Barely 20 months after his inauguration, Barack Obama is said to ‘own’ the ongoing recession just as George W. Bush was blamed for a stock market swoon almost as soon as he was inaugurated.
Assigning responsibility for a bad economy to whoever is president at the time is an old tradition and generally harmless, even if it usually overstates an administration’s impact. (Congress and the Federal Reserve also play major roles in setting economic policies, for example, and other forces in the business cycle, such as technological innovations and wars, can have powerful effects.) But it becomes more dangerous to public understanding when partisans making invidious comparisons cite economic statistics to buttress their arguments.
People are more vulnerable to being deceived when legitimate numbers are misused. And there often is great opportunity to selectively pull numbers out of databases of economic indicators to slant the truth.
Go back three decades to the Carter-Reagan years for an example of how selecting even slightly different periods for comparisons can create different impressions of economic performance.
On a test, one of my students recently lauded Ronald Reagan: “… and from the month he was inaugurated until the month he left office, real GDP under Reagan grew at an annual rate of 3.3 percent.” That is entirely correct, and there was nothing deceptive in this student’s answer. From the first quarter of 1981, when Reagan was inaugurated, until the first quarter of 1989, when he handed things over to George H.W. Bush, national output adjusted for inflation grew an average of 3.3 percent per year.
But the student also wrote that this was much better than Reagan’s predecessor, Jimmy Carter. Now, if he had bothered to make the same calculation for Carter, he would have found that real GDP for the analogous period, Q1-1977 to Q1-1981, grew slightly faster, at an annual rate of 3.4 percent.
Does this mean Carter had greater economic success than Reagan? Not necessarily. Just switching from quarters to years changes things a bit. Take real GDP for calendar years 1977-1981 and 1981-1989 and you come up with growth rates of 2.7 percent during Carter’s term and 3.5 percent for Reagan.
Moreover, if you accept that it takes a while for new policies introduced by any president to have effects on the economy and thus opt to lag things one year, so that 1978-1982 is attributed to Carter and 1982-1990 to Reagan, then the first saw growth of only 0.8 percent a year while the second had 3.9 percent.
If you are a Democrat, you can choose the inaugural-quarters comparison. If you are a Republican, you can choose the lagged calendar years, although that means all of 2010 still must then be laid at the door of George W. Bush. Perhaps it is better to go for the calendar years without the year lag.
Carter’s administration is branded with high inflation. Consumer price data is tabulated monthly. From the month he took office to the one in which he was replaced by Reagan, inflation averaged 10.4 percent per year, while un-der Reagan it was only 4.2 percent. Here, lagging it a year makes Carter’s record look even worse, at 10.8 percent versus 3.8 percent for Reagan.
Of course, Reagan’s presidency is identified, in turn, with the highest unemployment in the past 70 years, averaging 7.5 percent over the 96 months he was in office, while that for Carter’s 48-month term was “only” 6.5 percent. As with inflation, lagging a year hurts Carter, moving up to 6.7 percent, and helps Reagan, dropping to 7.2 percent.
The problem in assigning blame here is that both the high inflation of the 1970s and the high unemployment of the 1980s were due much more to the Federal Reserve than to either president.
Three increasingly disastrous Fed chairs, beginning with Nixon appointee Arthur Burns in 1970, caused the greatest peacetime inflation in the history of our country. And by the time Carter appointee Paul Volcker started to clean up the mess in late 1979, it took a harsh recession to wring entrenched inflation out of the economy.
This is not to absolve either president of all responsibility. Carter named two absolute duds to the Fed before hitting a home run with Volcker. And the big deficits that resulted from Reagan’s tax cuts and spending increases combined with the Fed’s tight money policy to drive interest rates and the international exchange value of the dollar sky-high, hammering U.S. agriculture and our steel and auto industries.
The details of that are best left to another column. For today, be aware that one often can create plausible, but quite different, impressions of presidential performance just by picking particular time spans that most favor one’s argument.
© 2010 Edward Lotterman
Chanarambie Consulting, Inc.