The Return Of Trumponomics Could Reverse The US’s Economy’s Spiral Of Decline
Matthew Lynn
6 min read
FILE PHOTO: U.S. President Donald Trump delivers an update on the so-called Operation Warp Speed program in an address from the Rose Garden at the White House in Washington, U.S., November 13, 2020. REUTERS/Carlos Barria/File Photo - Carlos Barria/REUTERS
Will he be allowed to run while facing a potential trial? Can a former President be convicted? Could he somehow negotiate a plea bargain that gets him off the hook and, if not, will the former adult film star Stormy Daniels appear in the dock?
Political analysts, meanwhile, will spend hours debating whether it will stir up his base enough to deliver the Republican nomination, or whether it will so alienate the moderates within the party that it will open the way for one of his rivals to seize the crown instead.
America has now entered into unchartered waters. Trump stands accused of paying hush money to Daniels to cover up details of their relationship, which reportedly may have involved falsifying records and, more seriously, could have involved breaches of election law.
Predictably, Trump's most ardent supporters have expressed outrage on social media, accusing the "establishment" of stitching up their champion.
Moderate Republicans are concerned that, by distancing themselves from the former leader, they might alienate the swing voters who may determine the outcome of the next general election. Either way, we should distinguish between Trump, the man, and Trump's policies. His actions will be judged by a New York grand jury; his policies by economists and the American public.
FILE - President Joe Biden speaks during a Summit for Democracy virtual plenary in the South Court Auditorium on the White House campus, Wednesday, March 29, 2023, in Washington. Biden on Friday will visit a Mississippi town ravaged by a deadly tornado even as a new series of severe storms threatens to rip across the Midwest and South. (AP Photo/Patrick Semansky, File) - AP Photo/Patrick Semansky
For all his personal baggage, Trump was, at least as far as the economy was concerned, a more successful President than his successor has been. Growth accelerated, the stock market boomed, unemployment fell, and it was the first administration in at least two decades to cut back on taxes and regulations.
The US doesn’t need Trump. He is a divisive figure with a history which is about to become even more chequered. But it does need a fresh blast of Trumponomics in 2024 to break out of a spiral of decline. The US remains the world's largest national economy, and the world's top destination for foreign direct investment. A growth surge in America could provide a boost to global activity.
Over the first three years of his administration before the coronavirus pandemic gripped the globe, growth averaged 2.5 per cent – higher than the 2.3 per cent seen under Obama. The stock market soared to new highs, led by a clutch of tech giants that doubled or tripled in size.
Until the pandemic, unemployment was driven down to just 3.5 per cent, the lowest rate in the US in more than half a century. Even better, the real growth in jobs, and wages, came for blue-collar workers, who saw their first sustained increase in living standards for a couple of generations. Real wages grew at an impressive 2.3 per cent per year while Trump was in the White House.
By the end of his term, 4.2 million fewer people were living in poverty in the US, the biggest sustained decrease since Lyndon B Johnson was President in the 1960s. Oh, and inflation? No one ever mentions it, because no one was worrying about price rises – they were too low to bother about.
A 35 per cent rate of corporation tax that had become wildly out of line with every other major economy in the world (even France cut its rate ahead of the US) was slashed all the way down to 21 per cent in a single stroke, transforming the competitiveness of American industry.
Long overdue reforms of personal taxes simplified a system that had become weighted down in its own complexity. Just as importantly, he took a hatchet to red tape and regulations that had turned what used to be the most enviably can-do, enterprising society in the world into an awkward place to start a business. By contrast, under Obama the rate of business formation fell below the UK per capita.
Two regulations had to be repealed for every one that was introduced. It is difficult to judge the full extent to which Trump was able to roll back regulatory overreach, but it is certainly the case that his administration added far fewer new rules than its predecessors.
According to the American Action Forum, Trump imposed annual net regulatory costs of $10 billion, compared to $111 billion for the Obama administration and $43 billion for the George W Bush administration. And enterprise zones, sometimes no bigger than a city block, used tax and regulatory breaks to boost deprived areas. It was hardly complex, but Trump managed to drive it though effectively, a feat that eluded his predecessors.
The contrast with Biden is stark. In almost three years since he entered the White House, inflation has soared out of control, forcing the Federal Reserve to hike interest rates to the highest level in almost two decades.
Real wages have fallen by 4 per cent since he took office, hitting workers across the board. Banks have collapsed, and the stock market has tanked.
It is true that the US economy was knocked sideways by the pandemic. But that does not excuse Biden's subsidies for green industries through his Inflation Reduction Act.
The President is doubling down on the protectionism which Trump flirted with, onshoring production to the dismay of our Business Secretary Kemi Badenoch. And Biden has been forced to scramble around desperately for any taxes he can raise to pay for it all, especially now that inflation makes it impossible for him to print money with the same enthusiasm as during the first year of his term.
If Trump has one of the best economic records of the last fifty years, Biden has one of the worst. And with the US on the brink of a potentially major recession, and a full-scale banking collapse, it is still possible it may deteriorate before 2024.
Sure, Trump wasn't Reagan 2.0. He had none of the grace, wit, and charm that made his 1980s predecessor such a powerful and successful ambassador for free market, pro-entreprise liberalism. But he was far better than the tax raising, wild spending Biden.
Trumponomics can still triumph in 2024 – and that is precisely what the US economy needs right now.
