Presidents have little influence on the economy

The hubris of presidential candidates who promise to fix the American economy if they are elected to the White House summons the image of legendary King Canute, who believed he had the power to hold back the advancing sea.

The last president to have a substantial influence over the American economy was Franklin Delano Roosevelt. From 1939-45, federal spending increased from just under 10 percent of gross domestic product to more than 43 percent of our total national GDP, according to the Office of Management and Budget. Spurred by New Deal domestic programs and massive military spending to fight wars in Europe, North Africa and the Pacific, federal expenditures accounted for 43 cents of every dollar of our economic output at the peak of World War II.

Since World War II, government spending has indeed increased in absolute dollar terms, but has shrunk to 20 percent of our GDP as our economy has steadily expanded. In 2007, our total economy reached $13.8 trillion in GDP.

However, the actual influence a political leader has over government spending is far less than these numbers suggest, as the vast bulk of our $2.8 trillion federal budget is devoted to mandatory outlays: Interest on the debt, Social Security, Medicare, veterans benefits and other entitlements. Unless one thinks that a president would actually eliminate entire federal departments and programs, discretionary spending is probably on the order of 1 to 2 percent of the budget.

According to the World Bank, the U.S. economy ranks No. 1 in the world as measured by GDP, with Japan trailing at $4.3 trillion, Germany at $3.25 trillion and China at $3.24 trillion. While the massive engine of the goods and services produced in our country is buffeted by the excesses of the subprime-mortgage market and corporate scandals, it is primarily moved by the realities of a business cycle that has reflected expansions and contractions since America industrialized in the second half of the 19th century.

For a candidate to claim that he or she can "create jobs," or "fix the economy," by any combination of policies is not simply bombast, it is highly misleading and diminishes the true role of our private sector and financial markets. At most, an elected official, working in concert with Congress and federal bureaucrats, can tinker around the edges of fiscal policy. The appointment of the Federal Reserve chairman is a key decision and Ben Bernanke's term ends on Jan. 31, 2010, but the next president would break custom if Bernanke's tenure were not extended for another four years.

President Clinton frequently claims to have "created" 22 million jobs in his eight years in office and President Bush cites 25 consecutive quarters of economic growth during his time in office. While those statistics are technically correct, they don't reflect the underlying dynamics of who is actually investing in new ventures, risking capital, innovating new products and creating new jobs.

In a truer sense, Microsoft's Steve Ballmer, Intel's Craig Barrett, Cisco's John Chambers, Apple's Steve Jobs, IBM's Samuel Palmisano and eBay's Meg Whitman each have had more impact on job creation than all federal officials combined.

The leading newspapers and TV networks play into the fallacy of a president's control of the economy by allowing Bill Clinton to define the stakes of an election, as in "It's the economy, stupid," as he did in his 1992 campaign, or by failing to challenge GOP leaders who claim to favor fiscal responsibility in the face of all the evidence of the past seven years of growing deficits, spurred by unchecked federal spending.

It's not that this presidential election doesn't matter or that the new man or woman in the White House won't wield economic power. But the new leader in the Oval Office will exercise far more influence over foreign policy and social issues.

The pivotal policy choices over the appointment of Supreme Court justices, the defense of civil rights, efforts to curb nuclear weapons, the Arab-Israeli conflict, and the continuing wars in Afghanistan and Iraq should be enough to motivate all of us to get involved in this election and closely study the alternatives. The media can help by peeling away the rhetoric and forcing candidates to focus on the actual levers of power that they control.

John Maynard Keynes, whose economic philosophy and advice might have done more to alter the course of American history than any elected official, including FDR, once wrote, "The difficulty lies not so much in developing new ideas as in escaping from old ones."

It's time to escape the idea that the American president controls the American economy and to define the stakes in this election with more precision and perspective.