Does the President of the United States Really Manage the Economy?

Virtually all of the mainstream media and most of the general public are under the distinct impression that one of the president’s key jobs is to “manage” the country’s economy. Few, if anyone, ever challenge this proposition, probably because a majority of the population understands little or nothing about how the country’s economy works and which entities within the economy are the primary influencers.

First, we need to understand just what the term “manage” means. There are various definitions of this word but the closest one in this context from Merriam-Webster is “to exercise executive, administrative and supervisory direction of an enterprise”. Should anyone believe that a single individual, the U.S. president, actually exercises some kind of supervisory oversight of a largely free economy composed of over 300 million Americans freely choosing where to spend their discretionary income? Evidently almost everyone seems to believe that.

If one listens to the popular news media on a regular basis and reads the columns of popular pundits, he or she will get the impression that President Barack Obama is the prime manager of the economy. It is his policies that determine whether we will have a job, if businesses will succeed or fail, if we have inflation or deflation, or if the Gross Domestic Product (GDP) will rise or fall. This may be popular folklore but it is just not the case.

The United States economy is still primarily a free economy. It’s difficult to get a specific number as to the percentage of federal government spending in the economy, but many observers put that number at about 23% to 25%. Even though the federal government dispenses a large proportion of the dollars that are spent every day in the United States, much of this money is distributed via entitlements and other federal mandates over which the president has no control of whatsoever. And much of that government money is spent freely by businesses and individuals.

If the president isn’t directly responsible for managing the economy, as we are constantly told by commentators who understand little or nothing about the economy, then who is responsible for maintaining a healthy economy? My answer is, it’s a shared responsibility among many different entities, including:

  • The Federal Reserve, which is in charge of the money supply and short term interest rates. This is normally referred to as monetary policy. 
  • The Congress, which among many other responsibilities, is responsible for tax rates, the national deficit and the national debt. 
  • The President, to a limited extent, by the business regulations that are promulgated by his administration, and the pressure he brings to bear on the Congress to effect fiscal and other regulatory policies.  
  • The Bond markets, composed of millions of domestic and international traders, who basically establish long term interest rates 
  • The Stock markets, composed of millions of domestic and international traders, who determine the value of equities, which influence the individual wealth of investors. 
  • The Futures markets, which affect the value of international currencies, and virtually every commodity we buy, including the price of oil. 
  • The housing market, which is determined partly by the above entities, by real estate speculators and by the optimism, or lack of it, among the homebuilders. 
  • The business cycle, which goes through variations based upon all of the above entities. 
  • The American people, by their individual decisions as to how much they will spend in a given period and how much debt they are comfortable in carrying.

The above list is not meant to be an all inclusive set of entities that absolutely determine the U.S. economic activity. I listed these different influences on the economy to make the point that the U.S. president is not the prime manager of the economy. In fact, he doesn’t have much to do with it at all, but he does have a role to play.

Can the President of the United States Impact the U.S. Economy?

Certainly the president, through his ability to set new regulations and to influence Congress, can impact economic activity in the country. The very fact that he has a bully pulpit and that so many Americans believe the president’s pronouncements does have some impact on jobs and the economy.

A president can influence his party in Congress to go along with certain policies which can either help or hurt the economy. These efforts can be destructive to the economy if Congress chooses to follow the president down the wrong path, or can be helpful if the policies support free market principles.

Should Obama be blamed for the Current U.S. Unemployment Rate?

President Obama has a lot to answer for with the actions he has taken as president. First and foremost, he arrogantly perpetuates the myth that he as president is the giver and creator of all American jobs. This is patent nonsense! However, he is now stuck with this notion that has infused into the American mindset that he is the responsible party. He deserves to lose the next election on that alone.

Obama was able to convince a compliant Congress to spend vast amounts of money on a worthless Keynesian stimulus program. He probably was also involved, through his Treasury Secretary, in convincing the Fed to engage in Quantitative Easing which resulted in an excessive money supply, more inflation and a large increase in the U.S. Debt. I believe that President Obama should be blamed for not emphasizing free market solutions to the economy, not reducing instead of increasing burdensome regulations on private business and not proposing budgets to Congress that would actually reduce the budget deficit instead of increasing it. I do hope that at some point the American people will stop looking for the next great leader who they believe will manage the economy, create high paying jobs, maintain their entitlements, provide more government largesse and generally make their life better. Rather, I hope they select someone for president who has a proven record of leadership, who will defend the country from its enemies, keep our borders secure and most of all who will depend on the free enterprise system and the entrepreneurship of the American people to once again restore the American economy to full employment.

The next president must come from the ranks of the Republican Party and every Republican should be focused on this upcoming presidential contest. Republicans need to follow the candidates and events and make an informed decision when it’s time to vote in their primary. Unfortunately, because so many Americans believe that the president is the manager of the economy, Republicans will need to choose someone who possesses a strong economic background. However, let’s hope our nominee has enough sense to not overpromise and under deliver on his or her ability to return the nation to full employment and economic Nirvana. No president has that power.


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