07.14.2017
By Markets Media

Can Trump Drive the Economy?

By Brian Sandler

The economic ambitions of President Trump have been the focal point of many of his speeches. “We will get our people off of welfare and back to work – rebuilding our country with American hands and American labor,” the President said in his inaugural address in January.

While the President has made similar promises that his intended policies will bring prosperity to the United States, how legitimate are these statements?

According to history, the answer is complex. While several economic programs signed into law by Presidents such as the Glass-Steagall Act have directly affected the economy, others might argue that the impact is less significant than might be perceived.

For example, while President Herbert Hoover is often blamed for causing the Great Depression, the situation that kickstarted it had arguably little to do with Hoover’s actions. The unstable nature of the stock market in the 1920s lead to the eventual crash that caused millions to become unemployed.

Conversely, the economic climate of the 1980s, which was considered to be largely caused by President Ronald Reagan’s ‘Reaganomics’ tax plan, was generally considered by most historians to have recovered independently of Reagan’s legislation, with the top 1% receiving disproportionate economic benefits.

Christopher Warburton, Ph.D., East Stroudsburg University

“While Presidents can help to steer the national economy to success or failure, there are a lot of other factors that can impact an economy,” said Christopher E.S. Warburton of the department of political science and economics at East Stroudsburg University. “Traditionally, economists think about shocks as an example. Shocks are unanticipated and sudden disruptions; for example, a sudden spike in energy prices, an unanticipated bad harvest, or a sudden and precipitous drop in asset prices. Inflexible prices can also pose problems.”

Although the economy has limited influence from the actions of the current President, a 2013 Princeton University study shows there have been differences in economic growth by party. According to the study, during the last 16 Presidential terms, the annual real GDP growth under Democratic administrations averaged 4.3%, while the average annual real GDP growth under Republican administrations was 2.5%. That translates to an average growth of 18.5 percent under a Democratic administration and 10.6 under a Republican administration.

The President’s actions, and words, do matter.

“Consumer optimism and investor confidence are relevant to macroeconomic performance, because news, noises, or presidential proposals can alter the psychological predispositions of consumers and investors,” Warburton said. “Proposed policies of a President might generate consumer optimism or the proposals can easily generate investor and consumer pessimism. Accordingly, proposed policies can be problematic even when they are not legislated.”

“We should therefore separate promises from long-lasting legislation,” Warburton continued. “Promises shape perceptions and perceptions drive consumer optimism or investor confidence. But legislation may outlast the tenure of any President. Legislation typically has implementation and effect lags.”

Considering the general pattern, it seems that President Trump’s ambitious intentions might not be as influential as he would hope. Still time will tell as to what mark this President will make on the economy.

“How can the policies of Presidents significantly impact macroeconomic performance beyond ephemeral and volatile macroeconomic proposals?” Warburton asked. “Long-lasting legislation that contributes to stability beyond a President’s tenure is usually a very good indicator of good macroeconomic policy. The New Deal of the 1930s, by Franklin Roosevelt, is a transformative experience with long–lasting stabilization paradigms.”

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