WASHINGTON, DC, January 9, 2001 --  

With a measurable downturn in the American economy almost coinciding with the inauguration of a new president, politicians and journalists are working at a feverish pace to assign credit and blame for a nine-year boom that may be coming to an end. The bulk of these analyses are utterly worthless -- they are so oversimplified, personalized and politicized that it should carry no weight in an open-minded discussion about the progress of the economy.

The tendency to oversimplify responsibility for economic performance is far from new. People have been crediting Reagan for the recovery and boom of the 1980s for years. Most of this, of course, is political posturing by Republicans. It suits Republicans' interests to blame President Carter for the recession of the early 1980s, and credit Reagan with the expansion that followed. Democrats managed to do the same thing with the 1991 recession, and they managed to get Clinton elected by blaming the recession on Bush. (Remember the campaign motto: "It's the economy, stupid.") The fact that economic reports showed the economy recovering in late-1992 was little comfort to Bush -- he'd already lost the election.

Many knee-jerk Democratic supporters have conveniently forgotten the timing of the recovery, and point to the economic expansion of the Clinton years as the crown jewel of his accomplishments. Washington Post Writer Glenn Kessler gives President Clinton almost full credit for the 8-year boom. In a front-page love letter masquerading as news on Sunday, Kessler practically dropped to his knees in worship of the outgoing president. Kessler declared that he had successfully managed the economy "much the way a skilled jazz musician can improvise depending on his mood."¹

Because of their love for Clinton, it is understandable that Democratic supporters have been put on the defensive by statistics showing early warning signs of a recession. This defensiveness peaked last month, when the Clinton administration sent its spin doctors out to all the Sunday morning news shows on Christmas Eve, complaining that Vice President-Elect Cheney was deliberately talking down the state of the economy to help the prospect of Bush's massive tax cut proposals.

Though this may indeed be a partial motivation for Bush to talk down the economy, it is clear that Democrats are at least equally guilty of talking it up to protect Clinton's legacy. Such debates are pointless because the claim that one person can single-handedly take credit for the economic progress of nearly 300 million citizens is ridiculous.

Politicians aren't much a creative force in causing economic expansions -- the best they can hope for is to not do anything destructive. Presidents, as individuals, do have incredible opportunities to wreak havoc. They can start wars, aggressively pursue anti-trust lawsuits, tighten the borders against migrant workers, and unleash a constricting torrent of bureaucratic restrictions by executive order. To his credit, Reagan steered clear of these pitfalls, and Clinton -- despite notable exceptions -- largely avoided them, too. But most presidents do very little to actually help an economy grow.

Just because some presidents don't manage to wreck the economy, it hardly seems fair to give them credit for expansions. Giving a president credit for a boom is like giving an idle bully credit for a sandcastle he never bothered stomp on.

Some people recognize this, and focus instead on the role of Federal Reserve Chairman Alan Greenspan. While he is indeed influential, it is easy to overstate his role. Bob Woodward, the Washington reporter of Watergate-fame, has recently released a ridiculous tome of insider gossip: Maestro: Greenspan's Fed and the American Boom. Despite the title's implications, Woodward's book does nothing to prove that Greenspan actually conducted the ?90s economic boom -- it merely accepts the silly notion as fact and proceeds to recount the day-to-day minutiae of his job in a way to grossly exaggerate his importance.

The Federal Reserve Board's has many tools with which it can manipulate the economy, but in recent years all have been mothballed except setting interest rates for loans to private banks. This allows the board to give the economy a gentle nudge by loosening or tightening the money supply. This certainly can be a useful tool in times of stability, but it can easily become totally ineffective if independent factors make the economy really want to turn south.

Even with the limits of the board's tools, the decision to do decision to use them is not Greenspan's alone. He has but one vote among 10 voting members of the board, although his position as chairman and the tradition of board operating by consensus means he has more power than most members.² The only conclusion that can be drawn, therefore, is that while influential, Greenspan is hardly the person responsible for America's boom.*

If the President and the Federal Reserve Chairman don't get credit for the economy, then who does? Simple answer: people you don't know. A lot of them.

Most of what happens with the economy is the natural development of hundreds of millions of people interacting in ways made possible by their own effort and ingenuity, in the context of economic institutions of today. It may not be a sexy answer, but it's true. This stands in great contrast to the answer given by members of the press. Most writers want to personalize everything in order to make it an easily packaged and digestible human-interest story. The real world just doesn't work that way.

*This is not to denigrate Alan Greenspan in any way -- he, of course, is not making any claims to be responsible for the boom. And in full disclosure, a libertarian writer like me would be loath to condemn Greenspan, since he's a onetime member of Ayn Rand's inner circle.

Notes:

1. Washington Post, Unprecedented Boom Marks Clinton's Legacy, January 7, 2001

2. Federal Reserve Bank of Minneapolis, Federal Open Market Committee Minutes, 1999-2000