The strange economics behind Trump’s resurgence

The forthcoming presidential election in the US, set to take place in November, is expected to be hotly contested. Unless there is a major unforeseen event, a rematch between former president Donald Trump and the incumbent Joe Biden is most likely. Currently, Trump leads Biden in opinion polls across the board. The latest Harvard CAPS-Harris Poll shows Trump leading Biden by seven points in a one-on-one match up, 48 percent to 41 percent.

Biden is not very popular with the US electorate. One measure that is often used to gauge the public mood, the president's approval rating, shows that as of February 2, only 39 percent of the population approve of his performance. On the other hand, 55 percent disapprove. The gap, also known as the "net image," between these is -16 and is the highest since Biden's inauguration in January 2021, when it was +23 percent. A multitude of factors account for this swing in voter sentiment, but the most important ones are: 1) his handling of the US economy; 2) the ongoing wars and rise in global tension; 3) and the immigration crisis at the US-Mexico border.

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Ironically, the US economy is doing very well and is expected to do even better in the coming months. Unemployment is low, the inflation rate has come down, and real wage for workers has been rising. From another angle, US-Americans are doing much better economically than they were nearly three years ago, when Biden took office. Still, a majority—58 percent—say Biden's policies have made economic conditions worse, according to a September CNN poll conducted by an independent organisation, SSRS. That's up from 50 percent a year ago.

Economic conditions affect elections and the popularity of a sitting president. We have an apparently paradoxical situation now in the US. 

Here's the puzzle in the simplest terms. While the economy is in good shape, the president is not getting enough credit for it. Pollsters and economists say that in recent memory, there has never been such a wide gap between the underlying health of the economy and public perception. A University of Michigan Consumer Survey shows that consumers at the end of 2023 felt more positive about the economy than at the end of 2022. But most registered voters still don't approve of Biden's handling of the economy. 

"Is the nation being gripped with Trumpmania all over again?" Syed Mushtaque Ahmed, professor of economics and director of Bill W Burgess Jr Business Research Center at Cameron University, US asks in frustration. 

What factors contribute to this seemingly topsy-turvy political situation? And why does Trump get credit for economic policy even after being out of power for three years? 

First of all, the Biden era was characterised by inflation, several wars and increasing tension, and rising concerns about immigration. Trump presided over a period of low inflation, low interest rates and low gas prices.

Secondly, Biden's approval rating dipped over the last three years. In contrast, in poll after poll, a majority of US-Americans indicated that they trust Trump to manage the economy better than Biden. Voters remain unhappy with the state of the US economy even though it's shown surprising resilience and strength in the face of inflationary pressures and rising interest rates during the Biden era. Nonetheless, Trump retains a substantial lead among voters on matters of the pocketbook. 

To be fair to Biden, it's worth recalling that when he took over in January 2021, the US economy was beginning to recover from pandemic-induced lockdowns, supply chain disruptions, and high unemployment. Biden and his team got down to work right away and got good results. 

Unfortunately, Biden's economic policies also triggered high inflation. The Federal Reserve raised interest rates to very high levels, and that also hurt some industries. But the US economy, as mentioned before, was able to grow, create jobs, and reduce the inflation rate. Wall Street and many economists characterise this phase of an economy a "soft landing." Whether the US economy has, in fact, achieved a soft landing needs to be seen. 

According to Prof Alan Blinder of Princeton University, there is a lag in perception among the public about the economy. Even if inflation slows down, the average person feels that they are worse off unless prices come down. And, in general, prices never come down, especially for food, housing, and motor vehicles. 

Thirdly, there are some dark spots in the US economy. Some economists, including some with the Fed, have not completely eliminated the possibility of a recession. Wells Fargo published a report pointing to signs of weakness in the labour market. Hiring has slowed, they noted, and just a handful of industries account for much of the recent job gains. Layoffs remain low, but workers who do lose their jobs are having a harder time finding a new one. There were about two job openings for every available worker back in 2022. That's down to 1.4 now, and wage growth has cooled as employers compete less fiercely to hire.

Another issue is the rising level of income inequality. The rich are getting richer, and corporate profits are soaring. Statistically, the average, "median" in statistical language, American is doing well, but the majority are trying to meet both ends. The US labour department just announced that the number of people working a second job has reached a post-pandemic high of 8.4 million. That's about 6 percent of all women in the workplace and around 4.7 percent of men. More people are also using remote work skills for added income. 

Adjusted for inflation, US residents' per capita disposable income (DI) rose nearly one percent from October 2021 to October 2023. By comparison, DI grew about seven percent under Donald Trump during the first 34 months of his presidency.

Biden's team has indicated that in the coming months they will highlight his successes in cutting prescription drug prices, taxing large corporations and billionaires, and aggressively targeting hidden fees (for example, junk fees in airline ticketing and overdraft fees for credit cards). They can also point to a cleaner environment, supporting the renewable energy sector, and subsidies to the semiconductor industry.

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Having said that, what are the chances of a Democratic setback? Seven "swing" states will determine who wins: West Virginia, Pennsylvania, Michigan, Wisconsin, Arizona, Georgia, and Nevada. Theda Skocpol, a professor of sociology and politics at Harvard, warned the Democrats that on-the-fence voters appear to be edging closer to Trump. 

Biden and the Democrats still have nine more months to fix the economy and take credit for lowering inflation while keeping the economy humming with low unemployment. If the Fed lowers the interest rate at its next meeting in March and Biden tones down his warmongering, that might sway voters who believe that Trump would do a better job than Biden on the economy, foreign policy, and immigration.

Dr Abdullah Shibli is an economist and works for Change Healthcare, Inc, an information technology company. He also serves as senior research fellow at the US-based International Sustainable Development Institute (ISDI).

Views expressed in this article are the author's own.

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