“The reason our stock market is so successful is because of me,” Donald Trump said in 2018 around his first anniversary as president.
Biden wasn't handed a baton when he entered the Oval Office. If the recovery is strong, he will deserve most of the credit. If it falters, he will wear the blame.
So then, who gets the credit for the S&P 500 Index’s gains since Trump’s departure from the White House? The Federal Reserve? Elon Musk? GameStop Reddit trader "Roaring Kitty"? Or shall we just get it over with and start calling this Joe Biden’s economy, especially as the House is voting on his record economic stimulus plan on Friday?
Well, not if you go by his former boss’s calculations. Barack Obama maintained that it was his own actions that were responsible for Trump’s economic success. “Let’s just remember when this recovery started,” Obama said in September 2018. (Trump responded, “It wasn’t him.) Obama himself did credit his predecessor, George W. Bush — but only for economic woes. “We do have a serious problem in terms of debt and deficit, and much of it I inherited when I showed up,” he said three years into his first term.
Presidents have been claiming credit for the economy when it does well and blaming their predecessors when it does badly for as long journalists and pundits have delighted in aiding them in their inconsistency. But after years of confusion over which president “owns” the economy — largely because it’s such an imprecise and unwieldy thing to measure — the situation the U.S. finds itself in means it isn’t too early to start calling this economy Biden’s.
Right now, the U.S. economy is unusually dependent on the White House's ideas and its ability to make things happen. The Covid-19 crisis followed by the storming of the Capitol by Trump supporters put an unceremonious period on the Trump years. What’s left is an economy so wrecked, and a national psyche so fractured, that it will be incumbent on Washington to lead the recovery.
Moreover, Biden wasn't handed a baton when he entered the Oval Office. If the recovery is strong, he will deserve most of the credit. If it falters, he will wear the blame, and justifiably so, since his campaign was based almost entirely on the notion that he would be the better crisis manager.
Immediately out of the gate, he’s trying to prove his case. Just days into his second month in office, Biden appears to be on track to get a $1.9-trillion emergency aid bill through Congress. If the 2020s end up roaring after such a miserable start, it will be because Biden and the Democratic majorities in Congress opted to fill the hole left by the recession instead of waiting for shellshocked businesses and households to do it.
The International Monetary Fund estimates that the spending plan would increase economic output by at least 5 percent of gross domestic product over three years, the equivalent of about $1 trillion in additional output, according to my calculations. Policy rarely provides that kind of wallop. Trump’s tax cuts increased GDP by considerably less.
Of course the tendency to assign responsibility for economic outcomes to presidents by members by the media (present company sometimes included) can be problematic. Markets liked Trump out of the gate because he implemented tax cuts and deregulation, according to fans of Trumponomics. Yet traders appear to like Biden at least as much, even though the new president has talked about reversing some of Trump’s tax cuts and re-regulating certain sectors. That doesn’t square, which goes to show stock prices and the economy are influenced by constantly shifting variables.
Events can overtake any president’s policies as well. Trump inherited an economy that had been growing since 2009, and then juiced it with a big tax cut. The unemployment rate plunged to 3.5 percent at the start of 2020, the lowest since 1969, aided by the Fed’s decision to cut interest rates. But none of that was enough to withstand the blow of a global pandemic that has killed 2.5 million people and counting, including 500,000 Americans.
The economy contracted 9 percent in the second quarter, by far the most since the government started keeping track in 1947. The recession destroyed more than 20 million jobs in April, the equivalent of 113 consecutive months of job growth, according to the Brookings Institution.
At the same time, those who dismiss the ability of presidents to influence economic outcomes can go too far. Tax rates and other policies obviously have an impact. The president also has a unique effect on the nation’s mood, which affects the important economic variables of consumer and business confidence: When we feel good about the state of the economy, we spend money; when we don’t, we retrench.
Obama’s $787 billion bailout in February 2009, for instance, helped reverse the Great Recession. But there’s now broad agreement that the stimulus package was too small, a shortcoming that probably restrained the recovery.
To be sure, another president might have been even more conservative, resulting in an even weaker recovery. But elements of Obama’s agenda were also undeniably anti-growth. He blocked the Keystone XL pipeline from Canada in the name of global warming, a decision that, whatever its merits, had the effect of killing jobs and investment.
The mark of a president is especially strong in a crisis. When the economy is cruising, a president will struggle to leave a mark because there is nothing to do but tinker. But recessions breed fear, not to mention bankruptcy and other hardships. The president takes on an outsize role if only because it is incumbent on the government to do something.
Biden will dictate U.S. economic prospects because of the size of his stimulus plans and the relative speed with which he wants to enact them, as he’s apparently willing to proceed without Republican support rather than hit the brakes.The president is also planning to seek approval for even more money on roads, bridges and other infrastructure before the end of the year, which he and his allies argue would help the U.S. economy grow faster.
If the U.S. is flying at a higher rate of growth in 2024, Biden will have achieved something significant. The pursuit won’t come without risk, however. The stock market looks bubbly and a bust could trigger a financial crisis. Some economists, including Lawrence Summers, who served with Biden in Obama’s White House, worry that Biden’s plan to send millions of Americans Covid-19 relief checks of $1,400 could trigger inflation. That would cause interest rates to rise, which would in turn slow the recovery and perhaps even cause a second recession.
Biden will dictate U.S. economic prospects because of the size of his stimulus plans and the relative speed with which he wants to enact them.
While there might be doubt about whether presidents determine economic outcome, there’s near unanimity that the state of the economy determines elections. Michael Boskin, an economics professor, wrote in 2018 that all of Trump’s boasting about his influence in the economy would be quickly forgotten the moment something went wrong.
“In the event of a downturn, voters will be quicker to blame Trump than they have been in giving him credit for today’s boom,” Boskin wrote. “Given all of the president’s efforts to attach his name to the current economy, it will not be easy for him to shift the blame to the Fed, Democrats or anyone else.”
That’s essentially what happened. Biden will have outsize influence on the U.S. economy during his tenure — but he might want to avoid talking about it.