Super Tuesday and the Market

Today, Super Tuesday, is quite possibly the most important day for Presidential hopefuls outside of the general election in November. As is often the case, the economy was the biggest concern for voters. Nearly 40% of potential voters listed the economy as their number one issue; this is more than double the amount of voters that claimed the Iraq war as their top issue.  The obvious question is how much control does the Commander-in-Chief actually have over the economy?

The two most significant ways that a President can affect the economy is through taxes and government spending. Although, most of that power resides with Congress and the President merely lends a signature at the end of the process to make the proposal law. The President can and will state his opinion on such matters, but ultimate responsibility for fiscal policy is Congress’ alone. Thus, while the President has enormous influence over fiscal policy, Congress is the ultimate authority.

There is no shortage of instances where a President has attempted to adjust the economy to suit a particular political agenda. Most notably, FDR’s “New Deal” attempted to jump-start a broken financial system struggling through the Great Depression. He greatly expanded the size of government through public works projects, regulated the stock market, instituted bank deposit Insurance, and tried to stabilize prices. FDR did not create the problem of 25% unemployment but he did try to fix it; however, his legacy will not be that he lowered unemployment–which remained high until World War II, but rather that he greatly expanded the size and scope of government. Ultimately, the U.S. did not fully recover economically from the Great Depression until World War II, which dramatically boosted production and employment.

A President does have an important role to play in the macro economy, but much of what a President can affect requires a “trickle-down” effect which may take years to for its impact to be felt. Presidents are politicians and not economists, but so often a boom or a bust is credited to the sitting President when there was little they actually did to create the situation. Often when the President targets a particular goal, such as FDR did in attempting to reign in unemployment, they create a new set of issues. One of the wonderful things about being a politician is that when the day of reckoning comes, it is almost always someone else’s problem.

In conclusion, voters should certainly be aware of each candidate’s economic philosophy and goals, but they must recognize that Presidents are one cog in the political machine. And politics rarely has an answer for a slowdown in the business cycle, inflation, or other economic challenges that are best solved by market forces. If a candidate tells you differently, don’t believe it.