Even if you’re all-powerful, it’s hard to fix the economy.
During this presidential election cycle, perhaps the issue of greatest importance to most voters is the unemployment rate. Since politicians of all stripes (especially presidents) are eager to claim credit when the economy is booming and the unemployment rate is low, they must also accept blame when the opposite is the case. Mitt Romney is running largely on the claim that Barack Obama has failed to boost the economy and reduce the stubbornly high unemployment rate, so Obama should be fired and he, Romney, should be hired to boost employment. Obama, as an abject failure, deserves the blame, and Romney, with his business know-how, will single-handedly turn things around — and pronto.
Well, it turns out that individuals, even presidents (or would-be presidents), have little direct control over the unemployment rate. The following is a recap of an interview done by David Kestenbaum with Mark Zandi for the program “This American Life” on National Public Radio. Mark Zandi is the chief economist at Moody’s Analytics (a leading provider of economic data and research), and he has created a computer model (capable of taking into account 1,700 variables) that is intended to show how the economy will perform under a number of different possible real-world conditions. Kestenbaum challenged Zandi to use his computer model to get unemployment down to 5 percent within four years.
The first thing Zandi did was to “fix” the U.S. government. “Republicans and Democrats work together to agree on a long-term plan to deal with the country’s debt through a mix of tax increases and spending cuts.” Result: Unemployment drops to 6.1 percent.
Then he lowers the price of oil by $20/barrel and gasoline to $3/gallon in his computer model. Result: Unemployment goes down to 6.0 percent.
Next he “fixes” Europe by making the euro survive and assuming a higher rate of economic growth, so that Europeans can consume more U.S. goods. Result: Unemployment is reduced to 5.9 percent.
Finally, he boosts home prices by 10 percent, has the banks lend more money, increases consumer outlook to “super confident,” cuts the price of oil in half, and assumes dramatic growth in Europe, China and Africa. Result: Even with this “Super Crazy Good” scenario, unemployment drops to 5.2 percent.
According to Zandi, “We dug ourselves a huge hole. It’s gonna take a generation to get completely out of it.”
This is not an encouraging forecast, to say the least, and a number of other economists have said that the type of recession we are in, and its severity, indicate that it will be a number of years before we return to full employment. The Fed, for example, just recently predicted that there would be no significant economic growth in the U.S. at least through next year.
Of course the Democrats can’t admit this because it would be characterized by Republicans as evidence of Obama’s inability to control unemployment directly. And Republicans can’t recognize every president’s limitations in controlling unemployment because Romney is promising to turn the economy around and reduce unemployment within his first four years in office. But, according to the computer model at Moody’s Analytics, in the event that Romney wins in November, he had better bring a very large, very powerful magic wand with him to the swearing-in ceremony.