Presidential Economics: The Making of Economic Policy from Roosevelt to Clinton, 3d ed. - book reviews

Business Economics, July, 1996 by Kevin L. Kliesen

Politics, said Bismarck, "is the art of the possible, the science of the relative." Clearly, economists have much to learn about how policymakers value their advice. As the recent debates over health care and the minimum wage showed, making economic policy is often intertwined with political intrigue that respects very little that economics has to offer, especially during presidential election years.

Discussions of a president's economic performance often devolve into a series of polemical shouting matches. To help the average citizen steer through this morass, economist and financial analyst Richard Carroll discusses several measures of post-World War II economic performance. Although intended as an objective "sourcebook" for noneconomists interested in post-World War II economic trends, a cynic could easily visualize this as a useful fact-checking reference for journalists on the campaign trail or, better yet, citizens when watching the evening news.

Most economists will probably find Carroll's book rather mundane because of its slant towards objectivity and minimal discussion of policy. That said, noneconomists - and perhaps a few economists - probably will find the book useful if for no other reason than its description of the long-term trends of most important economic series arising in policy discussions. Moreover, it underscores two crucial aspects of the postwar U.S. economy. First, in the twenty-seven years 1948-74, annual real GDP growth was at least 5 percent in ten of them. From 1975, GDP growth exceeded 5 percent only in 1984, although it was close to 5 percent in two years. Second all forms of social expenditures (Social Security, Medicare, welfare, etc.) have risen dramatically, both in absolute terms and as a share of the federal budget since the early 1970s. A less objective view could plausibly lead one to argue that increases in social spending contributed to the slowing of economic growth by reducing the growth of business productivity.

Carroll's book is unique in that he discusses the trend growth of eighteen of the best-known economic indicators over each of the nine Administrations from Truman to Bush. Every president is then ranked by each indicator according to two performance measures: (1) the average annual growth of the series over his tenure; and (2) the change in growth. For example, real GDP growth was highest during the Kennedy Administration, averaging 4.8 percent, and lowest during the Bush Administration at 1.5 percent. But when performance is measured by the change in real GDP growth, the Ford Administration left office with growth 5.3 percentage points higher than what it inherited (the best), while output growth in the Nixon Administration was 3.5 percentage points lower then when it started with (the worst).

The last chapter than calculates an overall ranking of each president using both performance measures for all eighteen variables. The weights used to calculate this overall score are chosen by the author, with GDP growth and CPI inflation receiving the largest weights and employee compensation having the smallest weight. According to Carroll's yardstick, the Truman Administration received the highest overall score, followed by the Kennedy and Ford Administrations. Truman benefited from the postwar disinflation and declines in government spending. Ford had the good fortune of inheriting a recession and benefiting from a cyclical expansion. Truman and Kennedy also reaped the benefits from strong GDP and productivity growth and relatively low inflation and unemployment. Probably not so surprising, the hapless Carter Administration received the worst ranking, garnering poor scores for GDP growth, inflation and rising interest rates. Presidents Bush and Nixon also receive poor marks, finishing seventh and eighth, respectively.

By design, Carroll offers minimal judgment as to what policies contributed to better economic performance under some presidents than others. Perhaps one insight is that, when artificial constraints are removed from the private sector, whether an end to wartime budgets and controls, the removal of wage and price controls, or a lowering of marginal tax rates, the economy grows rapidly. When the opposite occurs, or inflation is allowed to run rampant, economic growth wanes.

Ranking a president's economic performance, however, is inherently problematic. First, it inevitably involves considerable subjectiveness. Second, it is not entirely clear that a president can reliably influence economic growth in the short run. Thus, a comprehensive review of presidential economic performance would account for policies whose effects may only manifest themselves after several years have passed. Prime examples would be the Roosevelt Administration, and perhaps the Johnson and Nixon Administrations. All of them not only substantially increased the scope of government in the private sector but also were potent engines behind the expansion of the welfare state. The methodology used in Carroll's book precludes such long-run assessments.