President Barack Obama will be defending his economic record over the last four years. Republican presidential nominee Mitt Romney will be touting his proposals to revive the economy. But how much control do presidents really have over the economy? A president’s economic record could be tarnished the moment he (or she) moves into the White House and one’s economic legacy could be a factor of well…luck.
“People radically overstate how much credit any president deserves for the overall economy…and how much blame they get for things [that] go wrong,” says Barry Ritholtz, author of “The Big Picture” blog, in an interview with The Daily Ticker’s Aaron Task.
According to Ritholtz, a president’s economic record largely depends on what the economic climate was when the president started governing. Former presidents Ronald Reagan and Bill Clinton — each heralded for leading a strong economy during their respective terms — took office when the stock market was either in a “full throttle bull market” (Clinton) or on the cusp of recovering from a long bear market (Reagan). Clinton and Reagan were fortunate to become president at the “right moment,” Ritholtz argues.
On the other hand, Jimmy Carter entered the White House as the stock market was 10 years into a 16-year secular bear market — and inflation was running near 12 percent. Four years later voters showed Carter the White House door.
Ritholtz says George W. Bush also won the presidency in less ideal times — a mild recession and a huge stock market crash following the collapse of the dot com bubble; the only reason for his mid-term economic boom was the decision by then Fed Chairman Alan Greenspan to cut interest rates to 1 percent, levels unheard of at the time.
President Obama’s first term was marked by economic crises and his administration’s response will be analyzed and scrutinized many times over before Election Day. Obama and Romney may both claim to be the best choice for fixing the economy but that may in fact be the one element where presidents have the least sway. Regardless of who takes over the White House in November, Ritholtz says the economy will likely follow its current trajectory. The president will have to contend with a hostile Congress in January, forcing the president to make concessions — especially on taxes — which Ritholtz says will be raised even if Romney wins the election.