Public perceptions of macroeconomic policy during the Bush presidency.

• Author: Dua, Pami

1. Introduction

   This paper analyzes the public's perceptions of macroeconomic policy during the Bush presidency. It links the public's view of President Bush's performance with respect to unemployment and inflation to the actual behavior of unemployment and inflation and the public's expectations of their future behavior. We find that both the level of unemployment and the expected change in unemployment significantly influenced the public's perception of the president's performance. Inflation and expectations about inflation did not play an important role.

2. The University of Michigan Survey Research Center Data

   In an earlier paper, Smyth, Taylor and Dua [15], we employed Gallup Poll data and a quadratic social preference function to examine President Bush's popularity to explain his defeat in the 1992 presidential election. We found that, while inflation had no significant effect on his approval ratings, the president's popularity was reduced by the increase in the rate of unemployment during his administration. We concluded that a major factor contributing to President Bush's defeat in 1992 was his administration's poor performance with respect to the economy.

   One disadvantage associated with Gallup poll data is that Gallup's question is very general. Gallup asks "Do you approve or disapprove of the way Mr. Bush is handling the job of President?" A question about the President's performance with respect to the economy would be more useful. While Gallup does ask such a question from time to time, it is not asked sufficiently frequently for us to be able to use it. Accordingly, in this paper we make use of another survey of public opinion, one undertaken by the Survey Research Center (SRC) of the University of Michigan.

   In a monthly survey of approximately 500 households (a country-wide random sample) the SRC asks the question "As to the economic policy of the government - I mean steps taken to fight inflation or unemployment - would you say that the government is doing a good job, only fair, or a poor job?"(1) From the summary of responses we have constructed the following index of satisfaction with President Bush's performance with respect to the economy.

   SRCPOP = [1 + Fair/(Good + Poor)]Good (1)

   where "Good," "Fair" and "Poor" are the percentages of respondents answering according.(2) If SRCPOP = 50 then as many respondent's rate President Bush's performance with respect to the economy "Good" as "Poor." The larger is SRCPOP the better the president's rating.

   Because SRC respondents are given three choices, while Gallup respondents are given only two choices, it is not possible to construct Gallup and SRC indices that are exactly comparable. Researchers that make use of Gallup data, including us in earlier work, have constructed an index, which is the proportion of respondents answering "Approve" to the Gallup question. We shall denote this index by GALPOP.

   Figure 1 is a scatter diagram between GALPOP and SRCPOP. In the early part of the Bush presidency, until approximately the fall of 1990, there is little connection between the Gallup and SRC indices. For this period we conclude that variations in President Bush's overall popularity, as measured by Gallup, were not due to the public's ranking of his handling of the economy, as measured by SRC. For the second half of the Bush presidency, during 1991 and 1992, GALPOP and SRCPOP move closely together. For this period variations in President Bush's popularity depended crucially on how his government was perceived as handling the economy.(3)

3. The Model and Data

   The basis for our empirical analysis is a quadratic social preference function between the public's satisfaction with the state of the economy, measured by inflation and unemployment. The social preference function is

   SAT = [[Beta].sub.0] + [[Beta].sub.1][P.sup.2] + [[Beta].sub.2][U.sup.2] (2)

   where SAT is the public's satisfaction with the economy, P is the rate of inflation, U is the rate of unemployment and we expect [[Beta].sub.0][is greater than] 0, [[Beta].sub.1] [is less than] 0 and...