Should a president be allowed to manage the economy where she doesn’t provide actual facts?

If a president can’t give you full facts about the political economy, then should she be managing it? Last week, U.S. President Joe Biden announced that “inflation was at the pre-pandemic benchmark of 2 percent over the last six months of 2023.” The problem with this statement is that if year-over-year inflation was two percent during the period July 2023 to December 2023, then year-over-year inflation during one of those months would have to have been -2.8%. Yes, that is a minus sign.

In actuality, the inflation rate over that six-month period was 3.01%. This is nowhere near the pre-pandemic benchmark of two percent established by the Board of Governors of the Federal Reserve System and other central banks such as the Reserve Bank of Australia, the European Central Bank, or the Bank of England.

Granted, the year-over-year personal consumption index, the index cited by Mr Biden and used by the Board of Governors when assessing inflation in the economy, has been declining since July 2023. According to the data from the U.S. Bureau of Economic Analysis, the year-over-year rate of inflation in July 2023 was 3.3%. By December 2023, the rate fell to 2.6%. Prices are still rising year-over-year but at a declining rate.

As president, Mr Biden has inherited the burden of past presidents of holding himself out as the savior of the economy. Presidential candidates and sitting presidents campaign on the notion that they can put a car in every garage and a chicken in every pot.

This burden of promising chickens and cars leads to another burden: connecting the alleged successes of a president’s programs to what the electorate feels when traversing the aisles of a supermarket or when writing out a rent check.

What the law requires of the President regarding how he manages the economy does not make the burden any easier. Article II, Section 3 of the U.S. Constitution states that “He shall from time to time give to the Congress information of the State of the Union and recommend to their consideration such measures as he shall judge necessary and expedient.”

15 USC 3101 of the Full Employment and Balanced Growth Act of 1978 requires that the President along with the Congress and the Board of Governors of the Federal Reserve System develop explicit economic goals and policies.

By declaring that a two percent inflation rate is a benchmark, the President indicates that the two percent goal is a policy that he has adopted. For political reasons he must now persuade the electorate that not only is the rate achievable, but he is also achieving it. My on the ground assessment combined with the media’s observation that consumers are not feeling the benefits of Mr Biden’s inflation reduction policies tells me that he is not doing a good job on persuasion.

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How would I counsel him? I would give him two options. The first option is to continue conveying misinformation. He could continue reporting partial statistical information with the intent of painting a rosy picture on the economy. This approach works where the public maintains its current level of ignorance as to what an economy is and how it actually works.

The downside of the first option is that he would not be telling the truth. In the very short run, he may garner good tidings and a few more votes of confidence, but as accurate information percolates through the electorate, they will lose faith in him.

The second option is to provide the public with an accurate assessment of the economy including educating the electorate on what the U.S. market system is. The upside to an accurate assessment is that accuracy engenders trust among the electorate and in particular the trading economy. Trust keeps depositors and traders incentivized in buying and selling the currency which translates into a demand for making transactions.

The downside of the second option is the change in how political power looks. Political power is about coercing the thoughts of the electorate and providing the electorate with complete information imbues them with independence. The more independent the electorate, the lesser the power of persuasion. This means political actors will have to trust the public and human psyche means that this will be hard for politicians to grasp and do.

So, a twist on the initial question. Should politicians provide full facts on the economy at the risk of short term power and influence?

Alton Drew

31 January 2024

For more of my take on the political economy, buy my book at amazon.com/author/altondrew. Support our advertisers by visiting their links.