The business cycle explains why faster growth is not always better growth. It will create an asset bubble if the economy expands too rapidly. The resulting contraction leads to a recession when that bubble bursts. Growth must be sustainable to create a healthy economy. Economists agree that the ideal GDP growth rate is between 2% and 3%.
How a President Influences Growth
Presidents influence growth through fiscal policy. They boost the economy by lowering taxes and increasing government spending. They can prevent a bubble by increasing taxes or cutting spending. They must work within existing laws or convince Congress to change those laws to do either one. Presidents don’t control monetary policy or interest rates. That’s the realm of the Federal Reserve, the nation’s central bank. The Fed encourages borrowing by lowering interest rates to stimulate growth. It reduces bank lending by raising interest rates to slow growth. Some may argue that monetary policy influences growth much more than fiscal policy does. The Fed may use monetary policy to prevent inflation or a bubble if a president spurs too much growth.
Presidents With the Best and Worst Annual GDP Growth
President Franklin D. Roosevelt had the best single year of growth in 1942 when the U.S. economy grew by 18.9%. Herbert Hoover had the worst year in 1932 when it contracted by 12.9%. The Great Depression affected both, but spending to gear up for the nation’s entry into World War II boosted FDR’s growth numbers. These unusual situations created extremes in economic growth. World War II also affected President Harry Truman, as the economy contracted by 11.6% in 1946. Government spending fell after the war ended. Annual growth rates became more moderate after World War II. The fastest postwar year of growth since 1951 occurred under President Ronald Reagan. The economy grew by 7.2% in 1984 due to the end of the 1981–1982 recession. The worst annual postwar contraction was -2.5% in 2009, President Barack Obama’s first year. That contraction was caused by the 2008 financial crisis. Looking at the best and worst years isn’t the ideal way to gauge a president’s economic impact. These outliers are often caused by events outside the president’s control. It will additionally create inflation or an asset bubble if the economy grows too quickly. The best president will instead maintain a steady rate that’s sustainable over time.
Presidents With the Best and Worst Average Annual Growth
One method that reduces the impact of these extremes is the average annual growth rate. This is the sum of all the growth rates during a president’s term in office, divided by the number of years. Three presidents have had average annual growth within this ideal range: Presidents Dwight Eisenhower at 3%, George H.W. Bush at 2.3%, and George W. Bush at 2.2%. Roosevelt’s 9.3% annual average was the highest, while Hoover’s was the lowest. President Lyndon B. Johnson had the highest average post-World War II at 5.3%. He boosted growth with government spending on the Vietnam War and the Great Society programs. The next was President John F. Kennedy, at 4.4%. During his term, the 1960 recession ended. The lowest post–World War II annual average was under President Trump, at 1%. The economy was battered by the COVID-19 pandemic in 2020 despite healthy growth during the first three years of his term. Both Presidents Ford and Obama had average annual growth rates of 1.6%. Ford’s term suffered from stagflation caused during the Nixon years, while Obama struggled with the financial crisis that began under President Bush’s term.
GDP Growth by President
Here’s a more detailed look at some presidents’ economic records, with summaries of their reactions to the recessions, wars, and other events they encountered.
Herbert Hoover (1929–1933)
Herbert Hoover’s average annual GDP growth rate was -9.3%, the worst of all presidents based on GDP rates from 1930 to 1932. The BEA does not include 1929 in its historical numbers. The Great Depression began in August of 1929, and the stock market crashed in October of that year. Hoover’s response was laissez-faire economics. He believed that government assistance would incentivize people to stop working. His policies didn’t work. They caused unemployment to rise to 25% by 1933. Hoover signed the Smoot-Hawley Tariff Act to protect domestic industries in 1930. Other countries retaliated, shrinking global trade. The economy contracted by 12.9% in 1932 as a result, the worst year in U.S. history.
Franklin D. Roosevelt (1933–1945)
President Franklin Delano Roosevelt launched the New Deal to end the Great Depression. He created new agencies to stabilize banks, create jobs, and boost manufacturing. The New Deal subsequently ended the Great Depression in 1933. FDR then increased taxes to balance the budget, but that resulted in a recession in 1937. Japan attacked Pearl Harbor in 1941. FDR’s increases to the defense budget finally ended the Great Depression, but growth came at a cost. FDR’s time added the most U.S. debt of any president percentage-wise.
Harry S. Truman (1945–1953)
President Harry Truman presided over two mild recessions. The 1945 recession was caused by a reduction in government spending due to the end of World War II. The 1948–1949 recession was a market adjustment within the postwar boom. The 1947 Truman Doctrine pledged U.S. aid to allies that were threatened by communism. The Marshall Plan spent $12 billion to rebuild Western Europe after the war. The Korean War began in June 1950. The resulting $30 billion in government spending helped to boost economic growth during the rest of Truman’s term.
Dwight Eisenhower (1953–1961)
President Dwight D. Eisenhower ended the Korean War in 1953, which led to the 1954 recession. He then boosted growth with the 1956 Federal-Aid Highway Act. The federal government had spent $119 billion by the time the construction was over. Eisenhower created NASA to advance U.S. leadership in space exploration in 1958. The 1957–1958 recession was caused by the Federal Reserve raising interest rates. Eisenhower’s desire to balance the budget meant that he refused to use fiscal policy to stimulate the economy.
John F. Kennedy (1961–1963)
President John F. Kennedy helped to end the 1960 recession by increasing spending. He created a food stamp pilot program in several states in 1961. He also improved Social Security benefits and increased the minimum wage.
Lyndon B. Johnson (1963–1969)
President Lyndon B. Johnson was sworn in two hours after JFK’s assassination. He won the 1964 election with 61% of the vote. His popularity allowed him to vastly increase government spending and avoid any recessions. LBJ pushed through the passage of Kennedy’s tax cuts and civil rights bill. His 1965 Great Society program created Medicare, Medicaid, and public housing. It also addressed crime, urban renewal, and conservation. LBJ escalated the Vietnam War but could not win it.
Richard Nixon (1969–1974)
President Richard Nixon’s policies created a decade of stagflation, a combination of economic contraction and double-digit inflation. Nixon also ended the Vietnam War. Tariffs and relaxing the gold standard raised import prices. At the same time, price controls meant that companies could not raise prices or lower wages. They were forced to lay off workers to stay in business, thus slowing growth. Nixon ended the gold standard entirely in 1973, and the dollar’s value plummeted.
Gerald R. Ford (1974–1977)
President Gerald R. Ford inherited stagflation. He cut taxes and reduced regulation in 1975. This ended the recession, but inflation continued.
Jimmy Carter (1977–1981)
President Jimmy Carter’s presidency was also overshadowed by stagflation. He deregulated oil prices to spur domestic production. He also deregulated the trucking and airline industries while expanding the national park system. Iranians took Americans hostage in 1979, and the ensuing geopolitical tensions caused the economy to contract.
Ronald Reagan (1981–1989)
President Ronald Reagan faced the 1981 recession. The Federal Reserve had caused the recession by raising the federal funds rate to 20% to end inflation. Reaganomics promised to end the recession by reducing the increase in government spending, cutting taxes, and deregulating. Reagan instead increased the budget by 2.5% annually. He cut corporate and income taxes but increased the payroll tax to ensure the solvency of Social Security. He also eased bank regulations, which eventually led to the 1989 savings and loan crisis.
George H.W. Bush (1989–1993)
George H.W. Bush faced the 1990–1991 recession that was caused by the savings and loan crisis. He agreed to a $100 billion bank bailout. The recession reduced revenue, which created pressure to cut spending and balance the budget. Bush instead raised taxes, costing him Republican support for his reelection. The first Gulf War also created mild inflation as gas prices spiked.
Bill Clinton (1993–2000)
President Bill Clinton faced no recessions or major wars. He signed the North American Free Trade Agreement (NAFTA), which boosted growth by eliminating tariffs among the United States, Canada, and Mexico. Clinton created an almost $70 billion budget surplus, lowering the debt. The 1993 Omnibus Budget Reconciliation Act raised taxes on the wealthy. Clinton also briefly cut federal spending by reforming welfare in 1996.
George W. Bush (2001–2009)
President George W. Bush faced the 9/11 attacks, Hurricane Katrina, and the 2008 financial crisis. He first fought the 2001 recession with tax cuts. Then he responded to the 9/11 attacks by creating the U.S. Department of Homeland Security (DHS) and launching the war on terror. Hurricane Katrina caused a record $180 billion in damage in 2005, adjusted for inflation. Bush responded to the 2008 financial crisis by sending out tax rebate checks. He nationalized mortgage agencies Fannie Mae and Freddie Mac and insurance giant AIG. He also approved a bank bailout package to prevent a financial collapse.
Barack Obama (2009–2017)
President Barack Obama ended the 2008 recession with the American Recovery and Reinvestment Act (ARRA). The act cut taxes, extended unemployment benefits, and funded public works projects. He bailed out the U.S. auto industry, saving jobs. The 2010 Affordable Care Act expanded health insurance and Medicaid. It slowed the rise of healthcare costs by encouraging more people to receive preventive care so they wouldn’t have to use expensive hospital emergency rooms as their primary source of care. The 2010 Dodd-Frank Wall Street Reform Act strengthened bank regulations. The Obama tax cuts fought ongoing slow growth. Obama ended the Iraq War and wound down the war in Afghanistan. Obama began negotiations on the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP). He also brokered the International Climate Agreement to address climate change.
Donald Trump (2017–2020)
President Donald Trump had no recessions and no wars during his term in office before the 2020 COVID-19 pandemic. He nevertheless signed legislation that increased spending and cut taxes. The Fed responded to those expansionary fiscal policies by raising interest rates. Trump advocated protectionism. He withdrew the United States from the Trans-Pacific Partnership, renegotiated NAFTA, and launched a trade war with China and other trading partners. Trump declared a state of emergency in March 2020 as the coronavirus pandemic broke out in the United States. Nonessential businesses closed, and Americans sheltered in place. Stimulus measures such as the $2 trillion CARES Act were not enough to keep the economy afloat. The GDP averaged 0.325% growth per quarter.
Joe Biden (2021—)
President Joe Biden has so far faced an ongoing coronavirus pandemic, a crisis gas shortage, and the Russian invasion of Ukraine barely into his second year in office. The American Rescue Plan (ARP) addressed some of the economic impacts of COVID-19. Unemployment went down, and GDP growth was stronger than anticipated. Real GDP increased by 2.3% in the third quarter of 2021 and by 6.9% in the fourth quarter of 2021. Cohesive statistics for Biden’s presidency won’t be available yet for some years.
