June 26 (Bloomberg) -- The prevailing political wisdom says that a U.S. president should win re-election if gasoline prices are stable, the stock market is climbing and monthly jobless numbers are declining.
There is some logic to this: Such indicators affect our pocketbooks and our psyches, whether or not the president has much control over them. Yet short-term economic fluctuations are not what make the nation strong or a president great.
A president is a success economically if he can help steer the country onto a longer-term path of broadly shared economic growth, and if his policies lay a foundation for sustainable prosperity for the future. Although it isn’t easy for voters to determine if a president is contributing to long-term economic success, they can do better than base their decisions on gas prices.
After three years in office, President Barack Obama has enough of a record to judge against the economic performances of other recent presidents. The rankings can help you cast a more informed vote in November -- one that doesn’t view Obama in isolation or depend on which candidate’s super-PAC spent the most on advertising.
In “The President as Economist: Scoring Economic Performance From Harry Truman to Barack Obama,” I compare the 12 presidents since World War II using 17 economic indicators, including growth in gross domestic product, rate of unemployment, inflation, population below the poverty line, increase in the Dow Jones Industrial Average, savings and investment rates, exports and trade balances, federal budget growth, and debt and federal taxes as a share of GDP.
The analysis accepts Republican economic philosophy that says the U.S. would be better off with a lower rate of federal budget growth and a smaller federal budget relative to GDP. So presidents were penalized if the federal budget grew faster than the economy during their terms. Likewise, higher tax revenue as a share of GDP also counts against a president’s record. It is a framework that rewards smaller government.
The book examines each indicator for each administration, and boils down the many aspects of a president’s economic performance to a single score. The scores are derived using basic statistical methods, including averaging each president’s indicators, then determining standard deviations from the mean. These methods produce a common unit of comparison for indicators that are expressed in different units, such as growth rates and shares of GDP. The results may surprise you (table).
As you can see, Presidents Harry S Truman, John F. Kennedy and Lyndon B. Johnson rank first through third. Presidents George H.W. Bush, Jimmy Carter and George W. Bush make up the bottom three. President Ronald Reagan is No. 8, just one slot above President Obama.
It’s important to note that the analysis uses a one-year lag on the indicators to reflect that a president’s first year in office is usually dominated by the federal budgets and policies adopted under the previous administration. No reasonable economist would blame the 10.5 percent inflation rate and other weak economic conditions of 1981 on Reagan. Clearly, Carter was mainly responsible, presidentially speaking. Similarly, the slow economic growth of 2001 had nothing to do with George W. Bush’s policies, and Obama cannot credibly be blamed for the economic fallout of 2009.
Truman’s first-place finish owes mainly to the vast improvement in fiscal indicators. He was the only president, for example, who averaged a budget surplus (2.4 percent of the federal budget). He reduced the national debt as a share of GDP by 46.1 percentage points (from 117.5 percent in 1945 to 71.4 percent in 1953), and tax revenue as a share of GDP at 16.6 percent was second lowest (only Obama’s 15.3 percent is lower). Truman’s indicators in the general economy include the second-lowest average unemployment rate, 4.0 percent; the second-highest annual productivity growth rate, 3.2 percent; and the best average trade balance, a surplus of 1.6 percent of GDP.
In the middle of the rankings, we find Presidents Bill Clinton and Richard Nixon at six and seven. It might surprise some that Nixon is right behind Clinton because the 1970s produced such checkered economic results and Clinton is highly regarded for his management of the economy.
Nixon, however, had the highest average savings rate; the second-lowest percentage of the population below the poverty line; and the second-highest increase in exports. Nixon also had some big negatives, including the second-highest average inflation rate of 6.6 percent and the highest increase in unemployment of 4.9 percentage points.
Clinton’s term produced the second-largest reduction of population below the poverty line. He came in fourth for GDP growth of 3.6 percent; and he scored third for annual stock-market growth. Clinton’s negatives include the worst deterioration in the balance of trade at 2.6 percentage points of GDP -- a surprise considering that he won congressional approval for the North American Free Trade Agreement.
In the end, Clinton comes out ahead of Nixon, but not by much. Had Nixon not resigned and instead finished his second term, his record would have benefited from the 1976-1977 recovery years, putting him ahead of Clinton.
At the bottom of the standings, the George W. Bush administration had many strong negatives and few positives. Bush 43 had the lowest GDP growth rate at 1.4 percent; the worst average trade balance; the highest increase in population below the poverty line; and the biggest increase in the national debt.
Counting as positives on Bush 43’s record were his low average inflation rate of 1.8 percent (third place), second-best export level at 10.8 percent of GDP, and the highest drop in tax revenue as a share of GDP, 4.4 percentage points (from 19.5 to 15.1 percent).
The rankings can also be used for performance comparisons of the two political parties. Conveniently, there are six Republicans and six Democrats, so if we take the average for Democratic and Republican presidents we can make a head-to-head party comparison. The Democratic presidents scored substantially higher than the Republican presidents, with a score of 26.95. Republican presidents scored -26.95.
Other statistical tests, including the so-called min-max method, which moderates the influence of extreme indicator values, produce similar results. These are consistent considering that the top three performers are Democrats and two out of the lowest three are Republicans. Five out of six Democrats reduced the national debt as a percentage of GDP, while four out of six Republicans raised it. The story is similar on budget deficits, with five of the top six performances recorded by Democrats and four of the bottom five recorded by Republicans.
With respect to GDP growth, three of the top four performers were Democrats and four of the bottom five were Republicans. In reducing the poverty rate, the top three were Democrats and two of the bottom three were Republicans. The Democrats also had a better record on employment.
Republicans had better records on reducing inflation, achieving four of the top five performances, while Democrats had four of the bottom five showings. Republicans also did well in lowering tax revenue as a percentage of GDP, claiming the top five spots.
So what does this tell us about Obama? When all of the indicators are combined, he ranks ninth out of 12, one position below Reagan but above Bush 41, Carter and Bush 43. Obama is also well below the midpoint that falls between Clinton and Nixon. For Republicans who view Reagan as an economic miracle-maker and Obama as, well, something less than that, it might come as a shock that Obama falls next in line in economic performance.
Though Obama’s performance doesn’t sound very impressive when compared with all the presidents, it is respectable when compared with his immediate predecessor, Bush 43. Lined up against his contemporaries after 1977, Obama ranks third out of six.
Voters can decide whether to re-elect Obama according to gas prices, the monthly jobs reports and fluctuations in the stock market. Or they could take the long view and look closely at where the U.S. economy stood when he took office and where it is today, as Part 2 of this series will explore.
(Richard J. Carroll is an economist at the World Bank. This article, the first of three, is based on his new book, “The President as Economist: Scoring Economic Performance From Harry Truman to Barack Obama,” published in June by Praeger. The opinions expressed are his own.)
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