Two competing theories explain the types of decisions presidents make in their management of the U.S. macroeconomy. The first theory suggests that presidents respond to partisanship. The second theory, often called the political business cycle, maintains that presidents are motivated by reelection and attempt to loosen fiscal and monetary policy as they approach the final year of their initial term.
To these theories, Spiliotes now adds a third. His new book is essentially an explanation and empirical vindication of what he calls the "institutional responsibility" model. He argues that "the institution of the presidency acts as a filter on the pursuit of political incentives, shaping and directing the ways in which presidents pursue their macroeconomic objectives." It does so because presidents are given a mandate for sound macroeconomic management. It is, Spiliotes persuasively argues, a product of the first half of the twentieth century, during which a series of statutes not only forced the president, as the only elected official with a national constituency, to protect aggressively the macroeconomic health of the country, but also demoted Congress to a marginal and essentially reactive role. These responsibilities modify presidential responses to the partisan and electoral incentives that the established models of presidential decision making in the political economy claim are dominant.
Spiliotes rigorously tests this model of institutional responsibility with a quantitative analysis of the partisan and institutional models of presidential decision making. He also undertakes an evaluation of voluminous archival material on the economic policies during the initial terms of the Eisenhower, Johnson, Carter, and Reagan presidencies. He believes the data show that these presidents did not advocate policies to increase to increase economic growth close to elections for purely electoral purposes. The chapters in which Spiliotes examines the decisions of these four presidents are especially illuminating.
The central problem with the book is that Spiliotes does not clearly define or satisfactorily delineate institutional responsibility so that the concept blurs into the partisan and political business-cycle models. He argues that "contingent upon the nature of the most pressing macroeconomic problem during a reelection year, presidents work to move the macroeconomy in a particular direction, one that will make them look fiscally responsible in the eyes of the public on election day." But is this objective not just another kind of electoral incentive? Spiliotes aregues that presidents confront the vicious cycle of of a sense of "institutional responsibility." This argument, however, implies a set of motives palpably distinct from the electoral connection.
Spiliotes is correct to criticize the partisan and political business-cycle models, and in this regard his book is imaginative and important. He would have been better advised, however, to provide a modification of the political business-cycle model and to argue that prudent macroeconomic management, not expansion, drives presidential decisions in the run-up to the election. Or, alternatively, he could have argued for a revision of the partisan model, suggesting that the contemporary parties are surprisingly similar in their economic thinking. Indeed, a beef I have with the book is that it has an extremely static view of Democratic and Republican economic philosophies.
Presidential decision making on the economy does have an institutional dimension, but we knew this already. Everything else Spiliotes presents is interesting and compelling, but his book breaks theoretical ground only in its criticism of extant models. There are problems with the empirical work as well.
It would be wrong, however, to conclude a review of Spiliotes's work on this note. This book is an ambitious and intelligent systematic analysis of presidential policies toward the macroeconomy. Spiliotes's discovery that presidents reject conventional partisan approaches at similar times in their presidencies is new and important. His portraits of economic policymaking in the Eisenhower, Johnson, Carter, and Reagan administrations are very interesting. Vicious Cycle deserves shelf space in the library of every scholar of economic policy and the American presidency.