Sticks and stones may break bones, but words can really hurt - hurt the economy, that is - especially if those words are coming from the president of the United States, says Texas A&M University political scientist B. Dan Wood, who studies the presidency, public policy and economic policymaking.
As the most visible economic commentator in the U.S. system, the president's optimism or pessimism when speaking about the economy can have significant effects on U.S. economic growth and unemployment, says Wood.
"The president's words are a powerful instrument of economic leadership that can affect consumer perceptions of current and future economic conditions," he says.
Examining all public remarks, spoken or written, by the president for every day of each presidential administration, dating back to 1945, Wood found variations in presidential rhetoric - be they positive or negative in nature - corresponded with variations in the performance of the U.S. economy.
"The overall optimism or pessimism of the president affects media and consumer attitudes on the general economy and unemployment, which in turn, have an effect on the overall economy," Wood says.
While the president's words aren't the cause of a strong or poor economy, Wood says, they do act as a credible confirmation of the current economic status and in doing so, can either inspire confidence or uncertainty in consumers. It's this confidence or uncertainty that drives the economy in an almost self-fulfilling prophecy, he says.
When consumer confidence is high, consumers spend and borrow more, resulting in stronger economic growth and lower unemployment, and when consumers are uncertain, they save more and borrow less, resulting in weaker economic growth and higher unemployment, Wood explains.
Consumers take cues about the economy from a variety of sources, with media as one of the chief sources, he adds. The president is the most visible spokesperson, and what the president says in speeches and other public engagements is widely covered by the media, Wood notes.
It's this high visibility in combination with high credibility that allows the tone of presidential remarks to affect a substantial number of consumers, he says.
"While citizens may not be familiar with the details of presidential remarks, they do usually comprehend the broad contours, as well as the relative optimism the president expresses about the economy," Wood says.
The public, he explains, expects the president to monitor the economy and take measures to promote economic growth. This expectation, he says, originated during the Great Depression and the election of Franklin D. Roosevelt in 1932. Legislation throughout this century has institutionalized this activist role for the president, he adds.
"While it's doubtful that a president can rescue an economy in serious decline through mere words, it does appear from our analysis that a president can have an effect at the margins," Wood notes.
"Rational manipulation of the economy through rhetoric requires that the tone of the presidential remarks be positive and a reasonable assessment of current and future conditions."
RSS