Unlock Editor’s Digest for free
FT editor Roula Khalaf has chosen her favorite stories in this weekly newsletter.
Donald Trump’s plan for a second term is that of a dictator. This desire was already evident in his attempts to overturn the results of the last presidential election and his insistence that the big lie he won would become the Republican Party’s big truth. Beyond that, he recently built vast detention camps for illegal immigrants, deployed U.S. troops in the country, and ordered U.S. attorneys to prosecute people they don’t like, and on January 6, 2020 He told Time that he would pardon participants in the rebellion and deploy supporters throughout his administration. He would also question NATO’s security, open Europe to his friend Vladimir Putin, and launch a global trade war.
In summary, Trump’s return to power in the United States, the world’s standard-bearer of liberal democracy, may once again mark the moment when arbitrary despotism became the normal form of human governance. This threat makes his six months before the presidential election crucial to the future of not only the United States but the entire world.
As Joe Biden has said, these have been a gamble for his administration for years. But Americans are not going to decide the outcome on constitutional issues, no matter how important. Their priority is the economy. In this regard, the news for Biden is grim. A poll published by the FT last month found that 55 percent of voters disapproved of Biden’s economic performance. This helps explain why the polls between Biden and Trump remain so close.
Such doubts about the administration’s economic performance are surprising. By comparison, the performance of the U.S. economy has been triumphant. According to the IMF, despite the pandemic, the United States’ GDP per capita is expected to increase by 8.3% between 2019 and 2024. This is much better than other large high-income countries. Comparable figures for the UK are: minus 0.2 percent. (See graph.)
The rationale for Biden’s defense is laid out in detail in the president’s economic report released in March. It’s good. In the words of one senior official I met in Washington last week, “This is the best example of U.S. supply-side recovery since the 1960s.” Performance in terms of economic growth, employment and investment has been outstanding. There was no rise in unemployment that some had warned was needed, and inflation fell significantly.
The unemployment rate in the first quarter of this year was 3.8%, down from 6.2% three years ago. Over the same period, real private consumption increased by 9.8%, and real private non-residential capital investment increased by 14%. Real investment in manufacturing structures increased by a whopping 101 percent from 2022 to the first quarter of 2024. The labor force participation rate for 25-54 year olds in April was 83.5 percent, a level that had not been exceeded since 2002. Units in private residential construction are operating at close to 1.7m units, a level unparalleled in the past half-century.
This is a booming economy. It is also one of the most important experiments in assessing the impact of economic revitalization on the labor market. The report’s key findings are that racial disparities in unemployment and employment have declined sharply, and opportunities for people with disabilities have improved significantly.
Behind this performance is 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 senility. In fact, this was the most hyperactive government since the 1960s. Biden’s energy is amazing.
So, despite this apparently impressive record, why are so many voters so skeptical? No doubt one reason is that Biden is passionate about the “big government” he has brought to the United States. There are many opponents. But if libertarians were truly a powerful force today, Trump would not be leading the Republican Party.
A more important reason is inflation. people hate it. Moreover, after a period of high inflation, it is not enough to bring inflation down again, at least not for a while. Price levels have increased almost 20% since Biden’s election. People realized this. Interestingly, those who noticed a significant increase in food prices seemed to extrapolate it to inflation more broadly. It will take some time to forget what prices were before the recent spike.
A related issue is the freezing of the housing market. Who would want to sell a home when buying a new home would mean replacing a cheap fixed rate mortgage with a much more expensive mortgage? This problem will remain as long as interest rates remain much higher than before.
Even more important is the fact that perceptions of the economy are political: Republicans view the economy as bad when the opposition is in power, and vice versa. Today, people don’t just have their own opinions. They have their own facts. The economy they see is not the economy they experience every day. This is undoubtedly due in part to today’s horribly irresponsible media environment, where lies are the norm, especially from Trump himself.
Former U.S. Secretary of Labor Robert Reich added that many ordinary people don’t like the economic situation they’re in, even if it’s better than it was a few years ago. They also believe Trump will at least fight for them. This kind of rhetorical style is more important than economic reality.
Whatever the reason, it only takes six months to change people’s minds. Moreover, the economic news could get even worse, especially if high interest rates end up leading to a sharp slowdown or if interest rates rise further.
Although the election appears to be a close one, the outcome is extremely important. Only Americans would object to that. We onlookers can only hope for a happy outcome.
Follow Martin Wolf myFT And even more X