Carl E. Walsh

Judy Liles Newman

English

Research Papers in Economics

FRBSF WEEKLY LETTER
Number 92-05, January 31, 1992
Presidential Popularity,
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economic policies. The chart shows average presi-
dential approval on a quarterly basis since 1953.
50
Percent Approval
90
80
70
60
84 88 92 68 56 60
Presidential Approval
(Average of Polls within Quarter)
I
Kennedy
40
30
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Policies and popularity
The policies of both opportunistic and ideolog-
ical politicians will be affected by perceived
changes in their probability of reelection. If
the probability of reelection rises, then the
opportunistic politician has less need to manip-
ulate fiscal policy, while the ideologically moti-
vated politician will have more room to push
his desired policies or policies favoring his
constituents.
The approval ratings for Presidents Kennedy,
Johnson, Nixon, and Carter show a clear ten-
dency to decline as their administrations pro-
gressed, with the drop-off most marked in the
case of Nixon during Watergate. A number of
studies have shown that Gallup approval ratings
are affected negatively by both contemporaneous
unemployment and inflation (see, for example,
Golden and Poterba 1980). This evidence forms
the basis for arguments that presidents will at-
tempt to manipulate the economy in order to
raise their chances of reelection. The ideal sit-
uation for an incumbent president is to have an
economic expansion that is strong enough to
lower unemployment prior to an election but
that has not yet pushed up the inflation rate.
Political scientists and economists have not been
surprised to see that presidential popularity polls
have swung dramatically over the last twelve
months. The Gulf War pushed President Bush's
approval rating to unprecedented heights, while
the recent decline in his popularity is.attributed
by many to concern over the current recession.
The case of President Bush, like that of other
presidents, illustrates the general principle that
foreign affairs and the economy are two major
factors affecting the popularity of presidents.
Based on this principle, two models of incumbent
behavior have emerged. One is that politicians
are opportunistic, caring only about staying in
office. Therefore, they are likely to try to increase
their popularity by engineering an economic ex-
pansion just before an election. The other model
is that politicians are motivated by ideology: they
have a political agenda they hope to implement
while in office. Therefore, an unexpected in-
crease in popularity, perhaps due to a foreign
policy success, may present an administration
with the opportunity to pursue ideological goals
which would otherwise have lower priority if re-
election were in doubt.
In recent research, we use the president's ap-
provallevel as measured by the Gallup Poll to
see whether changes in popularity are reflected
in subsequent policy actions, that is, whether
either model tends to describe incumbent be-
havior, and, if so, which one tends to dominate.
The results suggest that high approval ratings,
such as President Bush enjoyed after the Gulf
War, fail to translate into changes in economic
policy that reflect ideological goals.
The Gallup Poll
The most widely used measure of presidential
popularity is obtained from surveys conducted
by the Gallup organization. A simple measure of
presidential popularity is the fraction of survey re-
spondents expressing approval of the president's
handling of his job. It turns out that this measure
is highly correlated with approval of a president'sFRBSF
To distinguish between opportunistic and ideo-
logically motivated behavior in the determination
of aggregate economic policy, it helps to look at
fiscal policies that typically divide Democrats
and Republicans. A good example is transfer
spending, such as Aid to Families with Depend-
ent Children, Food Stamps, or Social Security
payments.
In the opportunistic model, where the incumbent
simply wants to stay in office, an increase in
popularity would induce the same behavior from
both a Republican and a Democrat incumbent.
Each would reduce transfer spending, because
each would have less need to "bribe" voters with
transfer payments to ensure reelection.
In the ideological model, an increase in popu-
larity is likely to induce opposing effects on
transfer spending from a Republican and a Dem-
ocratic incumbent. The Republican incumbent
would have more leeway to pursue party goals
designed to reduce transfer payments, while the
Democratic incumbent would have more leeway
to increase transfer payments.
Defense spending is also an area over which
Democrats and Republicans might be expected
to have ideological differences, so the response
of defense spending to changes in presidential
popularity may help to distinguish between the
twotheories. Such ideological influences may
be offset by other factors, however; for example,
defense spending rose under Kennedy and John-
son (both Democrats) and fell under Nixon (a
Republican).
Previous evidence
The existing empirical literature has found little
systematic relationship between presidential
popularity and aggregate economic policy. For
example, Golden and Poterba (1980) estimate the
impact of presidential popularity on the real fed-
eral surplus, full employment federal taxes, full
employment spending, total transfer spending
(all relative to full employment GNP), and money
growth relative to expected inflation. In no case
do they find a significant effect of popularity on
any ofthese instruments.
This earlier work employed sample periods be-
ginning with the Eisenhower administration and
ending in the mid-1970s. While these samples
included the Nixon years, the most commonly
cited example of an opportunistic administration,
they end prior to the Reagan years, excluding
evidence from a president generally considered
to be motivated by ideology.
New evidence
In Walsh and Newman (1991), we reexamine the
impact of popularity on policies using data from
the Eisenhower to the Reagan administrations.
Like Golden and Poterba, we investigated the
presence of presidential popularity on federal
transfer payments. In addition, we looked for
effects on the composition of federal spending
between defense and nondefense categories.
Unlike earlier work, we consistently found that,
as a whole, increased presidential popularity led
to reductions in federal transfer payments (meas-
ured relative to GNP). The estimated effects of
Democratic and Republican presidential popu-
larity were quite similar and suggest that a rise
in popularity leads to a reduction in transfer pay-
ments by both Democratic and Republican
administrations. Democratic and Republican
presidents should respond differently to changes
in their popularity if ideological considerations
are important, so this result seems more consis-
tent with the model ofopportunistic politicians
than with the ideological model. A fall in popu-
larity, by reducing the probability of reelection,
induces the administration to increase transfer
payments to raise its vote share.
We also examined the data at the level of each
administration, and found that a rise in presi-
dential popularity produces statistically sig-
nificantdeclines in transfer spending during
the Kennedy-Johnson, Nixon-Ford, and Carter
administrations. These findings are consistent
with the opportunistic model, but the results for
Kennedy-Johnson and Carter seem particularly at
odds with the ideological model of behavior. No
significant effects of popularity on transfer spend-
ing were found for either the Eisenhower or the
Reagan administrations, so the evidence for the
opportunistic view is mixed.
Ideological differences between Democratic and
Republican presidents exist over the desired com-
position of federal government expenditures. The
ideological theory suggests that increased popu-
larity will allow Democratic presidents to pursue
policies that expand nondefense federal spend-
ing relativetodefense spendingwhile Republicans
will respond in the opposite fashion. The empir-
ical evidence, however, provides no support forReferences
Golden, David G., and James M. Poterba. 1980. "The
Price of Popularity: The Political Business Cycle Re-
examined:' American journal of Political Science
24 (November) pp. 696-714.
approval level does help to forecast future move-
ments in the unemployment rate. The converse
does not hold; unemployment does not help to
forecast future movements in presidential pop-
ularity. This suggests that voters are forward-
looking when rating presidents.
Any such analysis requires an understanding of
the motives of policymakers in setting aggregate
economic policy. Neither ofthe two leading
candidates, the opportunistic or the ideological
models, gains much support from the evidence
on presidential popularity and subsequent policy
changes.
Conclusions
Traditional business cycle analysis tended to
Vie\A/ the determination of economic policy as
lying outside the expertise of economists and in
the domain of political scientists. Economists
investigated how the economy would respond if
the government adopted a particular policy or
the optimal policy the government should pur-
sue, but the determinants ofthe policy actually
adopted were not addressed. This perspective
has changed in recent years; economists in-
creasingly use the tools of economic analysis
to study governmental policy choice.
Judy Liles Newman
Group for International
and Comparative
Economic Studies, Univ.
of Calif., Santa Cruz
Carl E. Walsh
Professor, Univ. of
Calif., Santa Cruz
and Visiting Scholar,
FRBSF
the ideological view; changes in popularity do
not seem to translate into systematic changes in
the composition of federal spending. And the
effects of popularity on total federal spending are
inconsistent with the opportunistic theory; a fall
in popularity is associated with subsequent in-
creases in spending (mainly nondefense) during
the Kennedy-Johnson administrations as predicted
by the opportunistic model, but by decreased
spending during the Reagan administration.
The alternative view is that voters are "forward-
looking;' that is, they will make choices based
on their expectations of future policies and will
not cast their votes simply to reward past policy
actions. In this case, the president's current pop-
ularity should fall if the public expects a rise in
unemployment or inflation. With forward-looking
voters, Gallup popularity should help forecast
future unemployment.
If increased popularity allows presidents to pur-
sue ideological goals, the empirical record finds
very Iittle evidence that such behavior affects
measures of aggregate fiscal spending. The rela-
tionships that do exist between popularity and
policy also are not consistent with the oppor-
tunistic model of political behavior.
Are voters forward-looking?
Just as there are two views on the behavior of
politicians, there are two views on the way voters
evaluate presidents. One view is that voters are
"backward-looking;' that is, they base their view
of the president on the levels of unemployment
and inflation in the recent past. !n this case, a rise
in unemployment or inflation will lead to a sub-
sequent decline in presidential popularity. One
implication of this view of voters is that changes
in unemployment should help to forecast future
changes in presidential popularity.
Over the seven administrations from Eisenhower
to Reagan, we find that the president's Gallup
Walsh, Carl E., and Newman, Judy Liles. 1991. "Presi-
dential Popularity, Presidential Policies./I Mimeo.
University of California, Santa Cruz (September).
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Presidential popularity, presidential policies

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Presidential popularity, presidential policies

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