Inquiring Minds: Paul Kellstedt on presidents and the economy

Do voters blame stagnant wages, rising unemployment and accounting scandals on President Bush? Kristen Cole asked Paul Kellstedt (left), assistant professor of political science and public policy, how voters form conclusions about a president’s ability to manage the economy and how much power a president has to influence those opinions. Consumer confidence may affect the midterm elections, he said.

How do citizens assess a president's ability to manage the economy?

Scholars know precious little about this. Most citizens are not CNBC junkies, and yet they get remarkably good information about the trajectory of the economy. (By “remarkably good,” I don't mean “inerrant,” but just “as good as most economics professors.”) How? They get information distilled through the media of mass communication. So some complex report by the Federal Reserve might come out as a lead story on “World News Tonight” like the following: “More bad news about the economy...” or “There are signs that the economy might have bottomed out...” And people can really understand those things, especially because most people care about it. It affects their livelihood – their retirement, their job prospects, the value of their homes. And then people attribute credit (or blame) to the person who happens to be at the helm of the ship. People really do view the U.S. economy as a big ship, and the president is the captain. If it runs aground, they know whom to blame.

That doesn't make politicians helpless, though. They can do things to influence key market participants' level of confidence in the future.

How can politicians influence consumer sentiment?

When Bill Clinton and the Democratic Congress passed the difficult budget reconciliation package in 1993, people in the market took this as a signal that Clinton would not be a stereotypical "tax and spend" Democrat. So what? Well, smaller deficits lead to less government borrowing (to finance those deficits), which frees up more of that money for private investment, which brings interest rates down, which is good for everyone.

President Bush may have missed one of these opportunities recently because his tax cut was not viewed as friendly to economic growth, but rather as friendly to his wealthy constituency. That might bring back deficits – and there are signs that that is exactly what is happening. That can create bad news – “…more deficits are ahead...” – which deflates confidence.

Was there a time when consumers were overconfident about the economy based on political maneuvering instead of the reality of the economic situation? Was there a time when consumers were less confident about the economy even though the economy was just fine?

On the first question, no. There has never been a time when things were horrid but people thought that the future looked peachy. One way to say this is that political action and rhetoric contribute to consumer confidence, but cannot overwhelm economic reality.

On the other side of the coin, 1992 is a perfect example of a time when things were not very bad, but people thought things were bad. Unemployment, for example, was about in the mid-7 percents. That's a bit higher than it had been in the couple years prior, but nothing like the 10-plus percent unemployment we had had just a decade before. Market fundamentals then looked pretty good. But people thought that George Herbert Walker Bush was an incompetent economic manager. It's too neat to say that that was solely because he didn't know that supermarket scanners existed (remember that awkward news footage?), but it contributed to the sense that he was out of touch and didn't empathize with the plight of the rest of us.

What is the current situation under President Bush as we head toward a midterm election?

Separating the president's influence from other, less political sources is not easy. But we try to do that in our work, and the findings are basically that when politicians make statements about the economy, people do listen. But people also know that politicians are self-interested, and so it seems that they listen more closely to the rhetoric of less-interested parties like academic economists (or like they perceive Federal Reserve Board Chairman Alan Greenspan to be).

Currently, the only thing that is in the tank is the stock market. Other than that, market fundamentals are very strong. Unemployment is low. Inflation is nonexistent. But people are scared about the stock market, and the scandals (WorldCom, Enron, et al.) are only fueling worries that the prosperity of the 1990s is all funny money. I don't think it is by any means, but a good chunk of the American public needs more convincing.

In the meantime, despite the war on terrorism and the unity that has come in the last year, I expect the Republicans to be hammered in November's midterm elections because [voters] view President Bush (and Vice President Dick Cheney, too) as a tool of the Enron crowd. Like his father, he is running the risk of being seen as out of touch with the rest of us. So, despite an otherwise good economy, people may attach poor economic performance to Bush, and punish the GOP in the elections.