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Donald Trump’s plans for a second term are those of a dictator. This desire was already evident from his attempt to overthrow the result of the last presidential election and insistence that the Big Lie that he won become the Big Truth of the Republican party. Beyond that, he has recently told Time that he would build vast detention camps for undocumented immigrants, deploy the US army domestically, order US attorneys to prosecute people he dislikes, pardon the January 6 2020 insurrectionists and staff his entire administration with loyalists. He would also throw doubt over Nato security guarantees, so opening Europe to his friend, Vladimir Putin, and launch a global trade war.
In sum, Trump’s return to power in the US, the standard bearer of liberal democracy in the world, could prove the moment when arbitrary despotism became the normal form of human governance, yet again. This threat makes the presidential election six months hence vital for the future not just of the US, but of the whole world.
These, as Joe Biden has said, have long been the stakes for his administration. Yet Americans will not decide the outcome over constitutional issues, however vital. Their priority is the economy. On this, the news for Biden is grim: according to a poll reported in the FT last month, 55 per cent of voters disapprove of his economic record. This helps explain why the polling between Biden and Trump remains so close.
Such doubts over the economic record of the administration are surprising. Comparatively, the performance of the US economy has been a triumph. According to the IMF, GDP per head in the US will rise by 8.3 per cent between 2019 and 2024, despite the pandemic. This is far better than in any other large high-income country. In the UK, the comparable figure is minus 0.2 per cent. (See charts.)
The case for Biden’s defence is laid out in detail in the Economic Report of the President published in March. It is a good one. In the words of one senior official I met in Washington last week: “This is the best example of a US supply-side recovery since the 1960s.” Performance on economic growth, jobs and investment has been outstanding. Inflation has also come down a long way without the rise in unemployment some warned might be necessary.
The unemployment rate in the first quarter of this year was 3.8 per cent, down from 6.2 per cent three years earlier. Over the same period, real personal consumption was up 9.8 per cent and real private nonresidential fixed investment up 14 per cent. Real investment in manufacturing structures was even up by an amazing 101 per cent between the first quarters of 2022 and 2024. The labour force participation rate for those aged 25-54 was 83.5 per cent in April, a level not surpassed since 2002. Private housing units under construction are running at close to 1.7mn units, a level unmatched in the last half century.
This is an economic boom. It is also one of the most important experiments in evaluating the impact on labour markets of running an economy hot. A significant finding in the report is that racial gaps in unemployment and employment have fallen sharply and opportunities for the disabled have also significantly improved.
Behind this performance lies a wave of high-profile legislation, including the American Rescue Plan, the Inflation Reduction Act and the Chips and Science Act. A surprisingly common view is that Biden is close to senile. In fact, this has been the most hyperactive administration since the 1960s. Biden’s energy has been astonishing.
So, why, given this apparently impressive record are so many voters so sceptical? One reason, no doubt, is that there are many passionate opponents of the “big government” that Biden has brought to the US. But if libertarians were a really powerful force today, Trump would not lead the Republicans.
A more important reason is inflation. People hate it. Moreover, after a bout of high inflation, getting it down again is not enough, or at least not for quite a while. The price level is up almost 20 per cent since Biden was elected. People have realised this. Interestingly, those who notice large jumps in grocery items seem to extrapolate them to inflation more widely. It will take a while to forget what things used to cost before recent jumps.
A related problem is the freezing of the housing market. Who wants to sell a house when buying a new one means replacing a cheap fixed-rate mortgage with a far more expensive one? That problem will remain so long as interest rates stay far above where they were.
More important is the fact that perceptions of the economy are political, with Republicans seeing a bad economy when their opponents are in power and vice versa. Today, people do not just have their own opinions; they have their own facts. The economy they see is not the economy they experience day to day. This is no doubt partly due to today’s horrifyingly irresponsible media landscape, which has normalised lying and so, not least, Trump himself.
Robert Reich, former US labour secretary, adds that many ordinary people just do not like the economy they are in, even if it is better than it was a few years ago. They also believe Trump is at least fighting for them. This sort of rhetorical style matters more than economic reality.
Whatever the reasons, there are only six months in which to change people’s minds. Moreover, the economic news might get worse, especially if high rates finally deliver a sharp slowdown, or even get higher.
The election seems as close as its outcome is crucial. Americans alone will contest it. We bystanders can only hope for a happy outcome.
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