'A much more terrifying place'

Wow - Ezra cites McMegan as his source of authority for his continuing claim that Obama is the Bystander President Who Can Do Nothing. Scraping the bottom of the barrel, dude - are you running out of material with which to defend the WH (apparently your primary task)?

Megan McArdle? Honestly.

She's approaching Bill Kristol in terms of "consistently wrong about everything"ness.

Well, lol-lol and Red Scott aside, I heartily concur with Ezra, and Megan, on this issue. There isn't a "Great Economy" button in the Oval office. Trends dating back to the 1800s impact our economy now. Certainly, changes in laws dating back to Carter, Reagan, Bush Senior, and Clinton all have a role in how the economy is doing now.

Most of what Obama does is going to have more of a long term impact, for good or for ill. Our economy, even if it makes rapid transitions, does not turn or stop on any one person's dime.

Ezra are you agreeing that the federal government has no substantial role to play in managing the economy, or simply the President, being only one cog in the federal legislative machine, has a limited role by himself?

Normally I would agree. Presidents can affect tax and spending policy, but the short run effects on GDP and employment are generally low, and typically overstated for political advantage. The Fed has much more direct power through monetary policy, including the ability to completely counteract any fiscal policy effect.

But right now that just isn't the case. Monetary policy is out of bullets and because of the output gap, the economy is particularly sensitive to stimulus as it affects aggregate demand. And I guess it's become easy to forget that the financial system was about to implode in Fall 2008 before the government stepped in to save it. In short, what the federal government (led by the president) does right now does makes a difference!

If we had listened to the no-TARP/no-ARRA crowd, we'd be looking at a few percentage points higher unemployment, if not more in the case of TARP. And if we had listened to those arguing for greater stimulus (especially aid to state), maybe we'd have an unemployment rate a couple % lower. That qualifies as "tinkering"?

I have a tough time with this area. On the one hand, the President obviously can't force companies to start taking more risks or hiring more people. He can't make students pay more attention in class and make teachers try harder to get through to students. He can't wrestle global economic conditions into more favorable ground with a phone call or speech.

On the other hand, we talk around here all the time about how the stimulus bill did have a real effect on the economy and that the economy would be better today if the stimulus bill had been bigger or better formed.

I think the best way to think about it is that the government can't make the economy better. Businesses are going to be scared from time to time and there's no good story the government can tell them. What the government can do is step into the breach while the economy licks its wounds to soften the blow for average people and lay the groundwork for a good recovery when businesses come back. So it's not that the government makes IBM a company better equipped to succeed again, but it can make roads better to move IBM's equipment, help people get through school more successfully so there's an educated workforce when IBM starts hiring, and maybe tinker with trade and tax policy so that getting business going again is more attractive sooner rather than later.

The government isn't steering the ship. It's making sure the sails are patched up, the crew is ready, and there aren't any leaks in the hull while we wait for the wind to come back.

I've seen Ezra make assertions here that HCR and the Bush tax cuts, for example, have had, or may have, significant influences on the economy. So for him to now agree with Megan's conclusion seems contradictory to me.

This is really silly. Our economy typically only grows by about 3% per year, so the correct scale against which to compare impact isn't the full $14 trillion, but something more like $400 billion. On that scale presidents and governments can have (and have had under this very President - thank goodness or we'd all be standing in bread lines) huge impacts on the economy. By Megan McCardle's reckoning, the whole of economic growth itself is nothing but 'tinkering around the edges'.

There is nothing new about saying that Presidents generally take too much blame during difficult economic times, and generally receive too much credit during the booms.

But recent experience should remind us that policy decisions can have big impacts, if not always immediately. For example, how might things have been different if Bill Clinton and George Bush had taken a hard line against the repeal of Glass-Steagal and successfully defeated efforts for major de-regulation of the financial system? What if the rules had been tighter for mortgage lending, or (at the very least) if the Fed had recognized the bubble earlier and taken steps to intervene?

If you accept the notion that this is a "balance sheet recession," it certainly then necessarily connects much more directly with government policy decisions than do simple "business cycle recessions," and theoretically was more preventable, had policy been different than it was.

So I take the opposite lesson about the economy from Megan (and I almost always do).

Ezra,

You're wrong on this.

It's a common misconception that the president can't have much effect on the economy. It's the economic cycle; it's the Fed.

This is largely true in the short run, but the president can have a huge effect on the economy long run. Are trillions put into tax cuts for the rich over the long run, or are trillions put into education, infrastructure, basic scientific and medical research, free universal pre-school, paying down the debt, etc.

This makes a great difference long term, and it's highly dependent on who's in the Oval Office. With Clinton, trillions in payoff of government debt. With Bush, trillions diverted into tax cuts for the rich (or on a path to). With Obama, much healthier and thus more productive children and trillions in healthcare savings and efficiencies, and hundreds of billions more in high return investments, infrastructure, education, basic science, etc.

And even in the short run, for economic cycles, the president can make a big difference -- compare FDR to Hoover. The president can sign, or veto, a trillion dollar stimulus. He can appoint right wing zealots to the fed or smart economists who care about unemployment.

Ezra, this is a very nasty error. I hope you read this comment.