Chapter Summary

        The management of the economy is a central concern of government. It is the area of policymaking on which governments are most frequently evaluated by their citizens. That is true not only because of the direct importance of the issue to citizens but also because of the frequent reporting of standard indicators such as the inflation rate and the level of unemployment. Even if an individual has a job and an income that keeps pace with the cost of living, he or she may believe that the president is not doing a good job because of the aggregate numbers that regularly appear in the newspapers. The extent to which the performance of the economy is now laid at the feet of government, especially the president, is in marked contrast to the era before the Great Depression, when the economy was not believed to be controllable by government. The president clearly plays a crucial role in economic management because of his role as spokesman for government, because of the importance of the presidential budget in controlling the economy, and because of the president’s influence on other areas of economic policy such as taxation.

        It is important to understand, however, that the condition of the economy is not solely a presidential responsibility. Congress must approve the budget, which is the central instrument of presidential intervention in the economy. The actions of the Federal Reserve Board are almost totally beyond the control of the president. Furthermore, the federal structure of the United States is such that state and local governments’ taxing and spending decisions have a significant impact not only on the overall simulative or depressive effects of public expenditures but also on attempts to move industries and labor geographically. The success of national economic policies also increasingly depends on decisions made by other nations, by international organizations such as the International Monetary Fund, and by global markets.

        Finally, citizens have a substantial impact on the state of the economy. Many presidential decisions on fiscal policy, as well as many Federal Reserve decisions about monetary policy, depend on citizens’ responding in the predicted fashion. Even major aggregates, such as economic growth, depend to a great extent on the perceptions and behaviors of citizens--citizen confidence is as good an economic indicator as many more objective ones. If citizens and businesses believe that prosperity is coming, they will be willing to invest and may make their belief a self-fulfilling prophecy. Government can do everything in its power to try to influence the behavior of citizens, but ultimately most decisions are beyond its control. Even so, the success of economic policy is a major factor in whether citizens believe that government is doing a good job.