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Meet the new boss, same as the old boss

January 21, 2021

Graph depicting changes in RGDP by presidential term

Source: Federal Deposit Insurance Corporation

President Biden issued a series of executive orders upon taking office yesterday, including directives on climate, public health, and travel. Noticeably absent were any reversals of President’s Trump’s trade policies or the executive orders targeting Chinese companies in recent months, as the purely macro initiatives were limited to marginal measures on student loans and evictions.

At least in the short-term, then, the transfer of power is likely to do very little to alter the prevailing economic trajectory (note here as well that President Biden’s recent stimulus proposal was unlikely far removed from that which would have been put forth in a second Trump term). The bigger point, however, is that even an economic agenda that represented a more dramatic break from the past would be unlikely to appreciably shift the near-term economic path due to the far greater influence of the Federal Reserve. It is telling that real GDP grew at roughly equal rates from President Bush’s second term to President Obama’s first term and from President Obama’s second term through the pre-COVID period of President Trump’s term, as monetary policy was roughly steady across these periods (easing in response to the recession in the former case, slowly tightening in the latter). Moreover, executive branch policies that do impact the outlook are subject to countervailing actions from the Fed. Consider the abrupt end of the 2015-18 tightening cycle and the subsequent rate cuts in 2019 after tariffs had helped to trim the pace of economic expansion. Any ripples in the economy emanating from President Biden’s policies would almost certainly engender a similar response. The new president will undeniably put his stamp on many aspects of American life – and can absolutely influence the long-run potential growth rate through his fiscal policy decisions – but the near-to-intermediate term path for the economy will continue to be driven from the Marriner Eccles Building rather than the White House.

Daily Trivia

Given that it may be composed entirely of iron and nickel, what is the estimated value of 16 Pysche, one of the largest objects in the asteroid belt between Mars and Jupiter?

Previous Question

What city is home to each of the three most cited institutions in academic economic research?

Answer:

Cambridge, MA (NBER, Harvard, and MIT)

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