No Credit Due
Presidents and Governments Don't Make the Economy Perform Well
DECEMBER 01, 1998 by SHELDON RICHMAN
The pundits are bewildered over the public’s contradictory response to President Clinton during his recent troubles. Most Americans have a low opinion of his character. Yet at least 60 percent of those polled think he’s doing a terrific job and should not resign. How can this be?
Assuming the polling results are accurate, it may be possible to make sense of this strange combination of opinions. First, we can dismiss the theory that most Americans are cynics who care about nothing but the economy or money. Of course, they place a priority on the material well-being of themselves and their families. No one should object to that.
Nevertheless, Americans do think the character of officeholders is important. That’s why they frown on the President’s admitted moral lapse. If character were unimportant we would not find Clinton’s “unfavorables” exceeding his “favorables” in the polls.
Clearly, people have judged the President a scoundrel who nevertheless can do his job well. What needs explaining is the connection between the (so far) good economy and the President’s positive job-performance rating. People assume that if inflation and unemployment are low and incomes are rising, the President deserves credit. Why?
One obvious reason is that most people went through government-run schools. Those schools self-servingly teach children that the government is responsible for the well-being of the nation, economic well-being included. History and social studies classes comprise a series of tales in which noble political leaders saved the country from the rapaciousness of greedy businessmen.
Although the federal government has been meddling in our private economic activities for well over a century, the explicit idea that it is the steward of the economy goes back to the Great Depression of the 1930s. That calamity supposedly proved that government is the indispensable glue that holds the economy together. As a result, since the days of Franklin Roosevelt, Washington has openly assumed responsibility for nearly all economic matters. Planners and administrators came to the capital in droves beginning in 1933 and found an abundance of work. When World War II began, they found even more to do through such agencies as the War Industries Board.
The restoration of peace did not send the planners packing. Government agencies were expected to maintain full employment, manage the money supply, finely calibrate the levels of taxation, spending, and inflation, and do all the other specialized tasks that a great economy can’t do for itself. Postwar legislation set up the President’s Council of Economic Advisers, sending out the unsubtle message that the President was at the helm.
So no one should be surprised that today’s generations believe government keeps the economy going or that the President deserves credit in good times. That’s what they’ve heard since they were old enough to understand the language.
The problem is that it’s not true. Presidents, and governments in general, don’t make the economy perform well. The economy is individuals engaging in production and exchange for mutual gain. If government abstains from interfering with those activities—to be precise, with property rights and contractual freedom—people will prosper and we will say that the economy works well. There is no active role for government. What we call the market process is self-motivating and self-regulating. It exhibits something that for many people is hard to fathom: undesigned order. Government may maintain the legal framework that facilitates the process, but it cannot successfully run or guide that process. Nor is it required to do so.
We’d be saved a lot of trouble if every child encountered the idea of undesigned order at the earliest moment he was capable of understanding it. But don’t wait for it to become a prominent part of the public-school curriculum, because the very idea subverts the case for public schooling. If central planning (or guidance) is unnecessary for creating a complex computer industry, why would it be necessary to create an education industry? There’s no more subversive idea than undesigned order.
The existence of undesigned order can’t be doubted. Without it there’d be no economics. Pioneering economists created the discipline out of their attempts to explain a regularity that couldn’t be denied but for which no planner was responsible. As one of them summed up his observations, “Paris gets fed.”
The market order is resilient enough to overcome a good deal of government harassment, regulation, and confiscation. Tenacious, goal-oriented people usually can find ways around the obstacles to prosperity that the political system puts in their way. That admirable feature of the economy unfortunately also creates a problem: it enables Presidents to claim, and win, undeserved credit for economic progress. Presidents are always doing things to the economy: announcing regulatory initiatives, signing bills, pushing new taxes, calling for new spending. If people manage to neutralize the harmful effects of those actions, the President is in a position to take credit anyway: “My economic program was passed by the Congress and millions of new jobs were created. We’ve grown the economy. My program worked!” Since most people don’t know how to do economic analysis, they have no way to challenge that claim. It might never occur to them that the progress they see would have occurred anyway or would have been more impressive had the President’s program not been passed. As Israel Kirzner wrote in these pages in October, the conclusions of economic science are counterintuitive. That is politically convenient for incumbents during prosperous times.
Note the asymmetrical conclusion. In good times, political leaders don’t deserve credit. But in bad times, they are likely to deserve blame. It works out that way because, absent government interference and major natural calamity, people will create prosperity. Recession, depression, inflation, stagnation, and mass unemployment invariably have political origins.
When we get right down to it, the government really has only two basic choices: impede producers and consumers in their efforts to create prosperity or leave them alone—laissez faire! Goodness knows that President Clinton has pushed through policies—taxes and regulations—that would have created major hardship had we (“the economy”) been less resilient. Perhaps he deserves credit for not interfering more. But that would be like praising someone for not stealing from us.
Although economic indicators have been favorable the last several years, good times are not guaranteed. Some government policy could bring things crashing down any time. If Clinton’s problems have inhibited him from interfering even more with our productive activities, then we should be grateful for the scandal.
Everyone needs to understand that Presidents cannot “grow the economy” or create prosperity. Free people do that simply by going about their business in a legal environment that protects property rights. The most government can do is stay out of the way. If the American people had the economic education they lack, they would see President Clinton in a far different light.