branch as the starting point for congressional negotiation.

The president has a limited ability to promote economic policies like home ownership, medicare and social security reform or increased exports through speeches and executive branch policies. The ability to affect public sentiment is called the "bully-pulpit".

The president has some power over the economy through appointees to the financial and regulatory agencies such as the Federal Reserve, CFTC, the SEC and the department of justice (anti-trust).

So, the reality is that the president, has some small, indirect and long-term influence on little control over the economy. And the American people are fine with this situation.


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