Maximizing power with diminished presidential control

It is essential for the next president to improve economic mobility, as discussed in the Volume 6: Opportunity and upward mobility essay, “Moving up” by Melody Barnes. However, if the next president wants to improve the economy or otherwise accomplish his or her goals, he or she should focus on two key, and often ineffectively used powers: the appointment power and the agenda-setting power.

Both presidential candidates have already pledged to improve the economy in one way or another. “Over the next ten years,” Donald Trump declared last September, “our economic team estimates that under our plan the economy will average 3.5% growth and create a total of 25 million new jobs.” Likewise, Hillary Clinton declared last June, “The measure of our success will be how much incomes rise for hardworking families. How many children are lifted out of poverty. How many Americans can find good jobs that support a middle class life …. That’s what it means to have an economy that works for everyone, not just those at the top.”

Not surprisingly, most candidates routinely offer plans for improving economic mobility in particular or economic growth in general. Indeed, it is all but an official requirement following changes in the presidential nomination system during the 1970s that shifted control from party elites to regular party voters. However, the next president will have substantially less control over the economy than his or her counterparts before the 1970s. This is due largely to two major developments in the economic policymaking process.

First, the Congressional Budget and Impoundment Control Act of 1974 layered a congressional-led budget process over the old presidential-dominated process, effectively diminishing presidential control even during periods of unified party control of the government. This was evident, for example, by the end of the Carter administration. “At some point,” Stuart Eizenstat, the head of the Domestic Policy Staff, warned Carter, as the administration struggled to set a new course for the budget, “the line must be drawn in the sand if we are ever to be taken seriously in the [congressional] budget process. We are increasingly a minor player.”

Second, and operating in conjunction with the new, layered budgeting process, the rise of entitlement spending shackled fiscal policy, effectively diminishing its role as an economic stabilization instrument while strengthening the role of monetary policy. Consequently, the Federal Reserve’s influence over the economy has increased substantially as the president’s influence has decreased. This was increasingly evident by the end of the Reagan administration. “[F]iscal policy in the United States remained frozen,” Paul Volcker, the chairman of the Federal Reserve, later explained, offering his assessment of the policymaking process by the second half of the 1980s.

In inheriting this highly decentralized economic policymaking environment, the next president should look more to the appointment power to help achieve his or her goals. Even though the Constitution and various statutes grant all presidents the same power of appointment, there is considerable variation in the effectiveness of this power in practice. Consider, for example, the Clinton and Reagan administrations.

Bill Clinton came into office in 1993 and appointed Lloyd Bentsen as Treasury secretary. Bentsen was a sitting senator of more than two decades and the chairman of the Senate Finance Committee during the latter part of the Reagan administration and the whole of the Bush administration. Due to his substantial experience in government, he was generally supportive of the established policies and procedures and therefore was often unsupportive of Clinton’s desire to propose and implement major changes. As the president himself complained, the administration’s economic principals—particularly the Treasury secretary—were “incrementalists.”

In contrast to Clinton, Ronald Reagan came into office in 1981 and appointed Donald Regan, a banker with no previous experience in government, as Treasury secretary. Without any indoctrination in the established policies and procedures, Regan was more supportive of the president’s efforts to propose and implement major changes. As David Stockman, the director of the Office of Management and Budget, later remarked, Treasury Secretary Regan “operated on the ‘echo’ principle. Whatever the President insisted on, [Regan] would try to get—without regard to price.”

To explain this variation in more general terms, presidents can appoint either principals who have substantial experience and are likely supportive of the established procedures and policies or principals who have little or no experience and are likely more responsive to the new president’s desire to change the established procedures and policies. Furthermore, most presidents—mistakenly assuming that the appointment power will ensure responsiveness—are unware that this variation even exists and, by the time they become aware of the problem, it is often too late to change course.

Second, and related to the first point, the Constitution and various statutes grant all presidents the same agenda-setting power. Yet, here too, there is considerable variation in the effectiveness of this power in practice. Consider, for example, the Obama and Roosevelt administrations.

After assuming office in 2009—and following the appointment of several principals with substantial experience in government, particularly in the Clinton administration—Barack Obama immediately addressed the issue of fiscal policy, putting forward a stimulus proposal to strengthen the economy. Yet, throughout his eight years in office, the president all but ignored the issue of monetary policy, relying simply on his appointment power to fill vacancies at the Federal Reserve periodically.

In contrast to Obama, Franklin Roosevelt came into office in 1933, and—relying on several principals with no previous experience in government—he took the lead in creating and implementing an entirely new monetary policy during his first term as well as a new fiscal policy during his second term. Moreover, the new monetary policy was the leading driver of the economic recovery until the Second World War.

To explain this variation in more general terms, presidents can use the agenda-setting power either to put forward proposals that fall within the accepted policy parameters and scope of presidential influence or proposals that shift the established parameters and scope of influence. Furthermore, and like the appointment power, most presidents—having limited historical knowledge and policy expertise—are often unware of the extent to which this variation exists.

If the next president wants to change the existing trajectory of the economy in general or economic mobility in particular, he or she should put more resources into maximizing the effectiveness of the appointment power. At the same time—and relying on the assistance of more responsive advisers—he or she she should work to shift the accepted policy parameters and scope of presidential influence.

To shift the accepted policy parameters, the next president might consider proposing a far greater range of tax rates. For example, the top income tax rate averaged 70 percent or higher for much of the twentieth century, yet, since the 1980s, no president has even proposed a rate above 40 percent. Additionally, to shift the accept scope of presidential influence, the next president might consider addressing both fiscal policy and monetary policy in managing the economy, an approach that was common before the 1980s.

While most of the focus after the election will stress the level of support in Congress for the next president’s economic program, one of the most critical steps will be determining the scope and components of that program in the first place. As Martin Anderson, the chief domestic policy adviser under Ronald Reagan, explained more generally, “The problem every winning campaign faces is how to ensure that those with more distinguished reputations who will be chosen for the cabinet posts do not betray the policies the campaign was fought on.”

Patrick R. O’Brien is a Ph.D. candidate in the Department of Political Science at Yale University and 2016-2017 Miller Center National Fellow. His research examines both historical variation in presidential control over administrative arrangements and the relationship between administration and policy.