What the President Cannot Do

We heard the refrain over and over in the last few days preceding the presidential elections. It's always seemed a little absurd to me that electioneers and pundits could deign to grant an electorate of 7 million-plus some monomaniacal focus on a single issue, but in the case of Ohio, we are told that its voters care about one thing above all: "jobs, jobs, jobs."

Which is why it is fairly interesting that George Bush carried Ohio in Tuesday's election, as the state has been particularly hard-hit since 2000, with a substantial net loss of jobs in the state. Perhaps the babbling class got it wrong, and the Ohio volk are interested in something else besides jobs. President Bush has presided over some singularly bad employment statistics during his first term as president, particularly during the first two and a half years he was in office, with more than 3 million jobs disappearing during that time. His Democratic challenger, John Kerry, eagerly pointed such damning facts out to the electorate, even invoking the name of Herbert Hoover, as in "worst record on jobs since...." Meanwhile Bush has done the opposite, claiming among other things that voters needed to think about how much worse the jobs picture would have looked had he not enacted his economic programs.

The problem with the logic in both cases is that a president has just about as much power in mandating that chartreuse really isn't just a fancy name for green as he does the number of jobs in America. It's perhaps unsurprising that many people think otherwise since both the media and politicians tend to frame every single economic issue in terms of its ability to "create" or "destroy" jobs. That's how each program is presented, and that's how elected officials are being judged, particularly the president. Over the last few months before the vote, it wasn't the stock market or consumer confidence statistics, savings rates, or anything else that people focused upon. It was two numbers: new jobs and unemployment.

Why do the politicians make job numbers part of their campaigns? Well, it sure as heck isn't because they think they actually have much to do with creating or destroying jobs. No, it's because they know that job creation and protection is an issue with which voters deeply identify. But job creation and destruction has so much more to do with business cycles than anything else. The trouble is that there is almost no correlation between the month-to-month fluctuations of the job market and anything that the president is doing at the same moment. This isn't Saudi Arabia, with a huge state-owned cash machine that supports thousands of people in government positions. Most American jobs are in the private sector. And though there are plenty of jobs that have been created from the government's investment in the Internet, for example, it's not like the presidents who made those investments (Ford, Carter, Reagan) get to retroactively go back and take all of the credit for the jobs formed at Amazon.com (Nasdaq: AMZN  ) and Google (Nasdaq: GOOG  ) two decades later. Call up Jeff Bezos at Amazon, and ask him how many of the employees at his company can thank Jimmy Carter for their wages. It's probably, in the balance, a somewhat less absurd question than asking him how many of those employees owe thank-you cards to George W. Bush.

But guess what? Another Internet-based company, AOL, part of TimeWarner (NYSE: TWX  ) , announced this week that it would be laying off about 700 employees. Guess who gets the blame when these heads show up on the next month's unemployment statistics? Uh-huh, George W. Bush. In this raw "follow the numbers" approach, that AOL's business didn't support these workers isn't the issue. These job losses are a stain upon the president of the United States -- under the rubric of electioneering, George Bush "lost" these jobs. This is simply a gross misconception of what a president or any elected official can do. Further, this misconception is damaging to the discourse in our country. Job creation is an outcome of good economic policy, and decisions that maximize the number of jobs are not necessarily good. To illustrate this, the highest percentage of job creation among the last five presidents came not during the Reagan or Clinton booms but when benighted Jimmy Carter was wailing about the "crisis of confidence." It was hardly the golden age of the American spirit.

The economy is most healthy when it can achieve the maximum output per unit of resource -- and that includes labor. There is no political gain to note that gains in operating efficiency have erased more jobs in the U.S. over the last decade than China and India combined, which is too bad, because it happens to be true.

In reality, especially when you're talking about government policy and how it has an impact on the economy, nothing works quickly, and the infinite complexity means that you're never going to be able to say that there is a direct causal relationship between any one policy or input and the result. But I say this with all the conviction I can muster: The jobs situation that happened during Bush's first term had little to do with Bush. In fact, the things that any president could do that would have the most impact on the general employment rate in this country are investments that wouldn't pay off during his administration. Most important and obvious are education, both primary and secondary, and retraining, though even with the latter, the empirical results have been uneven.

Governments can also open up their own wallets or encourage looser monetary policy in order to create the stimulus that encourages investment and job creation. This is a fairly blunt instrument, but the Bush administration and the Fed have done both over the first term. Spending, tax cuts, and the like have an impact on the short-term trends, but they are not great long-term solutions. Some have quipped that it's not really fair to pin the recession that started soon after Bush took office on him, since there was nearly nothing he could have possibly done to cause it. But if you do wish to hang a downturn on President Bush, the next one would be a good idea. The federal deficits and private financial strain have made it such that whoever has to deal with the next cyclical downturn may have to do so with far fewer bullets in the chamber.

Before I start taking on the appearance of someone who is solely criticizing Bush, let me just say that the Kerry plan for creating 10 million jobs was clearly bogus as well, centering as it did upon a proposal to have the federal government cover most of the costs associated with major illnesses and injuries for employees under health-care plans at private companies. The thought was that the proposal would free up costs of employee health insurance premiums by several hundred dollars each year, which would then lead to companies being able to afford larger payrolls. That's great except that the cost savings would mostly accrue to the employees, not the employer.

Presidents have other options, but they don't have the benefit of protecting the status quo, which is what job "protection" is all about. Opening up free trade may cost an economy jobs in one area but create jobs in another. But this gets back to the Ohio argument. The forklift guy in Toledo isn't going to magically reappear at the high-tech assembly plant in Alabama that uses parts now made in Mexico. As far as he is concerned, NAFTA took his job, never mind that the overall economic benefit has increased. Presidents can use their national currencies as fuel for increased economic activity by enacting policies that lower or raise the exchange rate. There again, though, for every added job at RF Micro Devices (Nasdaq: RFMD  ) because of increased competitiveness of its products in China related to a lower dollar exchange rate, there may be job losses for people who make a living selling now more expensive imported food products from Groupe Danone (NYSE: DA  ) .

None of this points to there being much point in focusing on the wiggles back and forth of a monthly jobs number, nor does it really make much sense to lay the levels of employment at all at the feet of the current inhabitant of the Oval Office, whether those numbers be positive or negative. Unfortunately, election politics don't work very well on faith. People vote their pocketbooks. The number of people who understand that an economic program with expenses today and benefit a decade hence may be the best legacy a leader can leave is not high enough to overcome the shrill cries of those who argue that the jobs number this month is 0.1% worse than last month, reflecting poorly on the president.

It's just not a story you're going to hear from Washington. There's no gain in a leader telling the people that there's very little he or she can do, even if it's true. Presidents are beholden to the economic cycles just like everyone else, which means that what some may think is a brilliant managing of the economy may well just be dumb luck.

Bill Mann would like to thank Chester A. Arthur for doing that thing that time with that other thing that helped put the plan in motion that helped create his job more than a century later. He's baffled that more people don't recognize the long-term planning brilliance of Chester A. Arthur. He owns none of the companies mentioned in this article. The Motley Fool has a disclosure policy.


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