ALLEGHENY COLLEGE POLITICAL SCIENCE 610 SENIOR PROJECT

Matthew J. Lacombe

Presidential Economic Policy: The Effects of Differing Institutional and Contextual Factors on the Economic Policy Formation and Implementation Processes of the President

Department of Political Science

April 11, 2011 Matthew J. Lacombe

Presidential Economic Policy: The Effects of Differing Institutional and Contextual Factors on the Economic Policy Formation and Implementation Processes of the President

Submitted to the Department of Political Science of Allegheny College in partial fulfillment of the requirements for the degree of Bachelor of Arts.

I hereby recognize and pledge to fulfill my responsibilities as defined in the Honor Code and to maintain the integrity of both myself and the College community as a whole.

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Approved by:

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Dedication To my family and Professors Dan Shea, Ben Slote, Stephanie Martin, Don Goldstein, and Deborah Dickey.

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Contents

I. Introduction: Economic Expectations and the Public Presidency 1 a. Research Question and Motivation b. Existing Research c. Research Approach/Roadmap

II. Formation of Economic Policy Plans 15 a. Institutional Concerns – Political Conditions b. Contextual Concerns – Economic Conditions c. Policy Plan Formation in the Reagan and Carter Administrations

III. Implementation Efforts 38 a. Going Public i. The Origins of Going Public ii. Why Go Public? iii. Advantages and Disadvantages of Going Public b. Carter, Reagan, and Public Strategies

IV. Conclusion 62 a. The Obama Administration b. Moving Forward

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Chapter One: Introduction

Research Question

My research seeks an answer to the following questions: How do different institutional and contextual factors affect the economic policy initiatives pursued by the president, and how does “going public,” a presidential strategy that attempts to gain enough public support for a given policy so as to pressure Congress into passing it, affect the success of presidents in implementing their economic policy plans? In answering these questions, I‟ll also examine the origins of the “going public” strategy, explore the motivations of presidents who use it, and identify its strategic strengths and weaknesses.

Motivation

After his inauguration in January 2009, President Obama was greeted in the Oval Office with a severe economic crisis, the depth of which hadn‟t been seen since at least the early 1980s and perhaps since the Great Depression. He proceeded to work swiftly with both the Fed and

Congress to stabilize the economy. The Fed, led by Chairman Ben Bernanke, utilized monetary policy in an attempt to stabilize America‟s banking system and President Obama led Congress in utilizing fiscal policy by passing a large stimulus package designed to knock the economy out of its tailspin.

Given the still ailing state of the economy, it is fair to say that some of the initiatives pursued by the Obama Administration have not achieved the type of success the president predicted they would during his early days in office. Nonetheless, some of the initiatives he‟s overseen, such as the Troubled Asset Relief Program (which was actually signed into law by

George W. Bush), have succeeded by almost any objective measure; not only did the TARP bailout stabilize the banking system, it may also generate a small profit for the American 5 taxpayers (Calmes, 2010). The bailout of the American auto industry, similarly, is expected to cost taxpayers only a small fraction of their initial investment and, at least for the time being,

American auto manufacturers are profitable (Currie and Crane, 2010).

Despite the opinions of economists, though, only three in ten Americans believe the

TARP program was necessary to prevent an even more severe recession (Calmes, 2010). Beyond the bank bailout, a Gallup poll conducted in August 2010 found that only 38 percent of

Americans approve of the job President Obama has done with regards to the economy, with 59 percent disapproving of his performance. His overall job approval rating was down to 47 percent as of October 2010 and his party incurred large losses in the 2010 midterm election as a result, in large part, of economic conditions (Gallup, 2010). As of April 2011, the president‟s approval is down to 45 percent (Gallup, 2011).

While it is still too soon to examine President Obama‟s early economic policy agenda with any academic precision, the widespread disapproval of his attempts to stimulate the economy out of recession make a discussion of the ways presidents prior to him succeeded and failed in selling their agendas to the public highly relevant. Commentators in the media, of course, have questioned the merits of his economic policies. Aside from questions of substantive merit, however, are questions regarding the way he has portrayed his initiatives to voters. Some commentators believe the president has tried to do too much too soon and, as a result, has squandered his political capital. Others believe his public appeals have lacked the clarity necessary to gain the understanding of voters who, without such an understanding, are prone to take out their frustrations on those currently in power. In order to understand where President

Obama‟s public appeals may have gone wrong and what he could do to improve his approval ratings, it is helpful first to examine the history of the public presidency. 6

Throughout America‟s history, the relationship between the president and public has constantly evolved. Jacksonian Democracy, which began with President Andrew Jackson‟s rejection of political elitism and was typified by the populist message he sent to the public with his veto of the 1832 Bank Bill, began a trend in which public expectations of the president have steadily risen. President Franklin Roosevelt‟s expansive New Deal program, which combated the effects of the Great Depression roughly a century after Jackson‟s bank veto, was widely hailed by an ailing public who fully invested their trust in the president and his economic agenda. Ever since, the public has looked to the president to foster conditions in which the economy thrives.

Roosevelt‟s cousin, Teddy, was the first president to canvass the country while in office in order to gain public support for legislation. President Theodore Roosevelt was able to gain passage of the Hepburn Act in1906, which regulated railroads in order to protect smaller businesses from industrial giants like John D. Rockefeller, by garnering enough public support to overcome the control party bosses had over Congress. President Franklin Roosevelt, continuing the trend started by his cousin, used his famous Fireside Chats to communicate with Americans on a regular basis via radio.

Since FDR transformed presidential expectations during the Great Depression, more changes have occurred. President John F. Kennedy ushered in the era of the televised presidency in the early 1960s and gained wide public admiration as a result of his charisma and speaking ability. The Watergate scandal during President Richard Nixon‟s tenure in Washington severely damaged public trust in the president. President Jimmy Carter, who failed in his 1980 reelection bid, gave his infamous malaise speech in 1979, which further alienated the president from the public. In 1980, however, Ronald Reagan became president and was able to gain public support for his agenda and restore faith in the presidency. Reagan oversaw the “supply side revolution” 7 in macroeconomics, a transformative program that marked the first public acceptance of laissez faire policies since the pre-Depression 1920s.

Existing Research

Existing relevant research can be broken down into three primary categories: political economy and presidential behavior, presidential behavior with regards to the public, and political economy. In this section, I briefly survey significant works in each category and, at the end, conclude with a summary of the connections that need to be made between the three. Unless otherwise noted, the phrase political economy, as I use it, refers to Paul Johnson‟s (2005) definition from the Glossary of Political Economy Terms: “A branch of the social sciences that takes as its principal subject the study of the interrelationships between political and economic institutions and processes.”

Political Economy and Presidential Behavior

Scholars have devoted great attention to both presidential behavior and political economy, but the literature combining the two is fairly scant. Constantine Spiliotes (2002), who authored Vicious Cycle: Presidential Decision Making in the Political Economy, laments in her introduction that her work “represents an attempt to open a dialogue between scholars working in the field of political economy and scholars engaged in research in presidential studies” because

“these fields have a wealth of insights to offer each other, but…have thus far failed to realize the full potential for each to complement the research agenda of the other” (p. xi). Spiliotes (2002) creates a model for macroeconomic presidential decision making which she terms “the theory of institutional responsibility in presidential decision making.” Spiliotes (2002), rather than focusing squarely on public appeals relating to economic policy, develops an institutional framework through which to view presidential economic decision making that weighs both 8 partisan and electoral concerns with the pursuit of sound economic policy. Her research finds that presidents will often uphold their institutional responsibility to promote sound policies at the expense of partisan concerns. Often the disagreement between a president and his party on economic matters comes during periods of unified government as, during such times, the president is seen as uniquely responsible for economic conditions and thus has an electoral incentive to promote the type of economic stabilization (in terms of either low inflation or high employment) that is unlikely to come if he pursues only his party‟s agenda (p. 144). Spiliotes

(2002) also finds that the healthier the economy, the more likely the president is to pursue the policies of his party (p. 144). Spiliotes‟ (2002) analysis is helpful in explaining changes in presidential economic decision making under different conditions, but she measures the soundness of policy in only economic terms; that is, she doesn‟t consider how the public perceives such shifts in economic policy.

David Lanoue (1988) specifically researched connections between presidential popularity and the state of the economy. Lanoue (1988), treating presidential popularity as the dependent variable, statistically quantifies the impact economic factors have on the public standing of the president. He finds that “The economy plays a central role in helping to determine presidential popularity. It may even, as some argue, play the most important role. Nevertheless, we have seen that the effects of the economy on popularity are most pronounced during periods in which economic fluctuations are most salient” (p. 113). Lanoue‟s (1988) analysis is helpful in that it specifically draws connections between economic performance and presidential popularity, but, like Spiliotes‟ (2002) discussion, it doesn‟t consider how the president‟s public appeals affect public perception of his policies. In this sense, Lanoue‟s (1988) model probably suffers from specification error, as, despite his inclusion of some non-economic variables, it doesn‟t consider 9 the communication abilities of the president which are likely to affect the public‟s perception of the economy and, therefore, the president‟s popularity.

Douglas Hibbs (1987) offers an analysis similar to Lanoue‟s, in which he traces the relationship between macroeconomics and elections. Hibbs (1987) argues that electoral outcomes are heavily influenced by economic outcomes, and that economic outcomes are, obviously, a product of economic policies. Economic policies, though, are shaped, in part, by public opinion. Thus, policy makers must manage both the expectations of the public at the time they implement policies along with how they believe voters will react to the predicted outcomes of their policies in the future.

Presidential Behavior

Samuel Kernell (1997), in Going Public, looks specifically at the factors that are missing from Spiliotes‟ (2002) and Lanoue‟s (1988) discussions: the way presidents use public appeals to both influence their approval ratings and pass legislation through Congress. Kernell (1997) argues that modern political conditions, in which short-term considerations often outweigh long- term loyalties, dictate that it‟s advantageous for presidents to go public (p. 27). Kernell (1997) argues, though, that “as presidents rely more heavily upon public strategies, their success in

Washington will depend vitally upon the reactions of ordinary citizens” (p. xi). Kernell‟s (1997) analysis finds that the president‟s national prestige is very important to his success (p. 223) and that successful presidents are able to use their popularity as capital to be used to “purchase” new policies that may be viewed unfavorably by some portions of the electorate (pgs. 226-227).

Kernell (1997) also presents a case study of President Reagan‟s budget proposals and the public strategy he employed to gain their passage, and examines the changing relationship between the president and the press. 10

George Edwards (1983), similarly, examines the relationship between the president and the press, and the effect public approval has on presidential success. Edwards (1983) reproduces

Richard Neustadt‟s premise from Presidential Power (1960) early in his discussion; that is, “the president is rarely in a position to command others to comply with his wishes. Instead, he must rely on persuasion. The greatest source of influence for the president is public approval” (p. 1).

After establishing this premise, Edwards analyzes how presidents manage public opinion, how they manage the media‟s portrayal of their policies, what the public expects from them, and how the public evaluates them (p. 2). He argues that the success with which the president manages public opinion is a function of his own communication skills, the media‟s treatment of him, and the context in which he addresses the public – a group he describes as often “inattentive, skeptical, and individualistic” (p. 3).

Edwards (2003) then examines the limits of going public. In On Deaf Ears (2003),

Edwards (2003) argues, like Kernell (1997), that there are strong incentives in the current political culture for presidents to go public and that public support for initiatives is a powerful force, but he finds that presidents often fail in attempts to increase public support themselves (p.

241). Edwards (2003) argues that while there are still reasons for presidents to go public, they

“should not base their strategies for governing on the premise of substantially increasing the size of their public support” (p. 246). Further, he contends that presidents must be most productive when the political context dictates that they have a partisan advantage and broad public support, but that, often, they shouldn‟t attempt to build such support themselves through public appeals.

In Why Presidents Fail, Richard Pious (2008) takes Edwards‟ (2003) work a step further: he examines different factors that may cause presidents to fail in their attempts to gain public support (and to fail in general). Pious (2008) focuses specifically on rhetoric in his fifth chapter 11 by examining the presidency of Jimmy Carter. He argues that Carter‟s failure came as a result of, first, his reliance on rhetoric and, second, the mixed messages he sent the public via his rhetoric and actions. Pious (2008) comments, “Carter always preferred an outside strategy: Go over the heads of Congress and put pressure on the president rather than working on policy from the inside. But he made no attempt to get the cabinet secretaries to reinforce his overall themes or speak with one voice” (p. 107). According to Pious, Carter‟s brand of the public presidency dictated that, not only would he rely heavily on public support, but any political compromises he made would make his initiatives seem to be less in the public‟s interest and therefore unsuccessful. As a result, no “policy successes helped Carter with his own political prospects”

(p. 110).

Political Economy

Scholars have an understanding how economic policy is formed institutionally, which measures of economic health are typically important to each party, and which policy tools are most capable of improving each of those measures of economic health. Works by Sheffrin

(1989), Hibbs (1987), Wells (2003), and Markovich and Pynn (1988) all offer analysis of both pertinent macroeconomic policies and the political/institutional factors that influence the development and use of such policies.

In general, it is established that Republicans favor limiting inflation during boom times and spurring business investment during recession, and Democrats favor spurring high rates of employment. It is important to note, though, as Spiliotes‟ (2002) does, that these party generalizations are not absolute. Typically, employment rates are grown through fiscal policy; that is, government spending is used to spur growth. Inflation and investment are typically manipulated through monetary policy; that is, the Fed, in the case of inflation, restricts the 12 money supply to increase interest rates in order to slow growth and, in the case of recession, increases the money supply to lower interest rates and spur investment. Institutionally, the president typically decides on policies with his own advisers and implements them through the

Fed and/or Congress, depending on the nature of the initiatives.

Existing Research in Sum

Scholars have studied trends in presidential economic decision making, the correlation between the health of the economy and the president‟s public support, the ways the media affects public perception of presidential policies, the effects of presidential public appeals, and the efficacy of different economic policies in general. To draw connections between such research, one must focus on the nexus of public appeals, economic decision making trends, and presidential popularity.

Before proceeding, it‟s important to note that not much research has been done directly linking public implementation strategies specifically with economic policy. Some authors, like

Lanoue (1988) and Edwards (2003), offer insights that are helpful in drawing such a connection, but don‟t offer direct commentary. Edwards‟ (2003) argues that presidents‟ “efforts at persuading the public may…decrease their chances of success in bringing about changes in public policy” because the public‟s limited attention span and the scarcity of space on television mean that public strategies “often reduce choice to stark black-and-white terms…which frustrate rather than facilitate building coalitions” (pp. 246-247). Edwards‟ (2003) argument here serves as a strong starting point for my own examination of the interaction between economic policy and going public; while I won‟t be able to conduct statistical examinations identifying correlations between outcomes and implementation strategies, I will be able to examine, in my 13 case studies of Carter and Reagan, how public appeals affected the debate over policy and thus the outcome of each presidents‟ economic initiatives.

Saliency of the Discussion and My Approach/Contribution

A discussion of the factors that ultimately lead to the adoption of successful, popular economic policies is pertinent, particularly given the current state of the economy and public perception of the Obama Administration‟s policies. As Spiliotes (2002) notes, there is a dearth of research that connects the study of political economy with the study of presidential behavior. In order to understand the factors – institutional, internal in the administration, public – that lead to the adoption of responsible, sound economic policies that are accepted by the public, political scientists and economists must undertake research that identifies how structures of governance

(unified vs. divided government), timing (in terms of proximity to elections), strategy (in terms of the reasons presidents go public), relative outcomes (in terms of how successful presidents are in meeting the objectives of economic initiatives), and context (in terms of business cycles) come together to determine the success with which presidents gain public support for their economic proposals, and the impact their success (or failure) in gaining public support has on their political and electoral prospects.

If scholars are successful in drawing together the relationship of all these factors, they will be able to answer a vexing question that is currently studied insufficiently: why are some presidents able to implement sound economic policies that are publicly popular while others seem unable to do so? Such research will fill the gap Spiliotes (2002) laments and make studies of both political economy and presidential behavior more comprehensive.

The primary purpose of my research is to gain an understanding of the factors that lead to the formation of economic policies and determine the success with which presidents are able to 14 gain public support for their economic policy agendas. My discussion first provides historical background regarding presidential expectations and the rise of the public presidency. From there,

I examine the formation of economic policy from institutional and contextual perspectives; that is, how do political conditions, such as unified or divided government, and economic conditions, judged by the strength of the economy, affect the policy plans formed by presidents? After establishing how presidents form economic policies, I examine the strategic role “going public” plays in the implementation of policy; what are the advantages and disadvantages of going public for persuading Congress to approve economic initiatives, and how might doing so affect economic outcomes? Finally, I draw my research together by analyzing the Obama

Administration in light of my findings and offer a prescription for future presidents regarding the use of public strategies when it comes to economic policy.

My consideration of the many factors that ultimately determine public approval of economic policies utilizes case studies of the Carter and Reagan Administrations. Specifically focusing on these two administrations has numerous advantages. Both are modern presidents who had to craft significant economic policies while in office and relied heavily on public strategies, yet one was much more successful than the other in gaining the support of the public and, arguably, in procuring a healthy economy.

I also devote significant attention to the theoretical foundations of the macroeconomic policies pursued by both presidents. I discuss the economic conditions they faced, examine the typical policies neoclassical economics would suggest in response to such conditions, and then identify and discuss the actual policies they pursued.

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Chapter Two: Formation of Economic Policy Plans

The formation of economic policy plans within the White House is a complex process that reflects both institutional and contextual concerns. For my purposes, institutional concerns refer to political conditions, such as divided or unified government or the amount of time until the next election. Contextual concerns here refer to economic conditions, which include the growth rate of the economy, the inflation rate, and the unemployment rate.

It‟s important to study both institutional and contextual factors because they have significant influence on the way presidential economic policy is formed. When is the president more likely to use the economic policy instruments of the opposing party? Does his approach to economic policy change after the midterm? If the economy is struggling, is the president more likely to pursue growth strategies typical of his own party, or is he more likely to reach across the aisle?

In this chapter, I examine the effects of differing political and economic conditions on the president‟s approach to economic policy. I conclude with a discussion of economic policy formation in the Carter and Reagan White Houses, with an emphasis on how the two administrations demonstrate the impacts of several important institutional and contextual concerns.

Policy Goals

Before discussing how presidents balance institutional and contextual concerns while forming economic policy, it‟s helpful to consider the goals economic policies hope to achieve.

In The Making of Economic Policy, Steven Sheffrin (1989) discusses the pervasiveness of stabilization policy as the underlying goal of macroeconomic policymaking. Sheffrin (1989) begins by noting that “Macroeconomics has always been fertile ground for controversies…yet 16 despite the intellectual warfare, there was actually a tacit consensus underlying the debate about macroeconomic stabilization” (p. 1). According to Sheffrin (1989), the belief that economic fluctuations are socially damaging was at the forefront of this consensus. As a result, the goal of all macroeconomic policy was to avoid extreme business cycles – marked by boom periods of unsustainable growth, low unemployment, and inflation followed by deep recessions with high unemployment, weak growth, and deflation – thereby maintaining steady economic growth rates for long periods and limiting the frequency and intensity of recessions to the greatest extent possible. The strength of the stabilization approach is often evidenced by looking at post World

War II economic fluctuations, which, reflecting the lessons learned by economists following the

Great Depression, have been much less extreme than they were prior to the Depression.

Sheffrin (1989) is clear in noting that, despite the tacit consensus regarding stabilization policy, disagreements over the extent to which the government should interfere to limit the undesirable effects of the business cycle exist. He cites “vigorous debates” over “the practicality…of conducting stabilization policy” between monetarists – who follow Milton

Friedman‟s laissez faire approach holding that government should focus mostly on enforcing rules and correcting market failures – and Keynesians – who follow the more activist approach of John Maynard Keynes holding that government intervention can effectively ameliorate some of the downfalls of free markets (p. 3). Nonetheless, general agreement exists regarding the efficacy of the approach.

Sheffrin (1989) goes on to discuss attacks on the preeminence of the stabilization model, but concludes that “despite…challenges from history, theory, and politics, stabilization policy survives. The postwar economy is more stable than earlier periods. The tacit consensus…should still govern our thinking” (p. 208). Constantine Spiliotes (2002), whose work will be discussed in 17 greater detail later, reinforces Sheffrin‟s (1989) conclusion while applying it specifically to presidents, arguing that presidents “are ultimately held responsible by the electorate and by other policy makers for the success or failure of stabilization policy” (p. 71).

Given that stabilization – essentially, the management of business cycles – is the primary goal of economic policy and, according to Spiliotes (2002) should be of utmost concern to presidents, it is now useful to briefly discuss the ways Democrats and Republicans are inclined to pursue stabilization before moving on to a examination of the impact of institutional and contextual concerns on the policy formation process.

Democrats

Douglas Hibbs (1987), in The American Political Economy, notes that Democrats have historically (speaking mostly from the Great Depression onward) been “the party of lower income groups, the propertyless, and wage labor” (p. 214). As such, Hibbs (1987) finds that

“Democratic partisans are more sensitive to unemployment than are Republic partisans…” and that Democrats typically favor the interests of trade unions over those of corporations (pp. 216-

217). As a result, Democrats tend to be less concerned with inflation than Republicans, and thus, according to Denise Markovich and Ronald Pynn (1988), tend to advocate “fiscal policy” which

“refers to attempts of government to…stabilize the economy through its power to tax and spend”

(p. 76).

Fiscal policy is broken into discretionary and nondiscretionary government spending.

According to Markovich and Pynn (1988), “nondiscretionary fiscal policy includes policies such as the progressive income tax, unemployment insurance, and welfare payments that come into effect automatically…These policies are effective in countering swings in the economy because they automatically decrease spending during a boom and increase spending during a recession” 18

(p. 76). The fluctuations of the business cycle are thus mitigated, with increased taxes limiting inflation during periods of growth (which occurs as a result of increased disposable income which leads to greater consumption which causes increased prices) and decreased taxes, along with the injection of money into the economy through welfare programs, limiting unemployment during recessions (p. 76).

According to Markovich and Pynn (1988), “discretionary fiscal policy refers to deliberate changes in taxing and spending that are designed to affect spending patterns…and stabilize the economy” (p. 76). Discretionary spending, most recently seen in the Stimulus Package of 2009, is indicative of the government‟s desire to quickly and decisively stabilize the economy during a downturn. Proponents of fiscal policy argue that increased government spending, which spurs employment, leads to the multiplier effect, whereby “new jobs lead to the creation of more jobs”

(p. 77). Critics argue that fiscal policy use leads to inflation and unacceptable levels of national debt (p. 79).

In sum, Democratic stabilization policy generally relies mostly on fiscal policy, whereby government spending is used as a mechanism for mitigating the socially undesirable effects of the business cycle.

Republicans

Republican economic policy is typically associated with monetary policy, though

Republicans, especially from the Reagan era to the present, also generally favor tax cuts, an instrument of fiscal policy. Hibbs (1987) argues that “the Republican party is…clearly the party of the „right,‟ with close connections to big business and comparatively great attractiveness to the upper level of the income and class hierarchy” (p. 213). Further, Hibbs (1987) notes that

“Republicans have a greater aversion to inflation than do Democrats” (p. 216). 19

According to Markovich and Pynn (1988), “Monetary policy is concerned with managing the money supply and interest rates. This is accomplished through the use of three instruments available to the Federal Reserve Banks: (1) the discount rate, (2) reserve requirements, and (3) open market operations” (p. 68). The discount rate is the interest rate Federal Reserve Banks charge financial institutions when they borrow from it. Reserve requirements dictate the percentage of deposits banks are required to hold on to when making loans. For example, if the reserve requirement is 20 percent and a bank‟s total deposits amount to $100,000, it must hold on to $20,000 thus leaving $80,000 available for loans. Reserve requirements are one way to control the amount of money circulating in the economy – known as the money supply – but, note

Markovich and Pynn (1988), “the Federal Reserve Board seldom resorts to this option” because it creates instability for banks and requires prior notice (p. 68).

The Fed‟s third tool, termed open market operations, refers to “the buying and selling of government securities” and “has become the major instrument of monetary policy” as a result of its impact on interest rates (p. 68). The money supply is affected by the buying and selling of securities; when the Fed buys them from banks, the banks receive cash which can then be used for loans, increasing the money supply, and when the Fed sells them, banks pay them with cash, thus reducing the amount they have available to loan. The change in the money supply then changes interest rates, as banks charge lower rates on loans when they have more money available to lend, and vice versa. During boom periods, the Fed is inclined to raise interest rates to stop inflation, which occurs when there is too much money in the economy causing demand for goods and services, and therefore prices, to increase. Conversely, the Fed lowers interest rates during recessions in order to promote “growth, expansion, and employment,” as lower interest 20 rates encourage investment, a major determinant of GDP growth, by decreasing both the cost of borrowing money and the gains on money held as savings (Markovich and Pynn, 1988, p. 69).

Critics of monetary policy argue that its effectiveness is unpredictable as a result of two main factors. First, the expectations of participants in the economy can greatly affect the success of a change in the interest rate; as was seen in the Great Recession of 2009, banks were stingy in their lending as a result of their lack of confidence in the economy despite interest rates hovering around zero percent. Second, the amount of time a given change in monetary policy will take to fully play out is difficult to predict, increasing the likelihood of prolonged recessions and, conversely, inflation following a period in which the effects of an expansionary policy continue after a recession has ended (Markovich and Pynn, 1988, pp. 72-72).

It is also important to note that, while politicians can work with the Fed to develop monetary policy, they have no direct control over it. It is perhaps unsurprising, then, that monetary policy developed by the Fed is favored by the Republican Party (which is historically tied to business), as the Fed is relatively shielded from the public debate and populism that often make pro-business initiatives politically contentious. Further, the ability of the Fed to act

“outside” the slow moving bureaucracy typically involved in Washington politics is in line with the laissez faire principles that often guide Republican governance.

Aside from monetary policy, Republicans, particularly from the Reagan Administration on, tend to favor tax cuts, which are an instrument of fiscal policy. Supply-side economics, popularized by the Reagan Administration, holds that cutting taxes is the best way to spur economic growth. Markovich and Pynn (1988) discuss the logic of supply-side proponents during the Reagan years, noting their argument that “creating incentives for business to invest and to expand production was…key to stimulating economic recovery” and their belief that tax 21 cuts would simultaneously spur corporate investment and the personal “saving that business required” (p. 34). Moreover, supply-side advocates argue, based on the Laffer curve, that tax cuts can actually reduce deficits as the increase in output they spur, taxed at a lower rate, generates more tax revenue than the previous amount of output, taxed at a lower rate. While the intensity of supply-side rhetoric (which in its purest form argues that lower tax rates on capital gains, investment income, corporate profits, and the income of the wealthy will spur growth that

“trickles down” to all Americans) has diminished since the Reagan years, Republicans continue to favor tax cuts as a mechanism for spurring economic growth and stabilizing the economy.

Institutional Concerns and Economic Policy Formation

Having explored the economic policy tools generally favored by Democrats and

Republicans, there is now a foundation upon which to discuss the impact of institutional concerns on the presidential economic policy formation process. Constantine Spiliotes (2002) frames the nature of modern presidential economic decision making well, writing that,

In this postwar period, both parties agreed upon the shape and boundaries of the policy- making environment but sought to control that environment with divergent partisan notions of stabilization and decision-making logics…Understanding why and when presidents are willing to make tradeoffs between partisan logics is central to our understanding of institutional responsibility (p. 31).

By institutional responsibility, Spiliotes (2002) is referring to the gradually increasing role the president plays in macroeconomic decision making. By the postwar period, she argues, institutional changes, particularly those that occurred during the New Deal period under Franklin

Roosevelt, shifted the presidency from “an institution possessing virtually no authority over macroeconomic policy to one that has gradually legislated ongoing responsibility for implementing policies designed to address the nation‟s economic health” (p. 31). 22

Spiliotes (2002) developed a statistical model to examine the balance between partisan objectives and institutional responsibility to maintain the health of the economy. Spiliotes‟

(2002) model indicates “that a pure partisan logic does not fully capture presidential management of the macroeconomy. The economic variables show that presidents of both parties accept tradeoffs in macroeconomic objectives” with Republicans sensitive to unemployment during economic downturns and Democrats sensitive to periods of high inflation (p. 55).

Spiliotes (2002) included in her model three measures that are highly relevant to a discussion of the impact of institutional concerns on presidential economic decision making: divided government, out-of-party support for the president (measured in terms of “out-party support for the president on House roll call votes specifically dealing with issues of macroeconomic management” (p. 54)), and general support for the president in Congress, irrespective of party. Her prediction was that the presence of divided government, and high levels of both out-of-party opposition and general opposition in Congress would each increase the likelihood of the president utilizing economic stabilization instruments generally favored by the opposing party. Spiliotes (2002) also distinguished in her model between pre and post- midterm periods to examine whether the president‟s economic decisions differ throughout his term. Finally, she examined the actions of presidents during election years to determine how electoral incentives affect economic policy.

Spiliotes‟ (2002) findings indicate that a president is more likely to deviate from partisan macroeconomic behaviors after the midterm than he is prior to it. She attributes this finding to two factors. First, she argues that the president is more likely, as the party leader, “to reward core constituencies with favorable macroeconomic outcomes in exchange for their support during the recent election” early in his term, with Democratic presidents focusing on employment and 23

Republicans on inflation (p. 58). Another possible explanation for this finding, unmentioned by

Spiliotes (2002), is the impact of the post-election honeymoon period, when the president enjoys high approval ratings and is given more political latitude to pursue his objectives of choice.

Spiliotes‟ (2002) second explanation argues that “as the president becomes acclimated to a new role as the nation‟s chief macroeconomic policy maker, institutional responsibility and the high public expectations that accompany it act as an increasingly strong institutional filter or constraint working against partisan decision making” (p. 58).

Spiliotes‟ (2002) model also indicates that a president is actually more likely to utilize partisan macroeconomic instruments during periods of divided government, a finding that contradicts one of her hypotheses. She suggests as an explanation that “under divided government, it is much more difficult for the electorate to hold presidents responsible for the condition of the macroeconomy, particularly if they are able to affix blame to the opposition in

Congress” (p. 59). Her finding here is notable given that conventional wisdom holds that a president is more likely to pursue partisan objectives when his party controls Congress. It suggests that economic policy formation perhaps differs from the formation of other domestic policies.

Given her finding that presidents are more likely to utilize partisan economic instruments during divided government, it follows that Spiliotes‟ (2002) findings also indicate that presidents are generally willing to stray from partisan economic policy tools during periods of unified government. Reflecting on the economic policy strategies of Presidents Lyndon Johnson and

Carter, she writes that “unified government in both cases appears to have been a liberating rather constraining factor on their decision making in the American political economy” as they “were 24 able to temporarily repudiate the preferences of their partisans in Congress without the fear of legislative gridlock usually associated with divided government” (pp. 105-106).

Spiliotes‟ (2002) variables examining the intensity of partisan opposition to the president and general, non-partisan opposition to the president in Congress are both statistically significant and positive, meaning that the president is more likely to pursue partisan objectives when

Congress opposes him. The values of these variables, however, were only .01 and .02 respectively, which “are so small as to suggest that neither partisan nor institutional conflict moderates the partisan nature of presidential decision on the macroeconomy in any significant way” (p. 57). In the following chapter of my analysis, I‟ll examine whether these variables have a more significant effect on the likelihood of the president “going public” while attempting to implement his economic policy strategy. In terms of economic policy formation, however, they don‟t appear to be significant.

Finally, Spiliotes‟ (2002) analysis includes an examination of presidential economic policy formation during election years. Some scholars have argued that a political business cycle exists, whereby, during election years, officials “seeking reelection favor an expansionary economic climate in which the persuasive powers of rising employment, output, and incomes are instrumental in the reelection process,” regardless of the economic appropriateness of such expansionary policies in relation to the state of the economy (Markovich and Pynn, 1988, p. 82).

Spiliotes (2002), however, argues “that presidents do not necessarily view rapid expansion of the macroeconomy as a strategic means of winning reelection” but, rather, that “the electoral incentive is also mediated by a president‟s institutional responsibility for sound macroeconomic management” (p. 131). As evidence, Spiliotes (2002) cites President Eisenhower‟s

“conservative, balanced budget approach” in 1956 and President Carter‟s lack of expansionary 25 policy in 1980 as examples, while arguing that the expansionary actions of Presidents Johnson and Reagan in 1964 and 1984 cannot be clearly attributed to political business cycle theory as both were acting in accordance with sound macroeconomic policy. In sum, she argues that

“presidential decision making is clearly mediated by the presence of a president‟s institutional responsibility and the concomitant need for stabilization policy during an election year,” meaning, basically, that presidents are inclined to do what‟s best for the economy during election years and the fact that sometimes expansionary policies happen to be most appropriate doesn‟t indicate the existence of a political business cycle.

Douglas Hibbs (1987) echoes Spiliotes‟ (2002) skepticism regarding political business cycle theory. Hibbs (1987) created a statistical model to test the political business cycle. His model examines “real output, the unemployment rate, the growth rate of…money supply, the cyclically adjusted federal budget surplus/deficit [referring to changes in the gap between spending and revenue during election years], and the growth rate of real personal disposable income per capita” (p. 259). Hibbs‟ (1987) results indicate that the type of macroeconomic manipulations associated with the political business cycle model have not occurred with great frequency in the postwar period and have thus not played a large role in presidential economic policy or elections. Summarizing his findings, Hibbs (1987) notes that, with the exception of

President Nixon‟s actions in 1972 and, to a lesser extent, President Reagan‟s in 1984, “election- based economic cycles are relatively infrequent” and, when compared with the macroeconomic policy fluctuations caused by changes in party control in the White House, are “less broad based, and more short lived” (p. 268). George Edwards (1983) agrees, noting that “there is no systematic evidence that unpopular presidents try to stimulate the economy to boost their public 26 support” and that research has shown that neither fiscal nor monetary policy “are significantly related to the electoral cycle” (p. 47).

Spiliotes (2002), unfortunately, doesn‟t explicitly examine the impact of differing levels of party unity within the president‟s own party in Congress. While she does examine partisan and general opposition to the president in Congress (and finds that their impacts are small), intuitively it seems that party unity levels could have unique impacts on the policies pursued by the president. On the one hand, lacking the support of his partisans in Congress, the president may be driven to the instruments of the opposing party. On the other hand, a president who lacks support within his own party may try to build party unity by pursuing policies pleasing to his base. Similarly, presidents popular in their own party may pursue partisan economic policies to maintain such support, or they may feel that strong partisan support makes the political cost of appealing to the opposing party less important, thus making them less likely to utilize the instruments of their own party. Given that unified government increases the likelihood of the president pursuing the economic policies of the opposing party, it is likely that high levels of intraparty support also increase the likelihood of the president straying from his own party.

Conversely, given that divided government increases the partisanship of the president‟s macroeconomic policies, it is likely that low levels of intraparty support make it more likely that the president will pursue policies favorable to his own party.

My argument here is based on the fact that the same logic applies in each situation: when the president‟s party controls Congress, he already has a legislative advantage (as even if party unity scores are relatively low, the size of his party‟s majority could make up for a few dissenting members) and he is free (and encouraged) to pursue whichever policies he deems best for the economy as his party‟s unified control uniquely positions him to take both the credit for 27 economic successes and the blame for failures. Similarly, when the president has lots of support within his own party, he, again, has a legislative advantage (as his pursuit of initiatives favored by the opposing party is less likely to cause a mutiny as a result of his strong intraparty support) and he feels free to “spend” the political capital his party popularity gives him. Under conditions of divided government and low intraparty support, conversely, the president aligns himself closer with his own party as their unified support becomes more important to his success and any policies that fail to boost the economy can be at least partially blamed on the opposing party.

Contextual Concerns and Economic Policy Formation

In this section, I‟ll discuss how the president‟s approach to economic policy shifts in relation to changes in the health of the economy. Specifically, I‟ll examine how different economic conditions affect the likelihood of presidents utilizing the economic policy tools of the opposing party.

Republicans and Recessions

It is apparent that economic crises increase the likelihood of presidents reaching across the aisle while forming economic policy. Spiliotes (2002) examined the actions of Republicans during recessions and found “that Republican presidents will respond to a recessionary crisis by adjusting their decision-making tradeoffs to favor relatively less unemployment and more inflation. In essence, they will behave in Democratic fashion to bring the country out of recession through expansionary fiscal policy” (pp. 129-130). Her argument is largely based on a case study of President Eisenhower which highlights his use of Democratic economic policy instruments to ameliorate the effects of the recession of 1954. President Nixon‟s handling of the recession of 1969-70 is also demonstrative of a Republican shift to Democratic macroeconomics during recessions. Hebert Stein‟s (1984) account of this period of Nixon‟s presidency notes that 28 the “recession encountered in 1970 and the eagerness to regain high employment diverted the

Friedmanesque economists in the administration from the intentions with which they had entered office. Inability to achieve the desired results from monetary policy tended to push the administration in the direction of attempts to manipulate fiscal policy as an instrument of economic stabilization” (p. 207). In sum, Republican presidents in the postwar period have used fiscal policy to combat unemployment during recessions, indicating a willingness to forgo partisan economic policies to combat socially undesirable conditions.

Democrats and Inflation

Spiliotes (2002) also studied Democratic presidents during periods of high inflation to determine their willingness to adopt Republican economic policies. Her analysis consists of brief case studies examining the presidencies of Lyndon Johnson and Jimmy Carter. Carter‟s approach to economic policy will be discussed in greater detail later in the chapter, but, put briefly, when faced with “the possibility of double-digit inflation…” Carter adopted an approach that “one could easily mistake…for a Republican tool kit for fighting inflation” (p. 102). Similarly,

Spiliotes argues that, when faced with evidence that “he should switch his stabilization focus from unemployment to inflation” (p. 79), President Johnson rejected the advice of his political advisors – who recommended “an increase in personal and corporate income taxes as the centerpiece of an anti-inflation package” (p. 84) – and “instead relied on tight monetary policy by the Federal Reserve to cool the economy” while accepting some Republican recommended cuts to his Great Society programs (p. 75). He did all this despite the tremendous economic growth in 1965 that came as a result of his earlier traditional Democratic policies and “pushed aggregate demand beyond the country‟s productive capabilities and toward an inflationary crisis”

(p. 75). Given President Johnson‟s strong ability as a legislator, his rejection of the advice of his 29 political advisors and his work with Republicans in Congress on the inflation issue were indicative of his broader presidential style.

Spiliotes (2002) concludes by arguing that, in making the fight against inflation a priority, “both presidents temporarily appropriated a Republican conceptualization of the functioning of the macroeconomy and its associated tools…in a fashion not normally associated with their party and in direct opposition to the preferences of their majorities in government” (p.

105). The 1990s continued this trend, during which time the Federal Reserve (though not under the direct control of the president) “showed a penchant for fighting presumed inflationary pressures, at the expense of strong employment growth” (Weller, 2002). In sum, the postwar era has seen Democratic presidents willing to fight inflation using traditionally Republican monetary policy tools despite resistance from Democrats in Congress.

Democrats, Republicans, and Deficits

Though usually only indirectly related to stabilization policy, a brief examination of the approaches of Republican and Democratic presidents in the face of growing budget deficits is appropriate here as deficits, in the past 30 years, have both occurred more often and have proven highly contentious politically.

Wyatt Wells (2003) notes that “federal debt grew more rapidly during the 1980s than at any time since World War II” (p. 135). According to Wells (2003), prior to the 1980s, deficits that occurred during recessions were viewed by economists as necessary and perhaps beneficial, but became a problem following the recession of 1982 when “economic recovery brought no drop in federal borrowing” (p. 135). Wells (2003) notes that Democrats and Republicans differed in their explanations as to why deficits remained high despite a growing economy, with

Democrats blaming President Reagan‟s tax cuts and Republicans blaming the continued growth 30 of entitlement programs like Social Security and Medicare (p. 136). Rising deficits create several problems, not the least of which is increased difficulty in both dealing with economic downturns and making public investments in education and infrastructure, as each requires more government spending and thus even larger deficits (which is particularly true in recessions as tax revenues decline).

While President Clinton, in large part due to the booming economy and his decision to raise taxes for the wealthy in 1993 even during recession, was able to create budget surpluses during the 1990s, large deficits have returned since the turn of the millennium as a result of further growth in entitlements, wars in the Middle East, and more tax cuts (Greenhouse, 1993).

As was the case in the 1980s, Republicans blame the deficits largely on the growth of entitlement spending and Democrats blame them on the Bush tax cuts and defense measures. The 2000s present a difficult case study in terms of presidential economic logic given the rise of terrorism and the Great Recession; the justifications of Presidents Bush and Obama for running high deficits can be clearly and reasonably attributed to the unprecedented nature of the September

11th attacks and the depth of the Great Recession, respectively. Further, President Bush had scant opportunity to exercise Democratic logic given the lack of severity of the early 2000s recession and President Obama hasn‟t had a chance to exercise typical Republican stabilization tools as inflation has not been a problem during his first term.

Nonetheless, the current state of both the economy and economic rhetoric in Washington underscore two main observations regarding partisan reactions in the face of rising debt. First,

Democrats continue to blame tax cuts and defense spending for deficits while Republicans blame rising entitlement spending. Second, increased deficits make the type of discretionary spending needed to combat recessions both financially and politically difficult. Wells (2003) argues that 31

“by sharply increasing Washington‟s debt burden, the [1980s] deficits made it hard for the government to respond aggressively to new circumstances that demanded spending” (p. 137).

President Obama‟s actions in the face of the Great Recession, and the apocalyptic visions of the future described by Republicans in response to the increased government spending that came with the president‟s stimulus measures, fully support Wells‟ (2003) argument: because the government ran large deficits throughout the first decade of the century, passage of the stabilization spending advocated by President Obama required significantly more borrowing and political battling than did the stabilization spending of other postwar presidents facing recessions.

Stabilization Case Studies: Presidents Carter and Reagan

The economic policy agendas pursued by Presidents Carter and Reagan help illustrate some of the broad phenomena identified in this chapter regarding the impact of institutional and contextual factors on presidential economic policy.

President Jimmy Carter: 1977-1981

President Carter took office in 1977 amid trying economic times. According to Spiliotes

(2002), “unemployment was close to 8 percent, yet inflation was also running at an annual rate of almost 6 percent” (p. 91). This phenomenon of inflation despite recessionary conditions, known as stagflation, was caused largely by “supply-side shocks in the form of OPEC price hikes and food shortages” and was difficult for policymakers to address (Markovich and Pynn, 1988, p.

80). Despite the poor performance of the economy, it was on a slight upswing upon Carter‟s arrival in the White House. According to Spiliotes (2002), Carter‟s “advisers ultimately misjudged just how rapidly that economic recovery would proceed” and directed him to propose a stimulus package to Congress involving “public works…and increased public employment” (p. 32

91). According to Wells (2003), Carter‟s economic team believed that “fiscal and monetary stimulus could increase output without intensifying inflation” (p. 102).

Carter‟s actions at the beginning of his term fit well into the model discussed in this chapter that was developed by Spiliotes (2002) and reinforced by others. Early in his term, according to Spiliotes (2002), Carter “did not move away from a partisan Democratic logic…, with its focus on unemployment rather than inflation” (p. 91). As Stein (1984) notes, “The Carter

Administration not only participated in but also took the lead in creating an atmosphere in which rapid movement toward a low level of unemployment was the overriding test of the success of national economic policy” (p. 218). While Carter mentioned balancing the budget as a future priority, according to Wells (2003), “on balance policy remained stimulative” (p. 102).

Carter‟s approach does not fall in line with Spiliotes‟ (2002) finding that presidents are more likely to stray from partisan economic objectives during periods of unified government, as

Democrats controlled Congress during Carter‟s entire term in office. Carter‟s Democratic approach early in his term may suggest, then, that the midterm effect – whereby presidents are more likely to pursue partisan economic objectives before the midterm – is stronger than the unified government effect. It may also be the case that Carter thought his early policies were simply the most economically appropriate, regardless of who controlled Congress at the time.

Spiliotes (2002) argues that at the beginning of his term, President Carter‟s decision making was still heavily weighted by his status as the leader of the Democratic Party (as opposed to his status as “Chief Economist”) and that he was “operating from a distinctly partisan Democratic viewpoint” (p. 93) while believing, in his own words, that “„high unemployment is a morally unacceptable – and ineffective – way of combating inflation‟” (Jimmy Carter qtd. in Spiliotes,

2002, p. 94). 33

As Carter‟s term proceeded, “inflation had accelerated again” (Stein, 1984, p. 219). As inflation worsened, particularly in the aftermath of an OPEC price shock in 1979, “the Carter

Administration essentially abandoned its goal of moving the economy to full employment”

(Hibbs, 1987, p. 273). Spiliotes (2002) notes that President Carter soon proposed “a series of

Republican-style anti-inflation initiatives” which “marked the onset of Carter‟s shift [away] from a consistent Democratic calculus” (pp. 94-95). He selected Paul Volcker as Federal Reserve

Chairman and Volcker came into the position “determined to break inflation” (Wells, 2003, p.

105). Carter‟s policies during this inflationary period represented an acceptance of “the very same Republican macroeconomic logic he had deemed „morally unacceptable‟” earlier in his term and signaled that “he was increasingly willing to work with Republicans to pursue macroeconomic policy…that was clearly outside the bounds of Democratic stabilization logic”

(Spiliotes, 2002, pp. 101, 105).

Carter‟s actions during the second half of his term support several of the conclusions drawn earlier in this chapter. First, during a period of unified government, President Carter showed a willingness to utilize Republican economic instruments. Second, in drifting away from partisan economic objectives following the midterm, President Carter‟s actions are consistent with Spiliotes‟ (2002) institutional responsibility model, which holds that presidents are more likely to view themselves as non-partisan economic leaders (as opposed to partisan party leaders) as their time in office increases. Finally, President Carter‟s actions provide evidence for the rejection of the political business cycle model – holding that presidents are more likely to pursue expansionary economic policies during election years – by scholars like Spiliotes (2002) and

Hibbs (1987). Hibbs (1987) argues that Carter‟s “election-year contraction was the main reason

Carter and the Democrats took such a trouncing at the polls in 1980,” commenting that “it is 34 difficult to imagine a macroeconomic policy plan less suited to reaping a vote harvest on election day” (p. 273).

President Ronald Reagan: 1981-1989

Upon his entrance into the White House in 1981, President Reagan faced an unemployment rate of 7.5 percent and an inflation rate of 10.5 percent (Markovich and Pynn,

1988, p. 33). Reagan had defeated President Carter while running on a supply-side economic platform, which, according to Paul Roberts (1984), offered him several advantages. Roberts

(1984) argues that the supply-side platform gave Reagan “an employment policy that did not rely on inflation and government programs” and “an anti-inflation policy that did not rely on the pain and suffering of rising unemployment” (p. 89). Further, supply-side economics promised to enable deficit reductions through tax cuts, based on the logic of Arthur Laffer who argued that by cutting taxes the “government would not only reduce the burden on business but actually encourage an expansion of income large enough to pay for the cut” (Wells, 2003, p. 114).

While the supply-side rhetoric of President Reagan‟s campaign provided voters the dramatic shift in economic policy they sought after the 1970s, Spiliotes (2002) notes that

“President Reagan brought a consistently partisan Republican logic to his decision making, a calculus that combined elements of monetarism, supply-side economics, and traditional balanced budget orthodoxy” in the hope of achieving “lower inflation, a balanced budget, and less government” (p. 121). Reagan argued that achievement of these goals would then lead “to rapid growth and increased employment” (p. 121). According to Spiliotes (2002), President Reagan

“made it clear…that he would reject macroeconomic approaches to the recession that included any industrial policy or national economic planning, short-term monetary expansion, or massive 35 public works and other jobs programs,” which constitute typical Democratic responses to economic downturns (p. 121).

The strict anti-inflationary policy of the early Reagan years, while successful in combating rising prices, led to “the highest unemployment in post-World War II history”

(Markovich and Pynn, 1988, p. 35). Despite this, Reagan‟s rhetoric and “decision making remained consistently Republican throughout 1982 and 1983” with the president continuing “to emphasize deficit reduction and the fight against inflation” even in the face of worsening economic conditions (Spiliotes, 2002, p. 124). Hibbs (1987) presents a slightly different view, arguing that “the president „stayed the course‟ until late 1982, at which time double-digit unemployment rates…led him to abandon hard-line monetarism and push for an expansive monetary policy” led by Federal Reserve Chairman Paul Volcker (p. 287). Further, it is important to note that despite the partisan balanced budget rhetoric of the Reagan

Administration, the government was still running large budget deficits during the recession.

Hibbs (1987) argues that it was the monetary stimulus of late 1982 “in conjunction with enormous federal budget deficits” that led to economic recovery in 1983 and 1984 (p. 287).

Spiliotes (2002) argues that President Reagan‟s consistent Republican logic during the recession of the early 1980s can be explained by her findings regarding the effects of divided government. She argues that “he [Reagan] suggests that Republican presidents need not move from partisanship in a recession, if a Democratic Congress is willing to increase federal spending” and that Reagan experienced the benefits of a typically Democratic economic stabilization instrument (increased spending) without having to personally advocate such policies

(p. 130). Spiliotes (2002) echoes this finding in her conclusion, arguing that “for Reagan, divided government provided him with the political cover to pursue partisan rhetoric, while in practice 36 accepting important tradeoffs in the growth in spending” as the Democrats in Congress could be blamed for the increased deficits (p. 145).

President Reagan did not shift significantly toward Democratic economic logic following the midterm of 1982, but it was after the midterm that he instructed the Federal Reserve to pursue more expansionary monetary policies, indicating an affirmation – albeit weak – of

Spiliotes‟ (2002) finding regarding pre and post midterm behavior.

Findings are mixed regarding the Reagan Administration and the political business cycle theory. Hibbs (1987) indicates that he believes “the big 1983-1984 election year recovery of output, incomes, and employment” was at least partially politically motivated (p. 287). Spiliotes

(2002) is more skeptical, arguing that it is difficult “to determine the extent to which Reagan‟s macroeconomic decision making purposefully manipulated the upswing in the business cycle that was already underway before 1984” and that “when the macroeconomy was booming…and inflation was not a pressing issue,…Reagan adopted a hands-off approach” that isn‟t necessarily indicative of electoral logic.

Finally, it appears that Reagan was the first president to experience the political effects of increased budget deficits that were discussed earlier, which hold that partisanship intensifies as a result of deepening debt, making cooperation more difficult while encouraging each party to blame the other for deficits. The fact that Reagan‟s economic approach did not fit in easily with all parts of Spiliotes‟ model is perhaps a result of the expanding budget deficits of the 1980s.

Reagan‟s rhetoric continued to emphasize balanced budgets even as he allowed federal deficits to grow. There did not exist much of an incentive for him to move toward a heavily Democratic economic logic during the early 1980s recession because he could appease his base by publicly 37 opposing deficit spending and blaming it on Democrats while reaping its benefits in terms of economic performance.

Overall, President Reagan is not as clear a case study as President Carter in regards to general economic policy making trends, but he does illustrate to some extent the effects of divided government, time in office, and the notion of institutional responsibility on the economic policy formation processes of presidents.

Conclusion

With a clear understanding of the goals of presidential economic policy and the macroeconomic instruments typically used by Democrats and Republicans, it is clear that institutional and contextual concerns do impact the economic policy formation processes of presidents. It appears that divided government increases the likelihood of the pursuit of partisan economic objectives, while unified government increases the likelihood of presidents utilizing the economic policy instruments of the opposing party. Further, it‟s evident that presidents are more likely to act as non-partisan economic leaders later in their terms than immediately following elections. It does not appear that presidents routinely and explicitly manipulate the economy into periods of expansion during election years, though that could have been the case with President Reagan in 1984. Finally, deficits may change the nature political rhetoric to an extent that limits the effects typically associated with differing institutional and contextual factors.

38

Chapter Three: Implementation of Economic Policy Plans

The previous chapter examined the process by which presidents determine which economic policies to pursue and the ways that process is affected by differing institutional and contextual conditions. The focus of the current chapter is on the process by which presidents implement their economic policy plans; specifically, it analyzes the role “going public” plays in presidential efforts to gain the passage of their initiatives.

The decision to “go public,” a presidential implementation strategy that seeks to gain enough public support for an initiative so as to force an otherwise reluctant Congress to pass it, is a well-studied topic in political science that has received plenty of attention from influential scholars. Despite such attention, however, there seems to be a dearth of research that specifically connects the decision to go public with presidential economic policy. The focus here is thus to examine the role of going public specifically in regards to macroeconomics. Why do presidents decide to go public? How do the institutional and contextual factors discussed in chapter two affect such a decision? What are the advantages and disadvantages of going public? Finally, how does going public impact the effectiveness of legislation once it‟s passed?

To answer these and other questions, this chapter first describes the rise of public implementation strategies and the factors that encourage or discourage their use. From there, analysis focuses on the strengths and weaknesses of going public in terms of both legislative and economic outcomes. Finally, following the model of chapter two, case studies of Presidents

Carter and Reagan are used to demonstrate general themes regarding public implementation strategies.

The Rise of “Going Public”: Teddy Roosevelt to the 21st Century 39

The relationship between the president and the public has evolved – and deepened – over the course of America‟s history. Early presidents, many of whom were present during the country‟s formational period, made “modest efforts” to connect with the people “in the context of political principles and institutional arrangements that generally supported the supremacy of the legislature” (Milkis and Nelson, 2008, p. 123). It wasn‟t until Andrew Jackson came to the

White House in 1829 that the president was “regarded…as the „tribune‟ of the people” (Milkis and Nelson, 2008, p. 122). Jackson sparred with Congress throughout his time in office and was the first president to use the veto power to strike down significant legislation for reasons unrelated to constitutionality. His famous veto of a bill passed by Congress in 1832 to recharter the national bank – an unprecedented act in itself – was accompanied by a populist veto message that was clearly intended as much for the public as for Congress. According to Milkis and

Nelson (2008), Jackson was the first president to have “appealed to the people over the heads of their elected legislators” and, in doing so, both permanently changed the relationship between the president and Congress, and laid the foundation for going public (pp. 126-127).

Decades after Jackson left office, Teddy Roosevelt was the next president to significantly alter the relationship the between the executive and the people. According to Milkis and Nelson

(2008), “Roosevelt‟s confidence that the president possessed a special mandate from the people made him a conscious disciple of Andrew Jackson” (p. 211). Roosevelt, who referred to the presidency as the bully pulpit, sought to affirm “the president‟s role as the leader of public opinion” and, in doing so, gave rise to the “rhetorical presidency” (Milkis and Nelson, 2008, p.

212). Roosevelt was the first president to go public; facing opposition from the Senate in regards to Hepburn Act of 1906 – a measure to ameliorate disparites in railroad shipping rates that favored large corporations – Roosevelt traveled the country giving stump speeches in support of 40 the legislation. After Roosevelt‟s appeals, “the pressure of public opinion eventually overcame the Senate‟s resistance” (Milkis and Nelson, 2008, p. 215). The Hepburn Act became law and a new presidential implementation strategy was created.

It‟s important to note the role new forms of media played (and continue to play) in changing the relationship between the president and the public. According to Milkis and Nelson

(2008), Roosevelt “was the first president to recognize fully the press‟s value as a medium to communicate with the people and the first to understand that journalistic support had to be pursued actively and continually” (p. 215). Moreover, Roosevelt was able to use the rise of widely circulated newspapers to his advantage. A couple decades later, his cousin, Franklin

Roosevelt, developed “fireside chats” – radio addresses by the president to the nation – “which were a revolutionary advance in presidential use of the mass media” (p. 284). Franklin

Roosevelt‟s pursuit of a presidential legislative agenda, something first done by Woodrow

Wilson, along with his savvy use of the media, established what is now considered the modern presidency.

Since FDR‟s presidency, new technological developments have further evolved the relationship between the president and public. The rise of television during the Kennedy

Administration further reinforced the personalization of the presidency that had been started by

Wilson and the Roosevelts. Beyond television, the rise of the Internet and social networking sites early in the 21st century has further deepened the relationship between the president and the people, punctuated by the successful use of social media by the Obama Administration as an electoral and political tool.

Why Go Public? 41

Samuel Kernell (1997), a leading scholar of public implementation strategies, discusses several potential explanations for a rise in going public. Technological advances in terms of travel and communication increase the ability of the president to effectively use public strategies.

Reforms to the presidential nomination process in the early 1970s have created a system that

“produces presidents with weak ties to core constituent groups within their parties and with little experience in Washington politics” (p. 11). Such presidents are deft campaigners and believe that public implementation strategies are preferable to bargaining with other elites who they don‟t know well.

Beyond these explanations, though, Kernell (1997) believes that a broader shift in

Washington is responsible for the rise in going public. Kernell‟s (1997) argument is that political conditions have shifted from what is called institutionalized pluralism to what he terms individualized pluralism. In the past, institutionalized pluralism encouraged bargaining among elites, with “the ideal president” being “one who seizes the center of the Washington bazaar and actively barters with fellow politicians to build winning coalitions” (p. 18). In institutionalized pluralism, policy decisions are made among elites with the public participating through staggered elections that the Founding Fathers designed to limit the disrupting effects of “public passions”

(p. 13). In these conditions, Washington operated largely isolated from the rest of the country, with government officials obeying unwritten rules of etiquette while relying on the trust of their peers much more than on public support. In institutionalized pluralism, “where reciprocity is normative and memory long,” going public reduces the ability of elites to bargain and “its regular use as a strategic device can sow only ill will and ultimately reap failure” (p. 21).

As times have changed, though, Washington has come to be characterized by individualized pluralism, a community consisting “of independent members who have few group 42 loyalties and who are generally less interested in sacrificing short-run, private career goals for the longer-term benefits of bargaining” (Kernell, 1997, p. 27). Kernell (1997) argues that individualized pluralism has risen as a result of several factors, including the growth of large, interconnected constituencies outside of Washington, advancements in communication and transportation technologies, and the decline in the prominence of political parties (p. 28).

According to Kernell (1997), “each of these possible causes has created opportunities for those in Washington to be more independent” (p. 28). The shift toward individualized pluralism has changed the way Congress operates, and the changes in Congress have in turn changed the way the president operates. The rise of numerous caucuses within Congress and the increasing influence of single-issue Political Action Committees (PACs) have made associations among legislators more numerous, less focused, and more informal. The result, according to Kernell

(1997), has “been the depreciation of institutions [like political parties] and an elevation of individual politicians” (p. 33), which are characterized by “political relations in Washington that no longer permit a limited set of bargains to carry the day” along with the “rise of divided party control of government” (p. 56). These developments are reinforced by “presidential selection reforms that allow ordinary voters to determine nominations” and thus encourage the election of presidents lacking bargaining experience (p. 56).

These changes in Congress have, in turn, shifted the calculus of the president. According to Kernell (1997), “the limited goods and services available for barter to the bargaining president

[as a result of the rise of individualism in Congress] would be quickly exhausted in a leaderless setting where every…partner must be dealt with individually” (p. 34). While these changes make bargaining less attractive, they do open “other avenues of presidential influence” – namely, going public (p. 34). Because the president is a national figure and his office is highly 43 prestigious, he is better equipped to go public than any other figure. As a result of these factors,

Kernell (1997) argues, “there is a rationale for modern presidents to go public” and “presidents searching for strategies that work will increasingly go public” (p. 36).

George Edwards (2003) frames the rise in going public in slightly different terms.

Edwards (2003) frames his general argument clearly: “presidents know that without the public‟s backing in most instances they lack the influence necessary to persuade Congress to support their legislative proposals” (p. 8). Why does the president lack such influence, though? Edwards

(2003) offers several arguments to explain the president‟s reliance on public opinion. First, he argues, simply, that the Constitution‟s checks and balances are limiting, with America‟s bicameral legislature making coalition building difficult. Second, Edwards (2003) argues that

Congress has become more polarized and ideologically extreme, while presidents have become more centrist. Thus, “the inevitable tension between centrist presidents and polarized party caucuses has meant that party support for the president has not increased in conjunction with party homogeneity [measured in terms of ideology]” (p. 11). Third, the separation of presidential and legislative elections in America, as opposed to the parliamentary systems used in other democracies that guarantee unified government, often lead to divided government. Fourth,

Edwards (2003) argues that presidents, as party leaders, must confront significant intraparty diversity (caused by Congressional primaries that “undermine…the ability of party leaders to control who runs under their party‟s label”) which “weakens their ability to discipline errant members for not supporting the president” (pp. 12-13). Finally, the executive lacks the institutional assets to strongly influence the legislature, with his Constitutional powers limited mostly to the veto. 44

In sum, Edwards (2003) argues that presidents are drawn to going public because they

“face a range of obstacles to obtaining congressional support for their policies” (p. 14). While different from Kernell‟s (1997) analysis, Edwards‟ (2003) observations enrich Kernell‟s argument (1997). Combining each analysis, it is clear that the president, who is now more likely to be a political outsider as a result of nomination reforms and has increasing technological tools to use for reaching the public, faces numerous institutional and political difficulties in his attempts to pass legislation and control Congress. The result of all these factors is an indisputable increase in public implementation strategies. Kernell (1997) identifies several trends regarding the number of interactions between the president and the public over time. Kernell‟s findings indicate that minor presidential addresses, consisting of messages “the president delivers to a special audience either in person or via some broadcast medium” (p. 106), have increased dramatically since the Truman Administration (p. 113). Similarly, presidential appearances in public, both in Washington and throughout the country, have also increased dramatically since

Truman‟s time in the White House (p. 118). Finally, presidential travel (which is measured in days rather than appearances, distinguishing it from the previous figure) has also increased steadily since Truman (p. 122). The only medium of presidential communication to have stayed constant since the 1940s is major addresses, which Kernell (1997) attributes to (a lack of) public attentiveness, arguing that “if every presidential tribulation were taken to the country on prime- time television, people would soon lose interest” (p. 107).

When (and When Not) to Go Public

With an understanding of the historical developments that have led to an increase in presidential public appeals, it is now appropriate to examine the advantages and disadvantages of 45 going public. In this section, with a particular emphasis on economic policy, the advantages of public appeals in terms of both the passage and outcome of legislation are examined.

Brandice Canes-Wrone (2006) takes a more statistical approach than Edwards (2003) and

Kernell (1997) in regards to going public. That is, her analysis is based less on historical developments, and more on the statistical likelihood and advantages of a president going public on a specific issue. As such, Canes-Wrone (2006) developed the Public Appeals Theory, which examines the conditions in which it is advantageous for the president to pursue a public implementation strategy. Her model, which resembles a game theoretical approach, assumes that three major players – the president, Congress, and the public – each have a preferred policy outcome on a given issue. The decision of whether to go public, then, should be based on the proximity of the president‟s and the public‟s preferred outcomes relative to the preferred outcome of Congress. The assumption is that, in going public, the president will introduce the electorate‟s preferred outcome to the legislative process, which will then affect the policy that is ultimately adopted. Canes-Wrone‟s (2006) findings indicate that “the president will only want to make a public appeal if the electorate‟s preferred outcome is closer to his own than is the status quo or the outcome initially desired by Congress” (p. 26). Similarly, when the outcome preferred by the public is closer to Congress‟ desired outcome than it is to the president‟s, pandering to public opinion can actually be harmful in the sense that Congress will be emboldened in its views and less likely to move towards the outcome desired by the president.

The crucial question in these cases is whether the president can successfully alter public opinion to an extent that aligns the people closer with him than with Congress. Canes-Wrone

(2006) first notes that the president must be selective in choosing the policies on which he attempts to sway the public, as “by appealing on a given issue, a president decreases his ability to 46 do so on other matters” as a result of the public‟s limited capacity for engagement (p. 28).

Beyond the issue of public fatigue is the question of the extent to which the president even has the ability to change public opinion. Canes-Wrone (2006) argues that “the further the president‟s desired outcome is from that of the electorate, the lower his capacity to alter public opinion about the policy choice” (p. 33). Similarly, the more generally aligned the public‟s view is with his own, the greater his ability is to change their preferred outcome. As a result, Canes-Wrone

(2006) argues that the president takes a risk when pandering to public opinion, as he may not be able sway public opinion to a great enough extent to achieve legislative success. In any case, it seems that the president is generally unable to achieve legislative success via going public if the public‟s preferred outcome is closer to Congress‟ than his own. At the same time, going public is an advantageous strategy when voters are more closely aligned with the president than with

Congress. In sum, Canes-Wrone (2006) argues that presidents are more likely to go public on a policy if it is popular and “almost never appeal to the public about an initiative that is likely to mobilize popular opposition. Presidents do not, however, merely go public about foregone policy achievements. In fact, all else equal, presidents are more likely to publicize an…initiative the less legislative success they expect to achieve without the plebiscitary activity,” (p. 80) meaning that the best time to go public is when facing an antagonistic Congress and a receptive public

(which fits in with Teddy Roosevelt‟s Hepburn Act logic).

Kernell (1997) also discusses some of the general advantages and disadvantages of going public, and includes a specific discussion of public implementation efforts on economic issues.

Kernell‟s (1997) analysis indicates that going public is often a strong strategy for presidents facing divided government. He presents case studies of Presidents Truman, George H.W. Bush, and Clinton to illustrate this point. President Truman, facing a Republican Congress after the 47

1946 midterm election, utilized press conferences and veto messages to publicly spar with

Republicans. According to Kernell (1997), Truman “selectively vetoed legislation on which he could take forceful and politically attractive positions” and introduced to Congress “popular social legislation, not in the expectation of making policy but in order to create potent issues for his fall reelection campaign” in which he famously defeated Thomas Dewey by a narrow margin

(p. 50).

President Clinton took an approach similar to Truman‟s when faced with widespread

Republican victories in the 1994 midterm. When the Republicans in Congress, led by Newt

Gingrich, developed a budget that they believed was veto-proof “by attaching the spending and revenue legislation to a debt ceiling bill…needed to keep meeting payrolls and entitlements,” the president, instead of approving the whole package, went on the offensive. In wake of the proposed legislation, “President Clinton vetoed the budget and two days later went on national television to denounce its „deep and unwise cuts‟ and prepare the nation for a government shutdown” (p. 54). In portraying the cuts proposed by the Republicans as harmful to the nation,

Clinton was able to swing public support to his side, while appearing as a moderate dealing with conservative radicals. As a result of his public strategy and after two government shutdowns,

President Clinton won the battle, with House Speaker Gingrich admitting failure, and cruised to reelection in 1996 amidst a booming economy.

George H.W. Bush took the opposite approach to divided government. Working diligently to find bargaining room with the Democratic Congress, President Bush devised “a deficit reduction plan of increased taxes and reduced spending” (p. 50). In the hope of maintaining warm relations, “Bush…refrained from publicly criticizing the Democratic

Congress,” a decision that would come to haunt him (p. 51). After the proposal went public, 48

Bush faced public criticism from both Republicans and Democrats (which was compounded by his highly publicized campaign promise to create no new taxes), while “the package of taxes and spending that had taken all summer to hammer out collapsed” (p. 51). As a result, Bush was forced to return to the negotiating table and give further concessions to the Democrats, leaving him in an even worse position. He eventually lost his reelection bid to Bill Clinton, despite the success of the legislation that was eventually passed.

Reflecting on Kernell‟s (1997) analysis of Presidents Bush and Clinton on economic issues, it seems that the implementation strategy decisions of presidents can be related to arguments made in the previous chapter regarding the work of Constantine Spiliotes (2002).

Spiliotes (2002) developed what she calls the Institutional Responsibility Model whereby the president, as the “Economist-in-Chief,” is likely to take the economic actions necessary to maintain the health of the economy regardless of partisan concerns. Spiliotes (2002) also identified trends indicating that a president is more likely to utilize the economic instruments of the opposing party after the midterm and more likely to use partisan economic instruments during divided government. Obviously, when the president faces divided government following a midterm, these forces pull him in opposite directions. On the surface, it appears that Clinton‟s actions were dominated by the divided government effect, whereas Bush‟s approach was dominated by the post-midterm effect. Beyond enriching the discussion of the previous chapter, the Bush and Clinton case studies add to the discussion of the previous chapter by examining how implementation strategies interact with policy strategies.

While Clinton‟s strong public stance and unwillingness to accept the budget proposed by the Republicans indicates that his actions followed the divided government effect, the substance of the eventual policy compromise, and his general approach to economically relevant issues, is 49 more mixed. Clinton‟s approach to governance generally shifted toward the center of the political spectrum following the large defeats suffered by his party in 1994, and the eventual compromise on the budget issue was a political win for the president, despite the fact that, “from a strict budgetary index, both sides found features in the…agreement that they could point to and claim victory” (p. 55). In Spiliotes‟ (2002) discussion, it is generally assumed that when the president moves closer to the opposing party to maintain the health of the economy, the movement of the president‟s policy preferences is publicly acknowledged. Kernell‟s (1997) analysis, however, indicates that this is not necessarily the case; Clinton, while eventually agreeing to a compromise that led to a budget surplus and pursuing other initiatives (such as welfare reform) that marked a shift to the right, used a public implementation strategy that was antagonistic toward Republicans. Thus it appears that while the president is driven by non- partisan policy concerns while formulating economic policy, his implementation strategy is more likely to be driven by political concerns. As will be discussed later in the chapter, President

Reagan was also successful in moving toward the left during an economic crisis in terms of policy, while utilizing strongly politically partisan public implementation strategies.

Also of note is the strategic impact of party unity levels in Congress. Kernell (1997) develops what he calls the Marginals Strategy, which is at play when a president who is either highly popular or unpopular within his own party attempts “to expand his coalition by enticing marginal constituencies [generally those who are not in the president‟s own party] with policies they favor” (p. 238). The Marginals Strategy makes intuitive sense; if the president is unpopular amongst his own party on Congress, he may try to build enough support in the opposing party of

Congress to pass a given initiative, particularly if the initiative involves economic policy instruments that aren‟t typical of his own party. Conversely, “if the president is so popular 50 among his own party‟s identifiers that he believes an unpopular policy would not be greeted with a mass exodus, he might seek to expand his coalition by enticing marginal constituencies

[particularly those in the opposing party] with policies they favor” (pp. 237-238). Kernell (1997) argues that this strategy is risky, as the president‟s chosen policy may fail to gain support from those on the margins while also angering those within his own party. The Marginals Strategy is discussed later in the chapter during the case study sections on Presidents Carter and Reagan.

In On Deaf Ears, George Edwards (2003) generally argues against going public.

Edwards‟ (2003) explanations for the increasing use of public implementation strategies were discussed earlier in the chapter. Here, his argument that such strategies are ineffective is explored. Early in his analysis, Edwards (2003) examines whether presidents are capable of changing public opinion on specific policies. He argues that “even capable communicators like

Ronald Reagan and Bill Clinton could not move the public much on their own” (p. 74). Edwards

(2003) traces major initiatives pursued publicly by President Clinton, including economic reform, healthcare reform, the 1993 budget debate, government spending, and NAFTA. His analysis of Clinton‟s economic reform plan of 1993 – which included “spending for job creation, a tax increase on the wealthy, investment incentives, and aid to displaced workers” – indicates that public support for the plan peaked after the president‟s major address on it in February, but that, later, “during the period when president needed support the most and when he worked hardest to obtain it, it diminished to the point that by May a plurality of the public opposed his plan” (p. 35). The plan was never even voted on by the Senate.

Similarly, on healthcare reform, Edwards (2003) finds that public support peaked after

Clinton‟s masterful address on the topic in September 1993, but waned over the following months. According to Edwards (2003), “the White House held out against compromise with the 51

Republicans and conservative Democrats, hoping for a groundswell of public support for reform.

But it never came” (p. 35). After an effective public counter-campaign by the Republicans, “only

40 percent of the public favored the president‟s health care reform proposals” and the bill wasn‟t passed (p. 36).

Edwards‟ (2003) discussion of President Clinton‟s public efforts on government spending following the 1994 midterm and NAFTA are interesting, as he argues that President Clinton was generally unable to sway public opinion despite the fact that he eventually won both battles. He does present convincing data indicating that public implementation efforts do not change the views of large portions of the electorate while arguing that presidential “charisma” doesn‟t affect public support of specific policies (p. 105), that the president is generally unable to focus the attention of the public (p. 155), that “the president…cannot depend on structuring the choices about himself or his policies for the public” (p. 184), that “the White House finds it increasingly difficult to obtain an audience” (p. 216), and that “most people ignore or reject arguments contrary to their predispositions” (p. 238). Given Edwards‟ (2003) supporting data and the comprehensive nature of his argument, one is left asking how public implementation efforts can still, sometimes, lead to legislative success.

Part of the seeming contradiction is found in the way Edwards (2003) frames his examination. By focusing almost solely on the president‟s ability to sway public opinion, rather than on instances in which introducing public opinion to the debate gives the president a tactical advantage over Congress, he misses some relevant advantages of going public. Edwards (2003), while trying to explain the persistence of public implementation strategies despite his findings that they‟re ineffective, does address some possible advantages of going public, including maintaining the base support (pp. 244-245) and influencing elites (pp. 245-246). Regardless, his 52 focus on the movement of public opinion polls alone misses some of the tactical concerns discussed earlier in the work of Brandice Canes-Wrone (2006).

Nonetheless, Edwards‟ (2003) discussion provides some fruitful conclusions regarding challenges to public implementation strategies. He presents data indicating that viewership of presidential addresses has been declining steadily since the 1970s (p. 191). Kernell (1997) produces similar data indicating that the percentage of households tuning in to prime-time presidential addresses has declined steadily since the Nixon Administration (p. 132). Certainly, the president‟s public implementation efforts are hindered by diminishing audiences; it‟s tough to have an effective bully pulpit when you‟re preaching to an empty room. Some would argue, however, that the rise of newer forms of media – the Internet and its social networking sites – can counterbalance the decline in television viewership. While the social networking phenomenon is new and thus has not been studied in depth as a legislative tool, its successful use in the 2008 presidential campaign is well-documented. Perhaps going public will be an increasingly digital effort as the 21st century proceeds – a development that could be discussed at length in itself elsewhere.

Conclusion: Advantages and Disadvantages of Going Public

There are several distinct advantages of going public. As Canes-Wrone (2006) argues, public implementation strategies are effective when the public‟s preferred policy outcome is closer to the president‟s than to that of Congress. This is particularly true in situations when the public is likely to support the president‟s proposal and Congress strongly opposes it, as is likely to be the case on some issues during periods of divided government or when the president lacks support within his own party. Kernell‟s (1997) analysis shows that going public can be a politically advantageous strategy during periods of divided government, allowing the president to 53 pursue the policies that are best suited to maintain the health of the economy while still preventing the opposing party from claiming political victory. In turn, the analyses of both

Canes-Wrone (2006) and Kernell (1997) seem to indicate that going public is less advantageous during periods of unified government when Congress is more likely to agree with the president and public opinion may only complicate the implementation process. Further, public implementation strategies may be increasingly challenging as fewer Americans tune in to listen to the president. In sum, going public is a strategy that at times is both risky and effective.

Is Economic Policy Different?

It was noted at the beginning of this chapter that there is a dearth of research specifically connecting public implementation strategies to economic policy. Spiliotes (2002), as discussed in chapter two, argues that presidents face a different set of incentives when crafting economic policy (as opposed to general domestic and foreign policy) as they are seen as uniquely responsible for the health of the economy. While Spiliotes (2002) is convincing in her argument that economic policy formation is different than general policy formation, scholars examining implementation strategies have yet to distinguish whether a similar difference exists when it comes to the president‟s implementation calculus on economic legislation. This section attempts to answer that question.

One potential difference that exists in the case of economic policy implementation is the strength and connections of the business community; if “big business,” as part of American civil society, holds more sway in private discussions with the White House, Congress, and the Fed than other civil society groups and has more money to spend in publicly combating policies it doesn‟t support, the president‟s logic when deciding whether to go public would likely change.

This explanation, however, doesn‟t seem plausible as there are numerous well-funded civil 54 society groups that address a range of issues and are generally more organized than the business community, including groups like the NRA, MADD, and organized labor. While the recently highly publicized tax breaks given to General Electric seem to indicate that business lobbyists can successfully insert loopholes into legislation, the GE case doesn‟t necessarily indicate that corporations have stronger lobbies than other groups.

Another possible, and more likely, difference between economic issues and other policy areas is the indirect nature of the president‟s control over the economy. When a health care law is passed with the president‟s full support, for example, the likelihood of the legislation‟s intended outcome greatly differing from its actual outcome is relatively small; while insurance companies and states may find some technical loopholes, the legislation is still likely to achieve its desired outcome of, for example, expanding coverage and ending the denial of coverage based on preexisting conditions. Even if some companies attempt to evade the law, the president can still try to strengthen it and close its loopholes. Economic policy is different, as, even if the president is successful in persuading Congress to authorize tax cuts and extensive increases in discretionary spending and the Fed to lower interest rates, he still has little recourse to ensure that consumers will resume buying things, banks will resume lending, and that businesses will resume borrowing and hiring. Thus, a policy designed to spur employment is relatively less likely to achieve that outcome than, for example, a Medicare change designed to increase prescription drug coverage. The fact that the Fed isn‟t even directly under the control of the president deepens this phenomenon, as it‟s possible that its chairman won‟t agree with the White

House‟s proposals.

There is a significant connection here to presidential implementation strategies as a result of the role consumer and business confidence plays in determining the success of 55 economic policy. While confidence is certainly not the only factor that determines whether a given economic policy achieves its desired outcome (as the depth of the problem the president is trying to address, the quality/nature of his proposed legislation, and the lag time between the passage of expansionary policies and their effects on the economy, among other things, are highly significant), confidence can make economically sound legislation unsuccessful by altering the way consumers and businesses respond to it. When consumer confidence is low, Americans are more likely to save their tax breaks, meaning that consumption, a major determinant of economic growth, won‟t expand significantly. Similarly, when business confidence is low, banks and other investors are less likely to take the risks necessary to grow investment expenditures, another major determinant of economic growth, thus decreasing the likelihood of employment growth regardless of how low the Fed sets interest rates. In considering which implementation strategy to pursue, the president must consider the impact going public may have on the success

(in terms economic, not legislative, outcome) of any legislation that is eventually passed. On the one hand, if the president is able to strongly sell an economic policy initiative, confidence may increase and the policy will then be more likely to achieve its desired outcome. On the other hand, if the president‟s decision to go public leads to contentious public debate and ideological division, confidence will likely decrease, thus making it less likely that a given economic initiative achieves its desired outcome.

In sum, it seems that the decision to go public on economic policy is relatively more risky than the same decision regarding other issues. President Clinton‟s strategy, discussed earlier in this chapter, played out well; he was able to gain the support of the public, win the legislative battle, and the economy was strengthened. Other presidents have been less successful in terms of economic outcome, as will be seen in the discussion of President Obama in the next chapter. 56

Case Studies in Going Public: Presidents Carter and Reagan

Presidents Carter and Reagan each relied heavily on public implementation strategies, with Reagan often achieving better results than Carter. Case studies of each president‟s public appeals help illustrate some of the conclusions drawn in this chapter.

President Jimmy Carter: 1977-1981

President Carter served his entire term under conditions of unified government which, from the outset, indicates that going public wasn‟t necessarily an advantageous implementation strategy for him. It seems likely that Carter‟s decisions to pursue public implementation strategies were the result of Kernell‟s (1997) Marginals Strategy to economic policy (p. 237).

When Carter went public in an attempt to pass fiscal austerity measures designed to curb inflation in 1979, it appears that his plan was to build enough support among Republicans in

Congress to pass his bill without unified Democratic support. At the time, Carter enjoyed less support among members of his own party than any other president from Eisenhower on, making it likely that he saw the Marginals Strategy as his best option (Kernell, 1997, p. 239). Further,

Spiliotes (2002), in arguing that the president feels an institutional responsibility to do what‟s best for the economy (as discussed in the previous chapter), notes that the Carter “administration was convinced by 1980 that the president‟s reelection depended largely on his ability to successfully win the battle against inflation” (p. 105). The notion that Carter believed fighting inflation was the best course of action for both the health of the economy and his reelection bid also falls in line with Kernell‟s (1997) General Problem Solving model, which holds “simply that the president…address whatever problem is most important to the citizenry” (p. 233).

There are a couple possible explanations for why President Carter‟s public implementation efforts in 1979 and 1980 ultimately failed. The first is simply that Carter 57 miscalculated the gap between his preferred outcome and the preferred outcomes of Congress and the public. The possibility of miscalculation highlights the risks inherent in the Marginals

Strategy; if the president attempts to publicly win over members of the opposing party in

Congress at a time when the public‟s preferred outcome actually aligns closer to Congress than the White House, members of Congress have little political incentive to play ball with the president and it becomes likely that the president will suffer an embarrassing public defeat.

While it‟s certainly possible that Carter was wrong in his belief that Congressional

Republicans would support his austerity proposals, a more likely explanation is that Carter simply failed to present his plan to the public in a way that would rouse public support. Carter‟s messages to the public in 1979 and 1980 were too mixed to be effective in selling the public on the White House‟s austerity measures. Kernell (1997) quotes former Treasury Secretary Michael

Blumenthal as saying that Carter‟s “failure resulted from „a basic schizophrenia within the

Administration‟” that resulted in “a policy of „fighting inflation but not too hard‟” (pp. 240-241).

Beyond his mixed messages to the public, Carter‟s rhetoric exuded, according to Richard Pious

(2008), “a bizarre combination of humbleness and arrogance, a combination of Jacksonian contempt to Washington with Jeffersonian intellect” (p. 110) which was punctuated by his infamous malaise speech in June 1979. According to Pious (2008), Carter combined an affinity for public implementation strategies with a “disregard for image management” (p. 109). While this chapter has not dealt directly with rhetoric, it is important, particularly in the case of Carter, to note that a combination of mixed messages and general image management failure can make going public an ineffective strategy even if there are institutional and contextual factors indicating that a public implementation strategy is appropriate. 58

The case of President Carter, in sum, indicates that public implementation strategies during periods of unified government that rely on gaining support from members of the opposing party are risky. Further, Carter‟s inability to send a clear, convincing message to the American public demonstrates that going public generally requires strong oratorical skills on the part of the president. While most of the models discussed in the chapter have assumed presidential messages to the public convey their intended messages well (though not always well enough to change public opinion), it is evident that public implementation strategies can fail as a result of poor salesmanship in addition to the impacts of other institutional and contextual factors.

President Ronald Reagan: 1981-1989

Ronald Reagan‟s presidency demonstrated both the high and low points of going public.

Reagan, as a Washington outsider who was highly recognizable in public as a result of his career in Hollywood, was incredibly well-suited for public implementation strategies. During his time in Washington, Reagan won considerable legislative victories, but he wasn‟t always successful.

Kernell (1997) traces several of Reagan‟s budget proposals during his first term to illustrate the high and low points of Reagan‟s use of public implementation strategies. The first two are discussed in detail here.

In 1981, Reagan masterfully used both his strong rhetorical abilities and his standing with the public to gain passage of both his budget and tax proposals. Facing divided government and a strongly Democratic (though not ideologically unified) House, Reagan addressed a joint session of Congress in support of his budget. The speech, given at a time when the president enjoyed high approval ratings, was highly effective. With the media praising Reagan‟s performance, the budget bill looked sure to pass. In response, Speaker Tip O‟Neill attempted a legislative maneuver that would put pressure on House Democrats “by having the appropriations for 59 individual programs voted on separately” from the budget (Kernell, 1997, p. 147). Reagan reacted by giving “two quick public statements” that led to an influx of calls to undecided House offices. As a result, notes Kernell (1997), “the House then promptly passed the president‟s budget by a comfortable margin of 232 to 193” (p. 148).

Following a similar path on his tax initiative (known as the Kemp-Roth bill), President

Reagan refused to compromise with Democrats once his tax cuts were unveiled. Kernell (1997) notes that “the bravado with which the president rejected the Democrats‟ overtures is all the more impressive when one recognizes that…the administration did not then [meaning immediately after the bill was proposed] have sufficient votes to pass the Kemp-Roth bill” (p.

149). With his advisers calculating – much in the vein of Canes-Wrone (2006) – that the public‟s preferred tax outcome was more closely aligned with that of the White House than with

Congress, “President Reagan…embarked on a public strategy” that was punctuated by a highly persuasive primetime address that Speaker O‟Neill described as devastating (Kernell, 1997, pp.

149-150). The bill was soon passed, again, by a wide margin.

President Reagan again pursued a public implementation strategy on his budget proposal in 1982. This time, however, he was less successful. After leaving an unproductive meeting with

Speaker O‟Neill, Reagan again gave a primetime address to the public. Unlike his address a year prior, though, “this appeal was not followed by major tremors on Capitol Hill” (Kernell, 1997, p.

156). Ultimately, “President Reagan exerted far less influence over the budget in 1982 – both its substance and politics – than over the one in the preceding year” (p. 159). Most likely, Reagan‟s public strategy failed in 1982 – just one year after it had succeeded – as a result of his lower approval ratings among the public. With the economy in deep recession, Reagan lacked the 60 influence necessary to align the public with him. Reagan‟s party soon suffered considerable defeats in the midterm while his approval ratings plummeted.

President Reagan‟s success and failure in going public illustrate several of the arguments made in this chapter. First, Reagan‟s successful use of a public implementation strategy in 1981 came during a period characterized by divided government, a public receptive to the president, and a public generally favorable to the president‟s stance on the budget/tax issue. Because of these factors (which confirm the findings of Canes-Wrone (2006) and Kernell (1997)), Reagan was able to use public appeals to win important legislative victories. Reagan also used the type of gamesmanship employed later by Bill Clinton (discussed earlier in the chapter) to his advantage. After going into bargaining sessions with no intent to compromise, Reagan would highlight his resolute nature and put the blame on Democrats in addresses to the public. As

Kernell (1997) notes, “for a president who goes public, failure at the bargaining table may be rewarded with success in the public arena” (p. 156). Again in 1983, similar to Clinton, Reagan took a hands-off approach to dealing with Congress that led to the adoption of a budget that he simultaneously renounced publicly yet benefitted from electorally; in allowing the Democrats in

Congress to fight unemployment through the budget while still maintaining his own orthodox balanced-budget rhetoric, Reagan went into his 1984 reelection campaign while both riding the wave of economic recovery and claiming that he stayed true to his conservative principles.

Conversely, Reagan‟s unsuccessful public implementation campaign in 1982 demonstrates the downsides of going public. While still facing divided government, Reagan, as a result of low approval ratings, had significantly less political capital to work with than he did a year prior. Without the general support of the public, Reagan had a hard time using public appeals to build the coalitions he needed in Congress. An interesting example of this is his 61 support amongst boll weevils (conservative, Southern Democrats); from 1981 to 1983, Reagan lost majority approval in the South and West, which decreased the likelihood of him regaining the Democratic votes in the House (coming from boll weevils) that enabled his success in 1981.

Further, Reagan‟s failed public implementation effort in 1982 demonstrates that presidents are often better at using already-existing public approval to their advantage than they are at actually building public support. Edwards (2003) summarizes this position well, arguing that “chief executives are not directors who lead the public where it otherwise wouldn‟t go, thus reshaping the contours of the political landscape. Instead…they reflect, and may intensify, widely held views. In the process, they may endow the views of their supporters with structure and purpose and exploit opportunities…to accomplish their joint goals” (p. 74). According to

Edwards (2003), “Ronald Reagan did this brilliantly in 1981” when “he had the good fortune to take office on the crest of compatible public opinion, and…effectively exploited the opportunity voters had handed him” (pp. 72, 74). In sum, presidents can go public effectively by exploiting public support when it‟s behind them, but should be careful about going public to a disapproving electorate as they‟re unlikely to actually change public opinion.

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Chapter Four: Reflections on Barack Obama’s First Term and Lessons for the Future

Chapters two and three examined the formation and implementation of presidential economic policy with an emphasis on the impacts of different institutional and contextual factors. The final chapter of my analysis will apply some of the conclusions drawn in previous chapters to President Obama‟s first term. In doing so, it will include discussion of how economic policy formation and implementation processes will likely change (or remain the same) in the future, while also crystallizing my findings.

The chapter will proceed, specifically, by describing different economic initiatives pursued by President Obama in regards to their use of partisan (or bipartisan) economic policy instruments and the implementation strategies used by the White House to gain their passage through Congress. After each initiative is described, Obama‟s actions will be analyzed in light of the findings of chapters two and three; when did the president pursue policies and utilize implementation strategies that are in line with what would be expected in light of the findings of the preceding chapters given current institutional and contextual conditions, and when did he do the opposite of what would be expected? How might the president‟s deviations from my conclusions impact the future of presidential economic policy, and what factors might explain such deviations? Finally, are any of the trends identified in chapters two and three likely to reverse in the near future?

Economic Stimulus: From the Recovery Act of 2009 to the Tax Compromise of 2010

The Stimulus Package

President Obama‟s time in the White House has been characterized by, more than anything, the struggling economy. Perhaps the most discussed example of the president‟s attempts to combat the effects of the deep recession that greeted him in Washington is the 63

American Recovery and Reinvestment Act of 2009, often referred to as the Stimulus Package.

While the Stimulus Package is the most expensive and explicit of the Obama Administration‟s economic growth initiatives, the White House has taken numerous other measures to combat the effects of the Great Recession. The most recent was included in the highly discussed tax compromise of the 2010 Congressional lame duck session. This section of my analysis will discuss the details of President Obama‟s approach to economic stimulus measures as illustrated by the Recovery Act and the tax compromise, noting how his approach has changed from the time he assumed the presidency to the time immediately following his party‟s “shellacking” in the 2010 midterm election, and how such changes confirm or repudiate some of the conclusions drawn in chapters two and three.

The American Recovery and Reinvestment Act of 2009 adhered to a typical Democratic

– and Keynesian – economic logic. It called for a strong use of fiscal policy – an approximately

5.5 billion dollar increase in discretionary spending financed by a large budget deficit – designed to make up for the drop in output and increase in unemployment that occurred as a result the recessionary downturn. The hope of the economists in the White House was that the Stimulus

Package would spur economic growth and employment by pumping billions of government dollars into the economy. The Stimulus also included more than 2.5 billion dollars in tax cuts and incentives designed to spur growth in areas like home-buying, automobile sales, and general consumer spending. Nonetheless, the hallmark of the Recovery Act of 2009 was a massive increase in discretionary spending

President Obama‟s approach on the Stimulus Package is interesting in regards to the conclusions drawn in chapters two and three. Chapter two argued that presidents are more likely to utilize the economic policy instruments of the opposing party during periods of unified 64 government and are less likely to do so prior to the midterm. President Obama came into office with his party in control of both chambers of Congress, meaning that the unified government and pre-midterm effects were pulling him in opposite directions. It is apparent that his approach to the Recovery Act of „09, which became law less than a month into his term on February 17th, was dominated by the pre-midterm effect, with the president utilizing traditionally Democratic policy tools (fiscal policy) to address historically Democratic concerns (unemployment). It should be noted, however, that the TARP bank bailout, which was passed during the final months of President Bush‟s second term but was supported and implemented by the Obama

Administration, utilized a traditionally Republican approach by focusing on a stabilization of the financial sector rather than on consumer spending. Further, the Fed‟s monetary policy tools – the use of which are typically favored by Republicans – were virtually maxed-out by the time

President Obama was inaugurated, with interest rates hovering right around zero percent. As a result, President Obama didn‟t have many Republican tools still available for his use when he moved into the White House. Nonetheless, it‟s difficult to argue that such a large, deficit- financed expansion of federal spending designed to specifically address unemployment doesn‟t align clearly with historical Democratic stabilization policy.

Chapter three argued that public implementation strategies are most advantageous when the public‟s preferred policy outcome is closer to the president‟s than it is to that of Congress. It also indicated that, generally, going public is not a strong implementation strategy during periods of unified government. President Obama‟s implementation approach on the Recovery Act seems to have defied the conclusions drawn in chapter three. Under conditions of unified government, the president went on a public offensive, addressing the nation on television and traveling around the country, both before and after the bill‟s passage, to convince Americans of the urgent need 65 for action and the ability of his plan to turn things around. While polling data indicates that a majority of the public supported the Stimulus Package at the time of the president‟s public appeals, it seems unclear what advantage Obama stood to gain by going public given his unified party control of Congress and the fact that his public appeals were unable to significantly change public opinion on the bill (with support actually declining during portions of his public onslaught) (Gallup, 2009).

As the move to pass an economic stimulus bill became a partisan public debate as a result of the president‟s appeals to voters, the likelihood of a bipartisan agreement declined. While the

White House did attempt to gain bipartisan support, its attempts eventually came to be seen as more related to symbolism than strategy, as the president had enough Democratic votes to pass his bill and the Republicans in Congress became increasingly antagonistic. Ultimately, the House voted along party lines, with no Republicans in favor and only a few Democrats in opposition, while the Senate passed the bill with unanimous Democratic support and the backing of only three Republicans – Maine moderates Susan Collins and Olympia Snowe, and Arlen Specter, who soon switched parties and became a Democrat. The president‟s seemingly unnecessary public strategy did little except spend political capital as a result of the anti-deficit campaign launched by Republicans in response.

Even worse, given chapter three‟s argument that going public on economic policy initiatives is more risky than doing so on other topics, it seems possible that President Obama‟s public onslaught may have made the Stimulus Package less successful in terms of economic outcomes. The economy has been slow to recover despite the tax cuts and increased discretionary spending that came with the Stimulus Package (along with the Fed‟s decision to lower interest rates to near zero), which can likely be at least partially explained by low 66 consumer and business confidence. Banks have been slow to lend, consumers slow to spend, and businesses reluctant to hire; there is little the government can do to ensure that those in the private sector use the money it pumps into the economy in the ways it wants them to and contentious Stimulus debate, along with alarmist rhetoric regarding deficit spending, decreases the likelihood of them doing so.

The Tax Compromise of 2010

By the time of the Congressional lame duck session in late 2010, things had changed for the president. His approval rating was below 50 percent and his party had just received what he personally described as a “shellacking” in the November midterm. With the economy still hurting and the Bush tax cuts set to expire, the president and Congress faced the prospect of seeing tax rates increase for most Americans, something the president found unthinkable in the wake of such a deep recession. An extension of the tax cuts, though, would not be easy for

Obama politically, as he had campaigned in 2008 on ending the Bush tax cuts for earners making

$250,000 or more per year. The president, while still technically operating under unified government, was not able to pass the tax cut extension he wanted (which would have extended the tax cuts for most Americans while excluding those making, first, $250,000 a year and, after debate, those making $1 million a year) because 60 votes were needed as a result of the pledge by Senate Republicans to filibuster any bill that didn‟t extend the Bush era cuts for all earners.

To avoid wide-spread tax hikes, the president initiated negotiations with Congressional

Republicans to find a compromise. Following the negotiations, President Obama introduced a compromise that called for a two year, temporary extension of the tax cuts for all Americans

(including the highest earners) along with an extension of unemployment benefits (which had been blocked earlier by Republicans), a significant payroll tax cut for members of the working 67 class, and further tax breaks for particularly hard-hit workers (Dupree, 2010). The details of the compromise amount to what many regard as a significant additional economic stimulus measure, something the president had wanted to pass for months.

Congressional Democrats were not keen on the plan, arguing that the president should follow through on his campaign pledge to end the Bush cuts for the wealthiest Americans.

Congressional Republicans were split in their reactions, with some praising the extension of the tax cuts and other lamenting the bill‟s failure to ameliorate the rising national debt in any way.

Ultimately, the House passed the bill with a wide margin of 277 to 148, with a greater percentage of Republicans in favor than Democrats. The Senate approved the bill by a vote of 81 to 19, with strong support from both parties. Politically, the tax compromise was a large victory for

President Obama. He extracted gains for his working class constituencies during negotiations – the unemployment extension and the payroll tax cuts – and was seen by the public as an effective mediator between two highly divided political parties in Congress.

The president‟s approach to policy in the tax compromise process generally confirms the conclusions drawn in chapter two. Originally on the defensive, the president, in negotiating with

Republicans, was able to build what amounted to an additional stimulus package. The mechanism used for stimulating the economy (tax cuts), however, is one that, at least since the

Reagan Administration, is generally associated with Republicans. President Obama‟s approach, then, falls in line with the post-midterm effect discussed in chapter two, holding that the president is more likely to utilize economic policy instruments associated with the opposing party after the midterm election.

Though the president‟s party had majorities in both houses of Congress, President

Obama, for all intensive purposes, was operating under conditions of divided government in the 68 case of the tax bill as his party‟s 59 Senate votes (which were 60 prior to the election of Scott

Brown to Edward Kennedy‟s seat), even when fully unified, were not enough to pass legislation.

Thus, as was the case with the Recovery Act of ‟09, the midterm effect and the divided/united government effects were pulling the president in opposite directions, as the divided government effect would predict that Obama‟s economic policy decisions would be more partisan than when he faced unified government. Therefore, it appears that the midterm effect dominated the divided government effect in the president‟s approach to policy.

Interestingly, the president‟s decision to pursue a mostly private, bargaining-oriented approach to policy implementation was very successful despite the conclusion drawn in chapter three that going public is often a strong strategy for the president when facing divided government. A possible explanation is that the conditions under which the tax compromise occurred were unique and therefore don‟t fit very well into the analysis of chapter three. While my analysis in this section has assumed that the president‟s lack of the 60 votes necessary for passage on the tax bill equated to de facto divided government, that assumption doesn‟t account for the fact that while the Democrats may have lacked the votes necessary to pass the tax bill without any bipartisan support, the Republicans were nonetheless in the minority. A president‟s calculus when going public in response to divided government is perhaps often related to the fact that the opposing party has control over at least one chamber of Congress and thus has the ability to pursue its own legislation (though that legislation can still be vetoed); in the case of the tax bill, the ability of the Republican‟s to filibuster legislation gave them negative power, but it didn‟t give them the positive power to pass their own bills. In this sense, the tax compromise, while relevant to my analysis in many ways, may not be an ideal case study for my discussion. It is also possible that the Republicans learned their lesson in the 1990s when Bill Clinton, 69 following the 1994 midterm, turned the tables on them by going public and painting them as hard-headed ideologues during the budget battle of 1995. Perhaps the Republican leaders in late

2010, in an attempt to avoid the mistakes made in 1995, were more willing to play ball with the president than were their compatriots in 1995, thereby allowing successful bargaining (which allowed both sides to take some credit) rather than a contentious, winner-take-all public battle.

The Budget Battle of 2011

The impending budget battle will be an interesting case study for my analysis. Early on, two trends are apparent. First, President Obama‟s initial budget proposal clearly falls in line with the divided government effect; facing Republican control in the House, the president has introduced a typical partisan Democratic budget. Second, Congressional Republicans, at least as indicated by their early actions on the budget, did learn their lesson after the 1994 midterm; facing the possibility of a government shutdown, they‟ve responded by approving temporary funding extensions. Given the number of Americans still hurting following the Great Recession, it‟s probably wise that the Republicans initially resolved to avoid government shutdowns, as it‟s likely the backlash they confronted in 1995 would pale in comparison to the reception they‟d receive from those Americans currently relying on the government for their day-to-day survival.

While government funding has been temporarily extended, a permanent solution will soon be necessary and the budget developed by Representative Paul Ryan indicates that the Republicans are serious about pursuing cuts to entitlements.

The primary question going forward is how the president will react when the battle over the budget inevitably intensifies in light of Republican calls to reduce deficit spending and his proposed budget‟s failure to substantively do so. Will President Obama, following the example of Bill Clinton, go public in an attempt to convince voters that cuts proposed by Republicans are 70 too drastic, or will he follow George H.W. Bush‟s example and negotiate with the opposing party while hoping that it turns out better for him than it did for the 41st president? Though the tone currently adopted by Republicans – emphasizing a reduction in the size of government – is similar to the tone they adopted during and after the 1994, the alarm with which the national debt is discussed today seems to differentiate 2011 from 1995. While Republicans in the mid-1990s argued that government should be smaller, Republicans today seem to be arguing that the government has to be smaller if the country is to avoid falling into a period of decline. It‟s difficult to predict how the new Republican majority in the House will react when they‟re called on to govern; will they tone down the alarmist rhetoric and negotiate moderate cuts, or will they accept legislative gridlock until their demands for deep spending cuts are met?

In light of my analysis, I predict that President Obama, after initially staying out of the fray, will respond to the budget battle by going public to defend his traditionally Democratic budget, attempting to paint the current Republican cast as ill-equipped to actually cut through all the supposed government waste they campaigned against. Republicans will split, with some willing to touch entitlement programs and others unwilling to move beyond discussion of programs that lack the broad popularity and large budgetary impact of Medicare and Social

Security. After both sides posture themselves publicly, President Obama will attempt to fall back into the role he played during the tax cut compromise in late 2010, holding publicized, though shallow, meetings with Republican leaders and describing broad guidelines he wants the legislature to meet without personally entering the fray on a deep level. While President

Obama‟s attempt to take a similar posture during the health care reform debates (when he broadly described what he wanted the bill to achieve without demanding specifically how it would be achieved) met with limited political success, divided government will make such an 71 approach more advantageous, as he will be able to more successfully deflect blame for gridlock and partisan fighting onto Republicans than he was under unified government during the health care battle. Eventually, a compromise will be reached that addresses entitlements to an extent that doesn‟t do much to substantively reduce the growth of debt over time but allows both sides to claim partial victory (with Republicans noting their success in reducing deficit spending and

Democrats touting their defense of popular government programs). The compromise will receive the support of the president, while staunch members of both parties, especially members of the

Tea Party and many freshmen House Republicans, will be reluctant to do the same.

Obama will leave the battle looking presidential, while the Republicans will hear some criticisms that they failed to deliver on their promise of significant debt reduction. Republican presidential candidates will adopt the same tone that was successful for their party in the 2010 midterm, but it will lack the appeal among independents in 2012 that it had in 2010. President

Obama will rebuild the support of his base during the primary season (while Republicans fight amongst themselves for the nomination) by reminding liberals how much better he is than staunch conservatives like Sarah Palin and Mitt Romney. President Obama will receive enough reluctant votes from independents, who will be convinced that the Republicans are too ideological and not pragmatic enough, to win reelection.

The Future of Presidential Economic Policy

Policy Approach

It‟s difficult to predict how the Great Recession – and the attempts to ameliorate its effects – will impact the presidential approaches to stabilization policy in the future. On the one hand, given the contentiousness of the debate over the Stimulus Package, the current historic national debt level, and the slow growth of employment despite the Obama Administration‟s 72 economic initiatives, it seems likely that, moving forward, presidents will generally favor historically Republican economic instruments in their approach to stabilization policy. On the other hand, history demonstrates the longevity of Keynesian economics in the face of recession; despite the supposed “Supply Side Revolution” that occurred during the Reagan Administration,

President Obama, following the advice of many prominent economists, chose fiscal policy as his preferred method of stabilization. With many observers now arguing that the Stimulus was just an expensive, failed attempt to stimulate the economy via traditional Democratic means, the question is now whether the Great Recession – and the inability of expansionary fiscal policy to quickly handle the unemployment it caused – will render Keynesian approaches to stabilization unpopular among future presidents.

Perhaps the most important factor to consider in answering that question is the national debt. While there is wide-agreement that large budget deficits should be addressed, the spending issue has also become highly politicized, making it difficult to predict whether calls for reduced spending are simply Republican electoral fodder directed at conservatives and independents or a long term change in the focus of governance. Reality is likely somewhere in the middle. As the economy continues to expand following the recession, tax revenue will increase, spending on safety net programs (that spikes during recessions) will decline, and the immediacy of the budget deficit problem will be reduced. After all, President Clinton was able to achieve a budget surplus just one decade after alarmist debt rhetoric was adopted during the Reagan Administration. At the same time, entitlement spending will continue to increase as the Baby Boomer generation enters its golden years, meaning that, at least to some extent, serious spending reforms do need to occur in the relatively near future. If government spending continues to be a highly partisan, contentious issue, however, it seems likely that future recessions will be confronted with mostly 73 monetary policy and tax cuts (a Republican form of fiscal policy), with traditional Keynesian approaches taking a backseat.

The party of the next president to confront recession is another major factor to be considered in examining the efficacy of traditionally Democratic approaches to stabilization policy moving forward. If a Republican next confronts recession, it‟s likely that the effects identified in chapter two (regarding presidential adoption of the opposing party‟s favored stabilization instruments) will be weaker than they have been in the past. While every president facing unemployment is under pressure to combat it, Republican presidents will be able to (at least initially) avoid movement toward expansionary fiscal policy by citing the Stimulus‟ inability to significantly grow employment. If a Democrat is in office, it‟s likely that the effects indentified in chapter two will be reinforced, with the president more likely to adopt Republican- favored monetary policy (and tax cuts). This isn‟t to say that the general findings of chapter two won‟t continue to be relevant; the logic behind partisan movements during divided government, bipartisan movements during unified government, and bipartisan movements following the midterm still applies. It‟s just that the president will act more reluctantly anytime institutional and contextual factors seem to be pushing him toward expansionary fiscal policy.

Finally, the length of time that passes before the next major recession is another relevant factor. Any effects the Great Recession and the efficacy of the Stimulus Package in combating it have on presidential approaches to fiscal policy will be weakened over time. It‟s possible that

President Obama wouldn‟t have been as likely to quickly adopt a Keynesian approach during the recession if a major economic decline had occurred during the 16 year period in which

Presidents Clinton and Bush were in the White House. Because of the sustained growth of the economy in 1990s and the relatively small impact of the early 2000s recession (which President 74

Bush was able to handle quietly through monetary policy at a time when he enjoyed wide public approval), it‟s hard for scholars to determine the impact of the Reagan years on stabilization policy. If a similarly long period were to pass before the next major economic downturn, it‟s possible that the Great Recession will have little long term impact on stabilization policy.

Implementation Approach

The developments that have led to the rise of going public seem unlikely to disappear from presidential politics in the near future. The rise of the Internet and social networking sites like Twitter and Facebook have increased the president‟s ability to reach and engage the public.

The nomination process continues to favor Washington “outsiders” who are strong campaigners, appeal to core national constituency groups, and have relatively little legislative experience. As such, those who are eventually elected continue to generally favor going public over private bargaining. Conditions in Washington are increasingly characterized by Kernell‟s (1997) individualized pluralism – which argues that the rise of interconnected constituencies outside

Washington, the development of new communications technologies, and the decline of political parties lead to the election of politicians who are independent actors. President Obama‟s campaign in 2008, which utilized the Internet for fundraising and organizing without much reliance on the Democratic Party, typify individualized pluralism. The current cast of possible

2010 Republican presidential candidates is also largely characterized by independent actors who have raised their profile amongst constituency groups outside Washington while relying little on the Washington establishment for help.

Further, the conditions in which going public is an effective implementation strategy seem unlikely to disappear from Washington anytime soon. Periods of divided government have occurred more frequently over the past 30 years and, due to individualized pluralism, the 75 president‟s ability to build the type of strong, lasting coalitions necessary for private bargaining is also declining. Moreover, the rise of 24 hour news networks and the Internet have increased the public visibility of the president and created new avenues for him to use in publicizing his initiatives. At the same time, however, the number of Americans deeply engaged in political news – and the general viewership of major presidential addresses – has declined, meaning that, despite the surplus of public dissemination avenues, the president may find it increasingly difficult to reach voters on a deep level.

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