How much power does the president have over the economy?

If the economy isn’t going the way people like, they are very quick to blame the president. How much control does he actually have over it?

If the economy is doing well and my party is in control of the presidency, or if the economy is tanking and the other party has control, the president has a great deal of power. Otherwise, the president has no power over the economy.

This is what I have learned through careful listening over the years.

Very little. Most people don’t understand how “the economy” works, so they erroneously assign too much credit to politicians and too little to people who do actual work.

“The economy” can be loosely defined as all activity related to creating and using wealth. And where does wealth come from? Different places. We can get wealth by harvesting raw materials, such as food, lumber, coal, oil, ore, and so forth. We can get wealth by improving those raw materials, such as building tools out of iron or sewing clothes from cotton. We can get wealth by doing useful services, such as healing diseases, teaching children, or trucking goods to market. We can get wealth by inventing new technologies. But that’s about it.

Most importantly, we cannot get wealth by having the government work some magic that creates wealth out of nothing. When government tries to take over the means of production, economic activity plunges. That’s why communism always leads to tremendous poverty and misery, never once to prosperity.

Government’s proper role, as the Declaration of Independence says, is to protect everyone’s rights. Farmers will grow crops if they know their land is safe from theft, if they know they have the right to sell the crops for maximum profit, and if they’re fairly sure they can get a good price. If there’s a threat that someone will burn their land or steal their profit, they won’t have any motivation to grow anything.

In addition, government should make prudent investments in things that the market can’t provide, such as the Interstate Highway system. However, much government “investment” is bad and harmful. For example, student loans. Supposedly they are an investment in a better-educated workforce. In reality, they’ve lead to higher prices and huge debts for many young people. Bad for the economy. Not good.

There’s one thing our politicians could do that would lead to economic growth. Reduce taxes and regulations. President Reagan did so in his first term and the country got a big spike in growth.

That was when tax rates were quite high. It wouldn’t work again now, as the rates have already been lowered to (or below) a “Laffer” optimum. GWB demonstrated this concretely.

Same for regulations: GWB showed what happens when you take the controls off. Two years of economic failure and ten years of catching up.

Economics is definitely not my strong point, but it seems to me that the President’s role in the makeup of the Board of Governors of the Federal Reserve System gives POTUS some power over the economy.

Congress has more power, and the roles of FedResBd Chairman and Sec’y of Treasury—de facto agents of Wall Street these days—are huge. But the President does have one big power: The bully pulpit. First and foremost among Presidential qualities is the will, wisdom and charisma to instill confidence.

Franklin Roosevelt famously said “We have nothing to fear but fear itself” at the beginning of a powerful recovery from the 1929-1932 depression. Ronald Reagan also instilled confidence. (GWB, conversely, deliberately talked the economy down in early 2001 to ensure Democrats got the blame for any recession.) And Obama has done astoundingly well, given the wide-spread sentiment to “make Obama fail.”