Don't Anthropomorphize The Economy

Of course some Republicans will respond by pointing to initiatives during the Clinton years that were undertaken by the GOP Congress, but that just proves my point that presidents are less consequential than we assume.  And even that can’t explain why real GDP growth was twice as fast under Lyndon Johnson’s big government policies than under President Trump.  So I conclude that even Republicans don’t really believe that the economy is a measure of the validity of a president’s ideology.

Here’s how I look at things:

1. There are long swings in trend real growth (per capita) due to technology.  Growth was fastest when low hanging fruit from fundamental inventions like electricity and gasoline engines were being rolled out across the economy.  Once that was mostly accomplished (around 1973), growth slowed.

2. Presidential policies do affect the supply side of the economy, and this can have a modest impact on growth.  Some good reforms happened during the Reagan and Clinton years.  This partly explains why the US switched from under-performing other developed countries to outperforming them in the later 1900s.

3. At business cycle frequencies, it’s mostly monetary policy that determines the path of output.  Presidents do have the ability to pick Fed chairs, but they often re-nominate people originally picked by the other party.  Monetary policy is relatively non-partisan.

The first point explains why Trump could never hope to achieve LBJ’s 5% real GDP growth rate.  The second point explains about 10% of why Hoover did worse than Coolidge, and the third point explains about 90% of why Hoover did worse than Coolidge.  (Technological growth was strong during the 1930s; it doesn’t explain any of Hoover’s dismal performance.)

If people want to think in terms of the “Obama economy” or the “Trump economy” that’s fine.  But your vision is almost all in your head; it doesn’t really conform to what’s actually driving the economy.  At best, maybe 3% of the economy.

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Currency Trader 3 months ago Member's comment

Americans increasingly vote for divided government, which works better than unified government.