Seat in oval office no guarantee of economic influence.

EVERY four years, presidential candidates exhaust much of their resources on economic policies that ultimately have little impact on the economy.

The reality, say economists, is that credit for the nation's fiscal health or weakness lies elsewhere.

"In the short run, neither the president nor the Congress is nearly as powerful in terms of economic outcomes as is the private sector," said economist Donald Straszheim of Straszheim Global Advisors Inc.

While federal policies can tweak the flow of capital, allowing President Bush to argue that his tax cuts will stimulate growth, how that money is used represents the real engines of economic activity--and that's decided well away from the executive branch.

For all the constraints on presidents, the bind felt at the state level is even greater--certainly in the short term.

Gov. Arnold Schwarzenegger has pushed to lower the cost of doing business in the state through workers' compensation, unemployment insurance and other reforms, yet whether those actions add up to business or job growth is in doubt.

"Governors don't create or end recessions," said Stephen Levy, director of the Center for the Continuing Study of the California Economy. "Pete Wilson did not create the aerospace debacle in the early '90s and Gray Davis did not create the Internet bubble in 2000."

Still, it's hard for voters, the media and the candidates themselves to avoid the scorecard mentality.

Consider the Democrats' take on the Bill Clinton years: the president raised taxes, balanced the budget, lowered interest rates and ushered in a huge economic expansion responsible for "the millionaire next door."

Another view of the economic boom of the late 1990s is held by Ed Leamer, director of the UCLA Anderson Forecast and onetime adviser to former Gov. Pete Wilson.

Clinton, he says, "totally lucked out."

"The real story is we had a sluggish, mature economy in the early '90s and then businesses discovered the Internet. We had a big investment boom," he said.

History repeats

It's not an uncommon phenomenon.

In the decade before Clinton took office, Ronald Reagan slashed taxes as the centerpiece of his economic program. But what many economists saw as the real spur for the boom years in the 1980s was a buildup in military spending. That was, in the view of some economists, a game of chicken aimed at seeing whether the Soviet Union would keep pace with U.S. military spending.

The current Bush administration initiated tax cuts totaling more than $1 trillion that, the President claims, prevented the economy from a free fall after the Sept. 11 terrorist attacks. But it appears to have done little more in the absence of massive military spending, despite the Iraq war.

"What we got was three really great quarters," said Learner, citing growth in the last two quarters of last year and first quarter of this year as directly linked to the tax cuts, which he believes have already sputtered out.

Bush also offered businesses a depreciation credit--essentially another tax cut--to encourage investment in equipment. But with a lingering overhang from tech spending in the late 1990s it hasn't had a significant impact.

Such capital expenditures by business generally portend a rise in employment, the sort of economic impact that plays well with voters. But July's employment report showed there were only 32,000 jobs created.

Bush has used the news to argue the need to make his tax cuts permanent. His Democratic challenger, Sen. John Kerry, wants to end those cuts for upper-income Americans to help close the $500 billion budget gap and make way for possibly big new outlays for health care and education.

Those initiatives, says Straszheim, are "little things around the edges."

Impact of jobs

More important is the recent run-up in oil prices--beyond the control of any U.S. administration--that have hit record levels and could have a deleterious affect on job creation. "Energy costs are an important item on what it costs to hire somebody," said Straszheim.

In addition to what he called the "unsustainable" hike in oil, Esmael Adibi, director of the A. Gary Anderson Center for Economic Research at Chapman University, blames factors such as terrorism jitters and election-year uncertainty for much of the slowdown.

While the lower-than-expected employment numbers sent Kerry on the attack and Bush scrambling, the president may yet be able to argue he has turned things around because job growth is only peripherally tied to fiscal policy. "Most people are putting too much emphasis on these (July) job figures," Adibi said. "It's not as strong as some people are hoping for, but I think this recovery has some legs."

If, however, things continue to limp along, whoever sits in the Oval Office next year could be hindered due to the steps taken by the Bush administration.

Barring a huge jump in tax revenues from an expanding economy, deficits left by Bush's tax cuts will not allow much room for further cuts in a second Bush term, and they leave little room for new spending on Kerry's agenda.

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