What Makes a President Good for the Economy?

While it's no surprise, the two most important issues for the country are the economy and unemployment, according to Gallup. In fact, the number of economic issues mentioned as concerns today are higher than in 2008 -- that year of bank failures, subprime mortgage crises, and when we were actually in a technical recession. Whoever the next president is, he'll have to quell the rising concern about growth, jobs, the deficit, and health care.

But what makes a president well-equipped to deal with these issues?

Fool colleague Morgan Housel offered up a bevy of data, beginning in 1900, which can help you make your own conclusions; but I'll draw upon the data and conclusions from a Georgia Institute of Technology study that looks all the way back to 1789.

A historical ranking

1Franklin D. RooseveltA
2Warren HardingA
2Rutherford HayesA
2William McKinleyA
5Millard FillmoreA-
5George WashingtonA-
7John AdamsA-/B+
7Harry TrumanA-/B+
9John F. KennedyB+
10Bill ClintonB
10Ronald ReaganB

Source: "An Economic Ranking of U.S. Presidents, 1789-2009: A Data-Based Approach," Mark Zachary Taylor.

As you can see, not many present-day presidents cracked the top 10. Just how were these ranked, though? The study looked at measures that increased national wealth, reduced unemployment, minimized inflation, and reduced the trade deficit. (A more detailed overview is available in the report.) The study compiled eight different metrics, including changes in the Dow Jones Industrial Average  (INDEX: ^DJI) , that ranged from drops of 60% to gains of 110% over different administrations. The study then graded each metric on a 4.0 scale, with a combination of curves applied, resulting in a single grade point average (GPA).

The combination of factors helps downplay the importance of stock returns, as even the spectacular 29% annual return of the S&P 500 (INDEX: ^GSPC) during Calvin Coolidge's term only earned him a B-. 

Inherent issues
As Housel states in his article, "In general, presidents get too much credit for the economy when things are good, and too much blame when things are poor." I also believe the repercussions of some administrations' policies to boost the economy in the short term, at the expense of future generations, can easily distort the finite bounds used to judge how presidents affect the economy. For example, part of the fiscal cliff had its origins in the tax cuts that were approved in the early 2000s, and the extension of the cuts in 2010 could be passed on to a new administration.

However, the study notes that it's "a useful step toward a more objective consensus." While it's difficult to measure and assign responsibility for prosperity or hardship, it's important to try in order to improve our decisions as voters.

Important characteristics
Of the study's findings, the most interesting points were:

  • Parties like the Federalists, Whigs, and Republicans that favored business interests scored 2.24 GPA versus their opponents' 1.82.
  • A unified government with the same party in charge of both legislative houses and the executive branch did not result in a better grade. In fact, the highest GPA was earned by presidents whose party only ruled one house of the legislature.
  • Presidents with a middle class background performed the best, followed by those from an upper class upbringing, and then those from lower class origins.
  • Previous jobs and birth order have no discernible effect on performance.
  • As the military-industrial complex might suggest, wartime presidents earned a GPA of 2.36, compared to peacetime presidents' GPA of 1.88. Its no surprise that a company like Lockheed Martin (NYS: LMT) , which earns more than 80% of its revenue from the government, will grow if demand for its defense products increases.

The takeaway
In an era of divisive party lines, where even super committees can't agree when threatened with a deadline and huge program cuts, calmly looking at data and arriving at objective conclusions should be championed. The findings of this study may not have uncovered great truths about what to look for in the next president, but it does help move the conversation to a more sane place.

Additionally, this study only looks at economic performance as measured by its chosen metrics. As a result, an icon like Abraham Lincoln was ranked 26th, with a C-/D+, but the argument could easily be made that, through preserving the country, he set it up for an enormously prosperous future. Sometimes, economic prosperity looses priority to more pressing issues.

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The article What Makes a President Good for the Economy? originally appeared on Fool.com.

Fool contributor Dan Newman has no positions in the stocks mentioned above. The Motley Fool owns shares of Lockheed Martin. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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