It’s Not the President, Stupid: A New Marketplace Podcast

(Photo: Anna Fox)

Our latest Freakonomics Radio on Marketplace podcast is called “It’s Not the President, Stupid.” (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript below.) The gist: it’s time to admit that the U.S. economy doesn’t have a commander-in-chief.

Over the years, we’ve regularly visited the question of how influential the president of the U.S. really is. This segment focuses on the president’s influence over the economy — which, if you believe polling data, will be the central concern for many voters as the 2012 election unfurls.

In this Marketplace segment, you’ll hear from Austan Goolsbee, the University of Chicago economist who has served President Obama as both campaign adviser and chairman of the Council of Economic Advisers:

GOOLSBEE: I think the world vests too much power, certainly in the president, probably in Washington in general for its influence on the economy, because most all of the economy has nothing to do with the government.

You’ll also hear from Freakonomics blog regular Justin Wolfers, who, along with co-authors Erik Snowberg and Eric Zitzewitz, examined the stock market’s reaction to the 2004 presidential election, during which it was erroneously declared that John Kerry had beaten George Bush, when in fact the opposite turned out to be true. (Ungated paper here.)

FWIW, here’s a TV interview I did with Yahoo! Finance on the topic a few weeks back. And we’ll soon be releasing an upcoming hour-long podcast with an updated version of the President episode, in which you’ll hear at some length from Goolsbee, Steve Levitt, and Donald Rumsfeld. I asked Rumsfeld about parallels between the roles of president and CEO of a company (a role Rumsfeld himself has held). His answer was most interesting:

RUMSFELD: Well, they’re really very, very different, and being good at one doesn’t suggest that one would necessarily be good at the other. The political world is a thing of a different order. Because the powers are divided, a president has to spend a great deal of time dealing with the Congress and dealing with the media, because you communicate to the Congress and the public through the media. And almost anything that’s proposed is going to be debated and discussed openly, immediately. In business, conversely, I mean I could go into a corporation and decide that I want to freeze the dividend, and I could do it as CEO. I could decide I’m going to open a research facility in country X instead of Country Y. I could decide I’m going to downsize or sell off a division, and I did it. And you can be wrong, as well as right, to be sure. But at least you are able to do it. You know, in government, if we put something in place, in one of the departments or agencies, the Congress wants to have hearings on it, they want to pull the plant up by the roots every five minutes to see if it’s still growing and traumatize it, and the press wants to critique it before it’s even fifteen minutes old. It’s enormously different.

If I were a presidential candidate’s campaign adviser, here’s what I’d like him or her to say:

My fellow Americans, I have precious little control over the U.S. economy, even though I and my fellow candidates pretend the opposite is true. There is no “increase employment” button I can push once I get to the Oval Office, no “lower gas prices” button either. It’s true I have a little influence on the direction and shape and velocity of the economy, but mostly it does what it does. So if it gets worse on my watch, you shouldn’t necessarily blame me – and if it happens to get better, you shouldn’t give me too much credit, either.

If I actually did get my candidate to deliver that message, even just once, how long do you think it would be before I got fired?

Audio Transcript

Kai Ryssdal: Time now for a little Freakonomics Radio. It's that moment every couple of weeks where we talk to Stephen Dubner, the co-author of the books and blog of the same name -- it is the hidden side of everything.

Dubner, how are ya?

Stephen Dubner: I've been worse.

Ryssdal: You have? All right, OK.

Dubner: I'm doing all right.

Ryssdal: You know why you're doing all right, though? Because Super Tuesday's behind you, man. You don't have to worry about politics anymore.

Dubner: That is a big part of it. You know how I feel about the presidency.

Ryssdal: That's where I was going, because generally, you think it's overrated, right?

Dubner: I do. I believe that the office of the president of the United States, it just matters a lot less than most people think. Now I will say, when I make this argument, I get hate mail from both sides of the aisle. Conservatives accuse me of "covering" for President Obama, and liberals accuse me of kind of preempting criticism of some future Republican nominee.

Ryssdal: Well the man is the leader of the free world, so to speak. So what's the actual truth here, dude?

Dubner: Look, personally, I have no horse in any race -- I dislike both political parties about equally. But here's the thing: We're heading into a presidential campaign now that is likely to focus on the economy, and rightly so. And I'm here to tell you and your listeners that of all the areas in which the president's influence is overrated, the economy is probably No. 1.

I'd like you here to listen to Austan Goolsbee, who's a former chairman of President Obama's Council of Economic Advisers.

Austan Goolsbee: I think the world vests too much power -- certainly in the president, probably in Washington in general -- for its influence on the economy, because most all of the economy has nothing to do with the government.

Ryssdal: I love the way he talks, by the way. Sounds like a mafia guy, doesn't he? But wait listen, you were around in the '92 election? You were paying attention, yes?

Dubner: I was a sentient being then, yes.

Ryssdal: So Clinton, "It's the economy, stupid" -- that's why the guy won.

Dubner: It's a fantastic campaign slogan -- you get to brag about how you'll raise employment and lower gas prices -- as if, Kai, there's some magical set of buttons in the Oval Office that you get to push once you're elected. A 'More Jobs' button.

But as Austan Goolsbee points out, the president's ability to actually change the shape and direction and velocity of the macroeconomy is extremely limited.

Ryssdal: Let me go back then to the actual politicians who say otherwise. You had Clinton and now you've got Mitt Romney -- former CEO, a business guy. Goes out, every stump speech he makes and says, 'I know what to do in the economy. I've been there, I've created jobs, I've fired people, blah blah blah.' You're not buying that?

Dubner: I buy that he believes that to be true. A lot of people have believed that to be true in the past; this kind of common idea of the last 10, 15 years is 'president as CEO.' But it doesn't work that way. We set it up to not work that way. When it comes to unilateral decision making, there's no comparison between what a CEO can do and what a president can try to get done. Here's another way of looking at it, with some actual data, which is what we like to do.

Ryssdal: I was waiting for the data, man.

Dubner: In the 2004 Bush-Kerry election, you may recall there was a little bit of a snafu concerning the early exit polls.

Ryssdal: Oh yeah, Kerry was the winner for like, three-something hours, four hours?

Dubner: That's exactly right. It was announced it was Kerry but it turned out to be Bush. And the economist Justin Wolfers took advantage of that mix-up for a study he did.

Justin Wolfers: 2004 was a social scientist's dream. What you have is four hours -- I'm a Democrat, so I'll say four beautiful hours -- in which we basically had a Kerry presidency. And it was random.

Dubner: So what Wolfers did is he looked at how the stock markets reacted to first the news of a Kerry presidency, and then the new -- turned out to be correct -- news of a Bush presidency.

Wolfers: You see, in fact, that stocks fell a little bit during the four hours of the Kerry presidency and then they rose a bit when it became the Bush presidency.

Dubner: Now, the difference between a new Democratic president and a new Republican president in the space of four hours was actually pretty small -- about 1.5 percent. That is just a sliver of evidence, but it does suggest that the people who pay the most attention to the working economy -- which is to say the Wall Street investors -- didn't really care all that much about which president they got. And most economists will tell you that the president's role when it comes to the economy is much closer to let's say a cheerleader than a CEO.

Ryssdal: Yeah, but you're never going to see Obama or Romney out there saying, 'I can do nothing!' Right?

Dubner: No, you won't. They've got their self interests, but just once I'd love a presidential candidate to get up there on the stump and say: 'My fellow Americans, I can't control the U.S. economy. I've got a little bit of influence but mostly it does what it does. So if it gets worse on my watch, you shouldn't blame me -- and if it happens to get better, you probably shouldn't give me too much credit either.'

Ryssdal: Ladies and gentlemen, the next president of the United States, Stephen Dubner.

Dubner: I think not. Now you know why I'm free to be on your radio show -- nobody in Washington wants to touch me.

Ryssdal: That's exactly right. is the website. See you in a couple weeks.

Dubner: Thanks Kai. 

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  1. Dave says:

    While I believe there is little a president can do to make the economy better, he and Congress can make it much, much worse with poor fiscal policy.

    Well-loved. Like or Dislike: Thumb up 33 Thumb down 6
    • rehajm says:

      Crippling levels of ill-conceived regulation doesn’t help, either. Nor do cabinet level shakedowns of private enterprise.

      Well-loved. Like or Dislike: Thumb up 15 Thumb down 6
      • SandRat says:

        Poorly conceived regulations can criple an economy, it’s true. Nearly as much as the lack of good regulations. We’ve done the whole mess of unregulated business. If you want to see what it looks like, visit any 3rd world country on the planet.

        Thumb up 0 Thumb down 0
    • txdave22 says:

      Wonder why so hard to say the facts? Yes, DJIA at 8000 when shrub left after exploding debt and deficit around 80%.

      Yes, DJIA over 13000 now, over 63% improvement.

      If you’re a pub, you can say, wow, just sorta happened, but difficult to say that about the disasters that were reagan/bush/bush. Remember Lebanon. Remember all the tax hikes under reagan/bush.

      Remember the GOLDEN AGE OF CLINTON: peace and prosperity and amazing stock market.

      This is not brain surgery. Democrats give better government/economy/stock market.

      You don’t like Dems, then pick a clown: unsuccessful 1 term gov, defeated 2 term senator, newt with wives and ethics committee and resignation as speaker. Pick one.

      Don’t forget paul, who no one ever heard of, and for a very good reason.

      Hot debate. What do you think? Thumb up 9 Thumb down 12
      • Carter Huff says:

        I am a Republican and I respect much of what you laid out. The simplicity and straightforward layout is a great glance, know we are limited in characters. You should have left Ron Paul out, you undermined the simplistic approach to your understanding of events. I agree, the circus for Republican Presidential candidates keeps getting better. So, when you make your claim and legitimize by pointing out the deeply flawed alternative morons, you than bring in Ron Paul. If you are so partisan and believe the Democrats should simply win and real Republican philosophy is moronic, than you are terribly ill informed. If you are suggesting the Republican party went lost it mind and as of now the options are laughable, than I agree. If you are suggesting Ron Paul is like the rest that have run, this entire post is baseless.

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  2. Daniel says:

    I somehow don’t find it surprising that a few months before the election that Austan Goolsbee would suddenly proclaim that the president has little to do with the economy. Wouldn’t want to take credit for his disasterous economic policies, especially his energy policies, with gas prices at record highs. Obama ran against Bush claiming that he crashed the economy and hasn’t stopped blaming him for every problem since. Goolsbee is little more than a tool that learned the lesson that “Those that can, do. Those that can’t, teach”.

    Well-loved. Like or Dislike: Thumb up 35 Thumb down 20
  3. CS says:

    Hidden due to low comment rating. Click here to see.

    Disliked! Like or Dislike: Thumb up 17 Thumb down 22
    • Enter your name... says:

      If anyone who thinks major policy decisions don’t affect the economy is nuts, then what do we call the people who believe that the US presidents actually get to make major policy decisions? The President can’t spend any money without Congressional approval, and even minor executive orders can be overturned by Congress whenever it wants.

      Well-loved. Like or Dislike: Thumb up 15 Thumb down 7
  4. Shelley Holroyd says:

    If I had the chance to get any candidate to deliver that message, I wouldn’t care if I got fired. Although, I believe I would be immediately! Still, it would be a life achievement to have achieved truth, and honesty in a political campaign with one sweeping effort.

    Thank you for your thoughtful work. I am a devotee.

    Thumb up 1 Thumb down 0
  5. Caleb b says:

    Imagine you own a business, say a coffee shop.

    Then imagine the government tells you that it has created a ton of new rules for you to follow, but not all of them are fully understood yet and if you break any, even ones not interpreted yet, you are in trouble. Would you react by expanding?

    Alternatively, imagine you’re a home owner and the government says, “we’re going to allow mortgage fraud for the next 8yrs!” what do you think will happen?

    Now multiply this by the whole economy and tell me that politicians, with the President being the leader, don’t affect the economy.

    Well-loved. Like or Dislike: Thumb up 35 Thumb down 11
    • Enter your name... says:

      The claim here isn’t that “politicians” or “the government” have no effect. It’s that the single human in the Oval Office, operating all by himself, has very little effect, because he has very little direct control.

      Well-loved. Like or Dislike: Thumb up 24 Thumb down 8
    • Kristin Horowitz says:

      Welcome to my world. And yeah, I *do* react by expanding anyway.

      Thumb up 1 Thumb down 0
  6. Nosybear says:

    Lots of this debate center on dealing with an economy as a “thing” to be managed. It is not: The economy is an emergent property of the society that hosts it, the sum of all exchanges made within the society and as such is strongly influenced by political policy, the deregulation and abuses in the mortgage industry the poster mentioned. If the society values wealth over quality of life, the economy will create wealth. Government, too, mirrors the values of the society that hosts it. In short, as the most visible agent of Government, the President has an influence over the society and thus over the economy.

    Well-loved. Like or Dislike: Thumb up 10 Thumb down 4
  7. joeyjojo shabadoo says:

    When people say “president so and so is ruining the economy” I always say “you’re giving them too much credit. They aren’t smart/powerful enough to make that much of a difference”. Although I would say that government policy does seem to have quite an affect on consumer/investor confidence, which does influence the economy.

    Well-loved. Like or Dislike: Thumb up 8 Thumb down 1
    • Steve O says:

      I would counter that the media’s reaction to policies have a much bigger effect on consumer confidence than the actual policies.

      Well-loved. Like or Dislike: Thumb up 6 Thumb down 0
  8. BL1Y says:

    So long as presidential candidates continue to run on platforms dealing with issues that they don’t control (either because it’s in the hands of Congress or the rest of the globe), I think we reserve the right for criticizing them for not doing a better job.

    Don’t want to be blamed for not reducing unemployment? Then don’t promise lower unemployment.

    Well-loved. Like or Dislike: Thumb up 16 Thumb down 1
    • MissLiner says:

      Ahh but there is the conundrum, if you don’t promise to lower unemployment, you will never be elected to office. So it is impossible not have a liar in office. The electorate refuses to face facts, and then gets mad at the politicians that WE FORCE to lie. Those who tell the truth just never get very far.

      Thumb up 4 Thumb down 0