By: Richard W. Sharp

What business do businessmen have running the business of America?

The argument made during the 2016 campaign was that Trump’s wealth would insulate him from special interests and corruption,¹ and his business experience makes him better qualified to run the country² than the usual suspects: politicians, statesmen, and generals.

The question

How well does this premise hold up? 

We’ll have to wait for time to tell on the question of the insulating³ power of Mr. Trump’s wealth , and his business acumen is up for debate. Nevertheless, he is unquestionably both wealthy and a businessman. To the bat archives of history! Let’s see what company he keeps:⁴ How have rich(er) candidates and businessmen (and those who were both) fared in transferring their experience to the nation’s highest office?

A critical question will be how to measure a president’s success in office. Since it is the president’s duty to serve all Americans, and we are specifically interested in his area of expertise ($$ cha-ching $$), it seems appropriate to measure his by Americans’ financial success. We’ll take a look at the country’s output (GDP, stock market), inflation (CPI), and employment. We’ll also compare how president’s wealth, business experience, and party affiliation correlate with the financial well-being of the country.

The President is not above a performance evaluation, and we will repeatedly, even gleefuly, question his actions.

Presidential wealth compared to economic growth

We’ve had wealthy presidents before. Adjusting for inflation, most of them were millionaires. It may shock you, but poor hardscrabble regular folk ain’t got much of a shot at the Oval Office. This is not news, but the current Dear Leader of the free world is by far the richest.

Looking at presidential wealth over time (on a log scale) reveals a long-running trend that divides the history of the presidency into three periods:

1. Up to about 1850, presidents tended to inherit wealth (with some notable exceptions) and their fortune rested on land ownership and plantations.
2. During the second phase, covering the Civil War, presidents were not as well off as their predecessors.
3. Since that time there has been a steady return to wealth in the White House, including the first modern businessmen (unlike their predecessors, they ran firms, not farms).

This alone should make us suspicious of any correlation between wealth and presidential performance because it reveals that time is a confounder. If we did find that poor presidents are associated with distinct results, would it be because they were poor, or due to the state of the nation in the Civil War era?

So does wealth correlate with standard measurements of economic performance? In general, it doesn’t.

Consider the stock market, for example. Plotting presidential wealth against the percentage change in the Dow Jones Industrial Average over each president’s term yields no significant trend.

Likewise, we get a big fat insignificant result warning when we compare presidential wealth to inflation, the CPI, or unemployment.

The one trend: party

However, we can find a trend by considering presidential party affiliation instead of wealth. Take the mean monthly change in the unemployment rate over a president’s term. If there is a general trend upwards, this will be positive. If unemployment drops month after month, it will be negative. If the number of jobless oscillates up and down, the value will be close to zero. On the chart below, the presidents are listed, from low to high, in terms of this mean change in unemployment.

Note the pattern: Democrats to the left (unemployment falling), republicans to the right (unemployment rising). Of course there are outliers, such as Harry Truman (who oversaw the return of millions of military personnel after WWII) and Ronald Reagan (who wasn’t one to shy away from a nice stimulus package of sorts). The the formula is clear: Democrats in office = more job growth. Mean change in CPI and the DJIA, which are also shown, are more muddled and don’t seem to clearly favor one camp or the other. 

Does business experience matter?

Only a handful of presidents have been businessmen first, at least in the contemporary sense. Going back to the depression we have Hoover (made his fortune as a partner in an Australian mining concern), Carter (yes, peanuts), and both Bushs (oil).

Herbert Hoover, of course, takes the cake. His response (or lack thereof – he favored a hands off approach at the federal level) to the Great Depression saw the country suffer years of financial decline. Banks failed, the stock market was clobbered, and unemployment floated around an unprecedented 20%.

Carter and the Bushs didn’t fare very well either. For example, each is associated with a spike in unemployment near the end of their time in office as shown in the chart below (blue shading indicates time in office, red shading is shifted by a year to account for lag between policy and outcomes). None of their names are associated with a bull market. 

The conclusion: It’s the policies, stupid

While climbing the corporate ladder may help someone ascend politically, a business background does not seem to be a more useful than others for actually running the country. What does seem to matter is policy, in as much as party affiliation has become a relatively reliable proxy for expected response to a national or global financial challenge. 

So what do we expect from Trump? Let’s use a simple and powerful model: assume he’ll do what he says (if it aligns with things Congressional Republicans are prone to like). On the jobs front, some of his first acts have a distinctly negative outlook on employment. So far he’s started shrinking the labor force (oops, I mean “throwing them the hell out”), put a halt to federal job creation, helped reduce the amount of time travel and hospitality workers have to spend working, and proposed some good old fashioned protective tariffs (Bueller…Bueller….). On the other hand, he has also made some promises that should put people to work rebuilding the nation’s infrastructure (including pipe dreams and a a great big glorious wall) and bringing back coal jobs, but these are unlikely since they have not been warmly received by Congress. As he rolls out his bunker busters over butter budget proposal (albeit with medicare and social security protections) and we see how closely his tax plan aligns with the campaign version, we will be better able to assess the expansion or contraction of federal spending and the accompanying employment prospects.

Back to the simple model: forecast calls for contraction, and if that impacts American jobs and purchasing power, then we’ll also get to see how well he does that voodoo.  

Notes:

¹ “Wealthy folks have no need to steal or engage in corruption.” Larry Kudlow, “The Trump transition is transcendent, but the economy needs attention now,” The National Review, 12 December 2016. ^
² John Scully, “Donald Trump’s business experience can bring jobs back,” Fox Business, 13 December 2016.^
³ What we do know of his tax situation isn’t grounds for confidence in the probity of his financial dealings.^
⁴ Herbert Hoover, who appears in 9th place on the wealthiest presidents list is quoted as having said, “If a man has not made a million dollars by the time he is forty, he is not worth much.” History has shown how well this assessment served him as he guided America into the depths of the depression with a steady, unwavering hand.^
⁵ The source data for this chart comes from 24/7 Wall St. and was published in a Wikipaedia article about presidential net-worth. All amounts are in 2016 dollars.^
⁶ Reagan was president of the Screen Actors Guild, but it is a non-profit and relies on dues, not capital. The remainder were a mix of lawyers and generals.^