Joe Biden and Donald Trump will take the stage in Atlanta with predictable stories about the US economy from 2017 to 2020 (the Trump boom!) and 2021 to 2024 (the Biden recovery!).
But the record is not as simple as either of them will portray. History and data show more blemishes than anyone will admit and a narrative that challenges either political agenda. Here’s what really happened to the economy in the two men’s respective hours.
Trump’s record:
Trump championed deregulation, cutting individual and corporate income taxes and tariffs during his first three years in office. The remarkable fact of those years was the stability of the economy, not any profound change in its performance as he advanced that political agenda.
Economic output, as measured by gross domestic product, grew an average of 2.7% a year from 2017 to 2019, on average faster than the 2.4% rate in the three years before Trump took office. Annual gains in employment, at 2.1 million, were strong but less strong than the annual gains of 2.7 million during the last three years of the Obama administration.
In short, Trump’s policies mattered, but perhaps not as much in the short term as his allies or opponents have argued. His tariffs were not the disasters many economists predicted, and Biden later began his approach to China. The US still has huge trade deficits. His tax cuts didn’t start a boom; they continued an expansion whose most striking characteristic was its longevity, not its pace.
The US was nearly seven years into a recovery from the 2008 financial crisis when Trump took office. Progress had been frustratingly slow but steady, and the US was finally approaching the sweet spot in an expansion when unemployment falls so much that wages rise for everyone, even low-income workers. It finally reached that point in 2019.
Perhaps the most important thing Trump did early in his term was avoid a recession.
One thing hey he didn’t so the budget was softened. Budget deficits normally shrink when the economy is growing, as tax revenues rise and households have less need for government programs such as unemployment insurance or food stamps. Tax revenues rose 6% while spending rose 15% during Trump’s first three years in office, causing the annual budget deficit to rise from $585 billion in 2016 to $984 billion in 2019. Without federal borrowing, rates of economic growth could not have been better than Obama’s.
The response to Covid:
Trump’s response to the COVID-19 outbreak was an explosion of government spending and wealth transfers that pushed the federal debt to $4 trillion in 2020 and government spending rose 47% in one year, a precursor to a burst of inflation.
The legacy of past crises was on the minds of many US officials when Covid struck. During the 2008 crisis, banks and auto companies were bailed out while households were left to sort out their problems in bankruptcy. This time around, a key feature of the bailouts were household aid checks. Trump presided over the first two rounds of such aid and on leaving office proposed a third.
Biden’s record:
Biden and congressional Democrats made those aid checks a central feature of the $2 trillion US Rescue Plan they launched in March 2021.
The US was then about 11 months into an economic recovery. History strongly suggests that there was no need for more federal spending until then. Nor was there a need for the ultra-low interest rate policies advanced by the Federal Reserve, led by Jerome Powell, who was first appointed by Trump and later endorsed for a second term by Biden.
The Fed and Biden’s economic team, including Treasury Secretary Janet Yellen, were haunted by the long, slow recovery from the 2007-2009 financial crisis, which proved costly. They aimed to reduce unemployment quickly. After two decades of extremely low inflation, they didn’t think rising consumer prices would be a problem.
They were wrong.
During Biden’s first three years in office, economic output growth was faster than during Trump’s first three years as president, and employment was faster, thanks to the rapid recovery from the crisis that was fueled by government spending and interest rates. low interest rates.
It turns out that the speed of the recovery meant little for Americans to boost Biden’s economic record because of the accompanying rise in inflation, which was exacerbated by global supply chain disruptions also caused by Covid. Gallup finds that 38% of Americans have confidence in Biden’s economic administration, compared to 46% who have confidence in Trump.
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