Let me quickly suggest two or three ideas that I hope will be helpful to you in thinking about President Bush and the economy before we open it up to your questions. One of the features of the presidency that is most perplexing to most presidents and political scientists is that fact that, with respect to the economy, presidents generally receive more credit and more blame than they deserve. They receive more credit and blame for three basic reasons.
First, there are huge leads and lags with respect to the actions that are taken and the results of those actions manifesting themselves in the economy. Anyone who looks at numbers over a four-year period—the four years in which a president holds office—and tries to draw conclusions from those numbers, assuming that those numbers represent or reflect the result of the policies that were pursued by a president, is on very thin ice indeed, because in fact there are huge leads and lags with respect to many actions that are taken.
Secondly, presidents have very limited control over the tools of economic policy. Monetary policy is dominated by the independent Federal Reserve Board, which quite properly is independent and regularly expresses that independence. Presidents get an opportunity to make appointments to the fourteen-year terms that the seven members of the Federal Reserve Board have, which means that in a normal four-year period a president is going to get an opportunity to make two appointments to the Federal Reserve Board. Once governors on the Fed are confirmed, they do not serve at the pleasure of the president and cannot be removed by him. As Michael Boskin pointed out in his paper, we had a 300-basis-point rise in interest rates during the nine months before George Bush took office. President Bush ended up paying the price for the second round of disinflation.
The president shares responsibility for fiscal policy with the Congress, and while he has a certain amount of influence over congressional action, and certainly has the power of the veto to stop things that he doesn’t like, it is very difficult for the president to get the Congress to enact his proposals without substantial amendment, as virtually every president that we have had in the post-World War II period has discovered.
Third, and not least, there are very powerful forces shaping economic outcomes in a $7.3-trillion economy that are effectively outside a president’s control. These are based on the large numbers of decisions that are made in the private sector, as well as decisions that are made abroad. And yet we tend to hold presidents accountable for economic outcomes because, since the Full Employment Act of 1946, we have looked to the president as what political scientists like to call the “manager of prosperity,” and we expect presidents to be able to produce that prosperity.
This raises a very interesting question: What should presidents do, given the fact that they realize that they are going to be held accountable for something over