If It Was 1968 – I could get a New Car for $2400….

 

Odd statement for a psychiatric blog?  I decided to address my favorite economic fallacy of election season and that is the effect of the President.  It came up as recently as four days ago in the Presidential debate.  During that debate – Trump claimed that he created the “greatest economy” and made the following statement:

“When I had it, I had tariffs and yet I had no inflation. Look, we've had a terrible economy because inflation has --which is really known as a country buster. It breaks up countries. We have inflation like very few people have ever seen before. Probably the worst in our nation's history. We were at 21%. But that's being generous because many things are 50, 60, 70, and 80% higher than they were just a few years ago.”

It was not clear to me if his statement abut 21% was supposed to be under his administration or Biden-Harris, especially when he makes the claim that “I had no inflation.”  That brings me to economic fallacy #1 in the Presidential race:

1:  Inflation is a fact of life in the American economy and there has never been a recent President with “no inflation”:

You don’t have to believe me. The evidence is abundant starting with retirement savings.  All the retirement advice you get gives you strategies on how to keep pace with inflation over the next 30 years.  There will be additional advice on how to keep up with inflation during your retirement years.  There is no advice that you can forget about inflation because it does not exist at times.  The title of this post refers to an ad for the Ford Mustang in 1964 that ran constantly on television with the title “$2,368 F.O.B Detroit.”  The starting price for a Ford Mustang today is $30,920. 

You don’t have to rely on those kinds of memories.  There is actual economic data tabulated.  The only problem is that it is not typically tabulated by Presidential term.  You must add that yourself.  I used the Bureau of Labor Statistics purchasing power calculator that uses a broad index of consumer goods to look at the last 7 administrations:

President	Years	Inflation
Biden	2021-2024	20%
Trump	2017-2021	12%
Obama	2009-2017	15%
Bush	2001-2009	22%
Clinton	1993-2001	24%
Bush	1989-1993	12%
Reagan	1981-1989	42%

 Inspecting those numbers – most people can come up with explanations for the variability.  Explanations of policies under any President responsible for the numbers is doubtful.  Reagan and his “trickle down” economic policies were a mainstay of Republican rhetoric for decades and he has the worst inflation rate.  The most likely difference between the Trump and the Biden figures was decreased demand and unemployment under Trump creating less demand and pricing pressure and then increased employment, financial incentives, and pent-up demand as the pandemic improved under Biden.

The rhetoric of the economy often leads people to come up with lists of commonly purchased items and how those prices have been affected.  First off – price inflation is expected irrespective of who is in the White House, but I encourage anyone to not take these lists at face value and do an easy recheck.  Here is one I did not too long ago after somebody posted their list of inflated items on Facebook.

Note that the GOP version in the first two columns does not match the prices I got off a Walmart web site on May 7, 2024.  The GOP version shows uniform increases in all prices between 2020 and 2024 and that is not the case.  Half of the items are less than they were in 2020 (see sparklines in last column).  Anyone can do this exercise when they see these postings about price increases of common items over time.  Secondly, there are factors that affect these prices that no President or country could conceivably control.  A good example is coffee.  Brazil and Vietnam are the largest producers and their production is currently affected by drought and climate change. Despite the current decreased production coffee prices are not as high as they were in 1976-1977 when over 70% of Brazilian coffee was affected by a frost and coffee prices doubled to $4.19/pound or $19/pound corrected to 2022 dollars. 

Do these lists really prove anything in terms of the candidates?  Not really because once again inflation is expected.  The political rhetoric is such that the GOP is portraying the current inflation as catastrophic.  Certainly, the higher end of the range that Trump describes has not happened.  A much more reliable index of inflation is available from the Federal Reserve.

The only relatively flat spot on that curve was at the peak of the COVID pandemic with decreased demand for goods and services. As demand increased the CPI increases and the Biden administration took over at that point.  The commonly quoted inflation numbers are consumer prices defined as: “Inflation as measured by the consumer price index reflects the annual percentage change in the cost to the average consumer of acquiring a basket of goods and services that may be fixed or changed at specified intervals, such as yearly. The Laspeyres formula is generally used “

2:  The most direct and sustained effects on inflation are initiated by the non-partisan Federal Reserve Bank:

The Federal Reserve Bank has been independent of political influence since 1951.   Between 1935 and 1951  “monetary policy would basically be dictated by Congress and the White House…”.  Even after that period, the Fed has come under pressure from the executive branch.  The Fed actions are a potent driver of the economy and check on inflation as evidenced by the following graphic on interest rate adjustments.  These interest rate adjustments are done based on macroeconomic rather than political considerations and many administrations have disagreed with them because they did not seem politically expedient.  Note the differences in interest rates over the past 2 administrations.  It is also generally agreed that the US economy has recovered post pandemic better than other high-income countries. Should an administration take credit for that or the Fed?

3:  Academic comparisons of the impact of Presidents on the economy show little effect.

The best-known study of the issue was done by Blinder and Watson (3).  They conclude that by all measures the economy does much better under Democrats in Congress and the White House.  It is not even close.  But they did not leave it there and went on to see if there was any clear explanation for this phenomenon at the policy level or based on the make-up of administrations and there was not.  They take it a step further and look at whether the economy was just poised for rapid growth at the time Democrats were elected and that was also not an explanation.  They consider various luck factors that are shocks to consumer expectations and find that makes up part of the difference.  In the end they find no complete explanations but suggest more favorable international conditions and consumer optimism may have something to do with it.  In short, the economy does better under Democrats but there is no clear explanation why that is.  Why then is it a top priority for the election?  The answer is that it is purely emotional appeal rhetoric with no basis in reality. 

Conclusion:

If you are really basing your vote for the President on the economy – find a different issue.  There is very little to no evidence that the President has much of an effect.  If you do your own research - there is a ton of information on this that is as accessible as doing a simple Google search on: “Does the President have any effect on the economy?”   There are papers, podcasts, blogs, interviews, radio programs, and more academic papers that say the same thing – probably not much if any of an effect. When I hear that polls suggest that most Americans think one party or another can manage the economy better – what is that based on?  A candidate saying that during his term he had the “best economy ever.”?  There is absolutely no evidence for a statement like that.

So “its not the economy stupid.”  Move on to another issue.  If you vote based on that issue – you are voting on unsubstantiated rhetoric,

 

George Dawson, MD, DFAPA

 

References:

1:  Overview: The History of the Federal Reserve.  September 13,2021:  https://www.federalreservehistory.org/essays/federal-reserve-history

2:  de Soyres, Francois, Joaquin Garcia-Cabo Herrero, Nils Goernemann, Sharon Jeon, Grace Lofstrom, and Dylan Moore (2024). "Why is the US GDP recovering faster than other advanced economies?," FEDS Notes. Washington: Board of Governors of the Federal Reserve System, May 17, 2024, https://doi.org/10.17016/2380-7172.3495

3:  Blinder AS, Watson AW.  Presidents and the US Economy: An econometric exploration.  National Bureau of Economic Research. Working Paper 20324, July 2014.  http://www.nber.org/papers/w20324

4:  Bilen C, El Chami D, Mereu V, Trabucco A, Marras S, Spano D. A Systematic Review on the Impacts of Climate Change on Coffee Agrosystems. Plants (Basel). 2022 Dec 25;12(1):102. doi: 10.3390/plants12010102.