Paul Krugman: The Real and Unexpected Way Presidents Help the Economy

Presidents probably get too much credit when economic times are good, Paul Krugman suggests in his Monday column. Reagan certainly did. Of course, now that there are growing signs that the U.S. economy is at long last improving, Obama's approval rating is rising and conservative pundits and pols are scrambling to prove that this president should not get the credit. "There’s a palpable sense of panic among Republicans, despite their victory in the midterms," Krugman crows. "They expected to run in 2016 against a record of failure; what do they do if the economy is looking pretty good?"

Oh well, that's their problem, he concludes before taking a deeper dive into the question of just how much credit presidents in general, and Obama in particular, is due.

It's not what you might think.

First a little history. After the recession in the '80s, when the economy improved under Reagan, he was lionized as a  miracle maker on the right, for cutting taxes and having "conjured up the magic of the marketplace and led the nation to job gains never matched before or since," Krugman writes. Two tiny details however argue against the utter miraculousness of it all, according to the columnist/stickler for facts. "The 16 million jobs America added during the Reagan years were only slightly more than the 14 million added over the previous eight years," Krugman points out. "And a later president — Bill something-or-other — presided over the creation of 22 million jobs. But who’s counting?"

Serious economic analysis reveals that the real driver of the country's economy is the Fed. It was under Paul Volcker's leadership in the '80s, and Krugman argues that his determination to bring inflation down and tighten money policies are what caused the recession in the first place. It sent mortgage rates abover 18 percent. Then the Fed reversed course, loosened the money reins, and with declining interest rates, housing and the rest of the economy started soaring. "Reagan got the political credit for “morning in America,” but Mr. Volcker was actually responsible for both the slump and the boom," Krugman writes.

So, this time around, is it the Fed rather than the White House that should get the credit for the current recovery?

Kind of both. Krugman:

Since then, however, scorched-earth Republican opposition has more than reversed that initial effort. In fact, federal spending adjusted for inflation and population growth is lower now than it was when Mr. Obama took office; at the same point in the Reagan years, it was up more than 20 percent. So much, then, for fiscal policy.

There is, however, another sense in which Mr. Obama has arguably made a big difference. The Fed has had a hard time getting traction, but it has at least made an effort to boost the economy — and it has done so despite ferocious attacks from conservatives, who have accused it again and again of “debasing the dollar” and setting the stage for runaway inflation. Without Mr. Obama to shield its independence, the Fed might well have been bullied into raising interest rates, which would have been disastrous. So the president has indirectly aided the economy by helping to fend off the hard-money mob.

Summing up: The Fed is more responsible for the recovery than Obama, but had the other party been in the White House during this period, things would be a lot worse. Oh yeah, and as per usual, according to Krugman, Obama's over-the-top detractors, whining about how he has been mean to bankers and hostile to business  and therefore hurtful to the economy as a whole, look like "knaves and fools." Again.


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