NerdWallet's Smart Money Podcast - Election Economics: How Can Presidents Really Impact Your Pocketbook?

Episode Date: October 3, 2024

Learn what powers the president does and does not have to influence the economy and your wallet. Does the president really have power over the economy? How do presidential promises impact your wallet? Hosts Sean Pyles and Anna Helhoski discuss the grand economic promises made by presidential candidates and the intricate realities of presidential influence on the economy to help you understand the real effects on your daily finances. They begin with a discussion of the policy proposals from Donald Trump and Kamala Harris, with tips and tricks on understanding the scope of presidential influence on taxes, inflation and economic growth. Then, Anna talks to NerdWallet Senior Economist Elizabeth Renter about the complexities of the business cycle and the Federal Reserve's role in the economy. They discuss the limited presidential power over economic cycles, the structure and independence of the Federal Reserve, and the direct effects of presidential actions like student loan relief on individual finances. Listen to Smart Money’s coverage of the “No Tax on Tips” policy:   Stay up to date on the latest financial news by visiting NerdWallet’s Financial News Hub: In their conversation, the Nerds discuss: presidential promises, economic policies, financial impact, presidential influence, economic realities, Federal Reserve, Donald Trump economic policies, Kamala Harris economic policies, taxes, deregulation, economic growth, cost reduction, small business support, down payment assistance, business cycle, Federal Reserve structure, Fed independence, Fed governors, monetary policy, student loan relief, macroeconomy, personal finances, campaign promises, tax policies, inflation control, healthcare impact, banking regulations, economic cycles, consumer sentiment, government spending, fiscal policy, executive orders, economic output, GDP growth, unemployment rates, economic downturns, financial stability, economic sentiment, policy and finance, and election impact. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend.

For anyone who hasn't noticed, it's election season. Candidates near and far, local, state, and federal, are making all sorts of promises about what they'll do if you vote for them. That's especially true in the presidential election. Today, we launch a special series looking at the power of presidents to influence the economy and your personal finances. The president has some input here, but maybe not as much as the campaign promises would have you believe. I think those statements they make about spending and taxes are largely a signal of what they'd like best

if the stars aligned and they could get their way on everything. But things rarely shake out that way. Welcome to NerdWallet's Smart Money Podcast. I'm Sean Piles. And I'm Anna Hilhofsky. This episode kicks off our nerdy deep dive into presidential policy and personal finance. It's being said that this is one of the most consequential elections in the history of the American Republic for many, many reasons. Today, and for the next few weeks leading up to November

5th, we're going to explore what kind of power the president has to influence the economy. From taxes to inflation to healthcare to banking, what can the president really do? And what promises can they really keep without consulting, say, Congress? Or without being smacked down by a court. So, Ana, listeners are no doubt familiar with you as you are my co-host on our weekly Money News Roundup, but tell us a little bit about what you're working on in the newsroom and why we're doing this series. So I've been working on a series of stories analyzing policy proposals that we've heard on the campaign trail from both former President

Donald Trump and Vice President Kamala Harris, specifically policy proposals that would impact the economy and personal finances. So with one month left until election day, we want to do something similar for smart money to give listeners a clear, no-nonsense understanding of what each candidate is promising to do and how it might impact you. If you want to read these stories, you can visit NerdWallet's financial news hub, which we'll link to in today's show notes, or just search for NerdWallet financial news. All right. Well, if you've been paying even the slightest attention, you know that both Trump and Harris have been talking up their economic policies

and making all kinds of promises about what they'll do if they're elected. Here's a sampling. I am promising low taxes, low regulations, low energy costs, low interest rates, secure borders, low, low, low crime, and surging incomes for citizens of every race, religion, color, and creed. My plan will rapidly defeat inflation, quickly bring down prices, and reignite explosive economic growth. As president, I will take on the high costs that matter most to most Americans, like the cost of food. We all know that prices went up during the pandemic when the supply chains shut down and failed. But our supply chains have now improved and prices are still too high. A loaf of bread cost 50 percent more today than it did before the pandemic. Ground beef is up almost 50 percent. Many of the big food companies are seeing their highest profits in two decades.

And also no tax on Social Security benefits. People on Social Security have been wiped out by inflation, and now on top of it, we tax their benefits. We're not going to tax their benefits. We have so many different ways of making so much money. This country, the potential is so incredible. We don't have to take it away from people on Social Security. We're not going to do that.

We're going to save Social Security. And I will work as president with states like here in North Carolina. Roy Cooper, thank you again, to cancel medical debt for more and more, millions more Americans. With these sweeping authorities, we will blast through every bureaucratic hurdle to issue rapid approvals for new drilling, new pipelines, new refineries, new power plants, new electric plants, and reactors of all types.

Prices will fall immediately in anticipation of this tremendous supply that we can create rather quickly. So right now the tax deduction for startup companies for small businesses is $5,000. I'm growing it to $50,000. Because nobody can start a small business on $5,000, right? And it's a tax deduction, so it'll go over a period of time. The fifth pillar of my plan is to make the Trump tax cuts permanent. They are massive tax cuts, biggest ever, permanent. And to cut taxes even more, and we will have no tax on tips, something which they copied four weeks after I said it. I believe competition is the lifeblood of our economy.

More competition means lower prices for you and your families. In this series, we're going to look at a few ways presidential power can affect the economy and your wallet, or in some cases, neither. For all of the promises heard on campaign trails, in many cases, there's little that candidates can do to actually change things on their own. So we'll be looking at taxes. Everybody's favorite topic. Yeah, sure, Sean. We'll also talk about what, if any, power the president has to influence prices, from what we pay for groceries, to what we pay at the pump, to what it costs to buy a house. We'll also look at some specifics like student loans.

So it's going to be a lot, but it's important stuff and it's vital to know how to sift through promises that can be kept and those that are just, well, wishful thinking. That's right, Sean. I want to give a quick overview before we dive into our first topic in the series. So here are some of the top line promises each candidate is making. Kamala Harris wants to create a quote, opportunity economy that includes things like reducing prescription drug costs, banning price gouging on groceries, tax cuts for parents and small business owners, lowering rental costs, supporting housing construction, and providing down payment support for first-time buyers. Meanwhile, Donald Trump wants to impose 10% across-the-board tariffs on foreign imports, extend the 2017 tax cuts and cut the corporate tax rate, deport unauthorized immigrants, eliminate taxes on Social Security, and cap

credit card interest rates. Both candidates also want to eliminate tax on tips. Regular listeners of the podcast may have heard our episode on that on August 21st, but if you didn't hear it then, I recommend having a listen. We want to say at the outset that we are not here to take sides or fan the flames of an already contentious political season. Our goal here is the same goal we always have at NerdWallet, to help you, our listeners, make smart, informed decisions about the stuff that impacts your finances. Sometimes that means choosing the right credit card for your needs. Other times that means

voting for the candidate who you believe will help you achieve your life and financial goals. All right, well, we want to hear what you think too, listeners. To share your thoughts around the election and personal finances, leave us a voicemail or text the Nerd Hotline at 901-730-6373. That's 901-730-NERD, or email a voice memo to podcast at nerdwallet.com. Ana, where do we start today? Well, we're going to start with a familiar name for smart money listeners. Elizabeth Renter is NerdWallet's senior economist. Her work has been cited by the New York Times, the Washington Post, the Today Show, CNBC, and elsewhere. Today, she's here to talk with us about what powers the president does and does not have

to influence the economy and your wallet. Elizabeth Renter, so great to have you back on the show. Thanks for having me, Anna. So I was reading a piece in the New York Times from 2017 by the columnist Neil Irwin about the subject, and I was struck by this sentence. Presidential economic records are highly dependent on the dumb luck of where the nation is in the economic cycle. First off, Elizabeth, do you agree? I definitely agree that their records are dependent mostly on factors outside of their control, but would stop short of saying presidents don't have any impact on the economy, which I've heard anecdotally as sort of the extreme end of this view. The economic or

business cycle has a lot to do with how we characterize the health of the economy when a president is in office. And that cycle is in motion, either expanding or contracting due to a huge array of factors, many outside of the control of the federal government, let alone the president. But the president can influence certain aspects of the economy through policy or sentiment, for example. So what does that tell us about the president's power to influence those cycles? And while we're at it, what is an economic cycle? So the business cycle or economic cycle is how the economy changes over time. On a graph, it would look like waves where the economy is expanding as the wave rises and contracting

as it declines. An expanding economy is characterized by increased economic output or GDP, gross domestic product. In an expansion, the economy is growing. A negative side effect of this is often high inflation or rapid price growth. A contracting economy, on the other hand, is characterized by decreased production or lower real GDP. Sometimes a contraction can become a recession, which is characterized by high unemployment. If a president has any influence over the cycle, it's typically indirect and definitely just one influence and a whole mix of others. Just as one example, the president might recommend changes to the federal budget,

but the budget is mostly the purview of Congress. So the administration's recommendation only becomes policy if it passes both houses of the legislature. And even if it makes it that far, the fiscal budget is just one of many, many factors influencing the US economy, and therefore the business cycle, all to varying degrees at various times. And is there an example you could give us of when luck allowed a president to take advantage of a positive economic cycle? and then when a president got unlucky? I think that New York Times article you referenced had a good example for both in one president, and that's President Obama. He was inaugurated in the depths of the Great Recession. So he took office when unemployment

was close to 8%, and it would hit 10% before the end of his first year, which is not really a welcome environment and one I'm sure a few folks blamed him for not being able to fix right away. On the other hand, he also got to own the recovery where unemployment improved from that 10% to under 5% when he passed the baton to former President Trump. Trump then inherited that trajectory. It was a positive trajectory of an expanding economy until COVID hit. Most people recognize that trajectory. It was a positive trajectory of an expanding economy until COVID hit. Most people recognize that he couldn't be blamed for a global pandemic, but many people credited him with the entirety of the rapid recovery from COVID recession. In this way, you can see it's often the luck of when you take office and when you leave

that impacts your economic record, so to speak. One thing the president does do is appoint key people to economic positions, including Federal Reserve speak. One thing the president does do is appoint key people to economic positions, including Federal Reserve governors. What's the practical effect of that appointment? Well, you're right, but it's not like the president takes office and names all new Fed governors. So first off, when you hear about Federal Reserve governors and the Federal Reserve board, we're talking about the same people. It's a board of governors, and there are seven members of that board. While they're appointed by the president, they have to be confirmed by the Senate, and then they serve for 14 years. So you end up with a board of pretty diverse political

affiliations because they're there through multiple administrations. From that board, the president appoints a chair and two vice chairs who the Senate has to approve. They serve in these roles for four-year terms that can be renewed. Our current chair, Jerome Powell, is in his second term after being renewed under Biden, which speaks a little to the lack of politicization in this role. Both in the rules surrounding the nominations to the board and its leaders and in the rules about the execution of their jobs, there are numerous guardrails to protect against political influence on the central bank. This could be a podcast topic in and of itself, and maybe it should be on it.

But the short version is that although the president plays a role in staffing these positions and these positions impact the economy, it doesn't really equate to presidential power over the economy. I would imagine that the decision about a Fed chair and governors comes into play most prominently when the economy is in some sort of downturn, right? Like during the 2008 financial crisis when it had to prop up failing banks, and more recently as it's been fighting inflation the last couple of years. Fair to say in good times we don't pay as much attention to those presidential picks? I think that's definitely fair. And I also think it's important to point out that central bank independence is really at the bedrock of financial and economic stability, both here in the US and across the globe. This independence is broadly accepted as a crucial

component of a sound economy. And what I mean is that both written into the policies of the central bank and sort of understood as a guiding ethos is this need for the Fed to remain non-political and free from such influence. Ultimately, as we see right now in an election year, politics gets dragged into the conversations by nature of the impact of the Fed decisions and the people who ultimately help fill those roles. But the bank, and I think most policymakers in government, respect the Fed's independence from politics and the need to keep it that way. And the Fed doesn't have to ask anybody's permission to do things that have wide effects on the economy, right?

It doesn't have to get an OK from Congress or anybody else. That's right. The Fed doesn't ask for permission to do the various parts of their job, but they do have very clear jobs. So those jobs are conducting monetary policy, maintaining financial stability, regulating banks, overseeing payment systems, and promoting consumer protections. Now, they don't necessarily have carte blanche to fiddle with all aspects of the economy in an unrestrained way. For example, the Fed may have to ultimately use the tools at their disposal to deal with the impact of fiscal policy. So that's policy enacted by Congress. But they're not going to play a role in the creation or implementation of fiscal policy.

So their job is monetary policy and financial stability. If politics or fiscal policy impact the broader economy, then it could fall under the Fed's jurisdiction. But they're not going to be actively involved in those things, merely their impacts as it relates to their clearly defined jobs. In a moment, more of our conversation about presidents and their role in the economy with Elizabeth Renter. Stay with us. So Elizabeth, the Biden administration did a lot to try to tamp down on the student loan burden over the last three years. Would that be an example of how the president can affect our individual finances maybe more than the macro economy? Absolutely. Executive orders like those used in student loan relief efforts of late are a good example. As we've seen with the Biden administration's attempts at broad relief, these are often subject to legal challenges, and those challenges often hinge on whether the

president should have the power to make such policies. But if and when they're ultimately implemented, they can have a direct impact. And here's a random piece of trivia I came across. As the prevalence of these executive orders gets a lot of attention, Biden has issued about 140 executive orders and Trump issued about 220 while in office. Those numbers are pretty on par with the presidencies of the past several decades. But if you go back to the first half of the 20th century, you'll find presidents issued many, many more. Woodrow Wilson, for example, issued about 1800 and Franklin Roosevelt, a whopping 3700. So executive orders are not new and not novel. Whoa. Let's talk about government spending.

We tend to hear quite a bit during the campaign about how this candidate will reign in spending and that candidate will spend on new programs or use tax cuts to help people. How much sway does the president have over those things when it's Congress that holds the power of the purse? Well, the president has some input here, but maybe not as much as the campaign promises would have you believe. I think those statements they make about spending and taxes are largely a signal of what they'd like best if the stars aligned and they could get their way on everything. But things rarely shake out that way. For example, when it comes to the budget, federal agencies submit their annual budget requests to the White House, where the Office of Management and Budget develops the

overall budget proposal with input from the president. The president then submits the proposal to Congress, and from there, it's in for a wild, bumpy ride. Using input from various subcommittee hearings, the two houses each create their own budget resolution, and then they need to come together and pass a single version of a funding bill. I said that all in one sentence, but we know it's a messy, messy process. After that, a typically quite different budget goes back to the president for signing or vetoing. Presidential fiscal policy, what I mean by that is taxes and spending, really become the most influential when they also have both houses of Congress, right? Obama in 2008 would be an example where he had two years

with a friendly Congress and passed, among other things, a massive stimulus package and the Affordable Care Act. Right. The ability of a president to have maximum input on these things depends on the likelihood that compromises in the House and Senate fall their way. This is certainly made easier when the president's political party outnumbers the opposition in both of these houses. When that's not the case, we're more likely to see disagreements over the budget to push us to the verge of government shutdowns. And we've seen this quite a bit in recent years. Elizabeth, we've talked to you a bit about this on the show before, but I think it's worth repeating as part of this series. You've done research and written a lot about the very commonly felt disconnect between how the economy is doing in reality and how the public feels about it.

Can you talk a bit about that again in the context of what power the president has to influence both reality and perception? Yeah, well, we know that how people feel about the economy depends largely on whether their political party of choice is in the White House. You can see this in the data. The University of Michigan's Consumer Sentiment Index measures how people feel about the economy and their place within it. And if you parse the data from this survey by political party, you can see on the chart when a new administration takes office. So for example, when Trump was in office, Republican sentiment was roughly 50 points higher than Democrats. And when Biden took office, you can see the sentiment flip where the sentiment of Democrats is well above that of Republicans.

And the magnitude of this effect has grown over the past several administrations, suggesting that increasing partisanship is having an outsized impact on overall consumer sentiment. All that to say, it's possible the real power of the president over the economy is in their ability to shape sentiment. And this extends beyond feelings. Consumer sentiment can be used to predict consumer spending behaviors. So it's possible that election outcomes can steer the economy through this indirect way as well. Elizabeth Renter, thank you as always for helping us out today. Thanks, Ana, and thanks for having me. Happy voting season. Ana, what I'm thinking about after your conversation with Elizabeth is how in our politically divided,

media siloed world, where we're each taking in our own version of reality through our phones, perception becomes reality. And right now, that feels more powerful than what any one president

can actually do to change the trajectory of our individual personal finances. And in a way, that's kind of a relief. Whoever the next president is probably won't radically transform my financial life, even if I feel like that's what they're doing. And to be clear, we're not trying to invalidate how people feel, especially about their own finances. But when it comes to the larger economy, there's perception and there's reality, but the two don't always mix. And one of those things is the role a president can play in your personal finances. Sean, I think you hit the nail on the head that a lot of media that people consume today is tailored to them via an algorithm. And that means that they end up with mostly content in

their social media feeds that reinforces precon And that means that they end up with mostly content in their social media feeds that reinforces preconceived notions that they already have. So it's helpful to get out of that bubble once in a while and just look at plain facts. It probably goes without saying, but we'll say it anyway. The most important part of all of this is that you go out and vote. We're going to go through some of the candidates' positions

on various economic and personal finance issues. is that you go out and vote. We're going to go through some of the candidates' positions on various economic and personal finance issues. Then, listener, it's up to you to do more research if you like. Read voters' pamphlets for races from the president on down. Think about how you want those candidates to treat your money. Think about what power they have over your dollars, and what power they don't have but are promising anyway. Yeah, it really is vital to vote and to be educated about these issues. We've scratched the surface here, but hopefully throughout the series, you'll get a better understanding of where the candidates stand on all these topics that are important to your bottom line. So Ana, speaking of the series,

tell us what's coming up in episode two. Next time, we're going to take a deeper dive into what an American president can actually do about prices. Both candidates have put forth their ideas of how to bring down inflation, but there's only so much they can do without the help of Congress and the Federal Reserve. I just find it interesting that both presidential candidates have kind of focused on these highly volatile markets, which we often think they really can't do that much about, and that are often driven by these kind of global forces, basically. But both of them have sort of focused on those as their avenues to kind of bringing inflation down. For now, that's all we have for this episode. Do you have a money question of your own? Turn to the nerds and call or text us 1-730-6373. That's 901-730-NERD. You can also email us at podcast at nerdwallet.com.

And remember, you can follow the show on your favorite podcast app, including Spotify, Apple Podcasts, and iHeartRadio to automatically download new episodes. This episode was produced by Tess Bigland. I helped with editing. Rick Vanderkneife and Amanda Derangowski helped with fact-checking. Megan Maurer mixed her audio. And a big thank you to NerdWallet's editors for all their help. And here's our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. And with that said, until next time, turn to the nerds.