Where Presidents Have No Power

We are the home of the brave and the land of the free, but our elections are an exercise in irrationality. Presidential races are won and lost largely on the state of the economy. War is the only larger issue, and of course this year Iraq looms large. But bad news from Iraq appears not to be altering the presidential race. John Kerry certainly seems to think the election will hinge on the economy, which is why he just spent three days riding 427 miles through the economically hard-hit Midwest on a bus called the Jobs First Express.

The last challenger to unseat an incumbent President, Bill Clinton, ran on the axiom that it's "the economy, stupid." He won, but that does not make the assumption--that Presidents control the economy--any less fictitious. They do not. The idea that they do, the central motif of most every presidential election, is crazy.

"Bill Clinton and Al Gore created 22 million new jobs." So says Democratic National Committee chief Terry McAuliffe and just about every Democrat alive. How can anyone believe this? Clinton did not create any jobs. Bill Gates did. Andy Grove did. Jeff Bezos did. In fact, they created an industry. The '90s were a decade when the silicon chip met the "peace dividend"--billions saved by the ending of the cold war--and gave us an economic boom. Clinton deserves credit for not getting in the way. He fulfilled the economic Hippocratic oath: first do no harm. Not screwing up a boom going on around you, however, is not the same as job creation.

The fact is that Presidents have very little effect on the state of the economy. Sure, they can affect trade policy, regulation, the environment and, of course, foreign policy. But the economy? With globalization, trillions of dollars flow daily in and out of financial markets. One dollar in 10 is now involved in foreign trade. All advanced economies are subject to huge outside forces beyond a President's control. Moreover, U.S. Presidents have even less economic control than most other democratic leaders. The President does not control the money supply; the Federal Reserve does. Presidents cannot dictate their own budgets (as Prime Ministers can in parliamentary systems like Britain's); here, Congress has the ultimate say. Even worse, more than half the federal budget goes to entitlements and "transfer payments" like Social Security, where government is merely a conveyor belt transferring money from younger workers to older folks. What is left, "discretionary" spending, is a mere 8% of the $11 trillion economy Presidents are reputed to control.