On October 19th 2024 The Economist published an article on the American economy titled “The envy of the world”. On June 24th 2024 an article in The Atlantic claimed “The US Economy Reaches Superstar Status”. (these articles may require a subscription) But during the presidential debate on September 24, 2024 Donald Trump said “The people of our country are absolutely dying with what [Biden and Harris have] done. They’ve destroyed the economy.” Exit polling after the election showed that the economy was the major factor in Trump’s win. So who’s right, and how can there be such a difference of opinion? Is the economy good or bad and whose fault is it?
Economists measure the health of the economy using math and data. One important measure is Gross Domestic Product or GDP. It’s a measure of how well the overall economy is doing. You could think of is as the total income of the whole country. (click here for a quick explanation).
Another measure is how many people have jobs. This is usually reported as unemployment, or how many people are looking for one.
Finally, the rate of inflation measures how quickly prices are changing over time. (click here for more).
A ‘good’ economy has rising GDP, low unemployment, and low inflation. Here’s why…
Growing GDP means that business incomes are growing, which means that they need to hire more employees, which lowers unemployment. A good rate of GDP growth is 2% to 3%.
Low unemployment means that workers can demand more pay and consumers have money to spend. As consumers compete to buy more goods suppliers can raise prices (inflation). An unemployment rate in the neighborhood or 3% to 5% is considered good.
Low inflation means that prices and incomes are rising together slowly. Over time the benefit is that payments on long term debt, for instance a mortgage or car loan, shrinks over time as a percentage of income.
The US target inflation rate is 2%.
Looking at the numbers as Biden approached the end of his term, here are the results;
As of July of 2024 US GDP was up 11% since the beginning of his term, roughly in line with long term trends.
As of October 2024 the rate of unemployment was 4.1%.
As of the end of September of 2024 the US inflation rate was at 2.1%.
In normal circumstances these numbers would be unremarkable and consistent with a healthy economy. For instance, at the end of Trump’s presidency GDP was up by 9%, and the unemployment rate was 3.5%.
But clearly many voters are dissatisfied. Are the numbers wrong? Are they missing something? And why is Biden’s economy ‘bad’ while by the same measure Trump’s was the best ever?
The Covid Crisis
What the numbers don’t show is the world wide economic shock starting in 2020 caused by the covid epidemic. The result was catastrophic to economies world wide. In April of 2020 US GDP dropped by 2%, the unemployment rate rose to 18%, and spending plummeted.
In response, the federal government passed a series of bills in an attempt to prevent what most experts predicted would be an inevitable recession. These included:
March, 2020 - Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020
March, 2020 - Families First Coronavirus Response Act116th Congress (2019-2020)
March 2020 - CARES Act
April 2020 - Paycheck Protection Program and Health Care Enhancement Act
October 2020 - Consolidated Appropriations Act, 2021
March 2021 - American Rescue Plan (Biden Administration)
These actions were successful and the economy was on the road to recovery by early in the Biden administration. For those with a stable income and ample savings the financial consequences were inconvenient but manageable. And in some cases there were benefits including historically low interest rates and a soaring stock market.
But for the less fortunate the financial shock could be devastating and life changing. Many lost their jobs, homes, and life savings. Recovery will be slow and some losses may be permanent. For instance, real wages have only recently returned to pre-covid levels. For this group recovery comes at a much slower pace.
So, based on this information is there an answer to the original question? Here are some thoughts;
No individual or government action caused the covid financial crisis. The damage was worldwide.
The US government responded quickly with a series of bi-partisan actions spanning the Trump and Biden administrations. These efforts averted a recession and by early 2022 GDP, and employment were back to normal ranges.
Inflation remained elevated, again throughout the world, but was back to a normal range by mid 2023.
The damage to individuals varied widely, with the worst effects felt by those on the lower rungs of the economic ladder.
Clearly the claim that Biden and Harris destroyed the economy through their policies is false. The economic challenges and subsequent recovery have played out similarly around the world with no example of an alternative approach that resulted in a better outcome. But the lingering effects on working people is real, and there are ways that government can help with their recovery.
So how will the new Trump administration fix the ‘ruined’ economy. With little room to improve on GDP, unemployment, or inflation it seems that the focus should be on improving conditions for the working people who have suffered the most and elected him provide a solution. What would a better economy look like? What specific policies would help achieve it?
Will the promise to deport immigrants, enact tariffs on imports, and dismantle the executive state help? If not, what would? My goal is to report on the successes and failures of the Trump administration so voters can make an informed decision during the mid term elections in 2026.