The economy is (finally) growing and President Biden is claiming credit. But how much credit (or blame) does any president deserve for the business cycle?
It turns out that the economy’s jobs performance during a given presidency is determined more by the state of the economy inherited on Inauguration Day than on any subsequent presidential policy. Presidents who inherit recessions typically end up with strong job growth, while presidents who inherit booming economies typically end up with sluggish job growth and even recessions. This pattern—paired with the fact that voters have consistently elected and reelected Republicans during booms, and then swapped in Democrats during recessions—explains the misperception that Democratic presidents are better than Republicans at managing the economy.
Let’s unpack this by taking those points in reverse. We often hear that 10 of the past 11 recessions began during Republican presidencies, and that more jobs are created during Democratic administrations. Case closed: Democrats manage the economy better, right?
Wrong. We’re all taught never to confuse correlation with causation, especially with small data sets such as recent presidencies. For example, more than 97 percent of America’s war deaths over the past 150 years have come from four wars (World War I, World War II, the Korean War, and the Vietnam War) that either took place or saw America’s role heavily escalated with Democrats in the White House. Does that reflect a systematic failure of Democratic foreign policy, or suggest that the party cannot be trusted on international affairs today? Hardly. Presidents respond to the unique challenges of their time and cannot control outside events.
Similarly, presidents inherit not a blank slate economy but a spot on the business cycle. Economic expansions eventually overheat, slow down, or hit an exogenous shock that brings a recession. These recessions typically self-correct back into an economic expansion after six to 18 months. The business cycle occurs naturally and is largely independent of political actions (although the Federal Reserve can heavily influence the business cycle, more so than stimulus legislation that is often implemented after the recession has already ended).