Understanding the US Economy Beyond Politics

INDEPENDENT ANALYSIS: Donald Trump’s election victory has been widely blamed on Trump’s contention that the US economy under Biden was a disaster in slow motion. In fact, the American economy is widely seen as exceptionally solid. The US is dealing with inflation, but so is everyone else. Economic growth during most of the Biden administration was almost identical to that of Trump’s first term in office, 2.2% under Biden vs 2.3% under Trump. The fly in the ointment is the recent surge in inflation, which is largely an aftershock from the COVID-19 pandemic. that brought most of the global economy to a halt in 2020. (You can subscribe to Bill Dowell’s Substack column – A Different Place – with articles and essays, some of which are regularly featured in www.global-geneva.com)

It’s easy to forget just how enormous the shock from COVID-19 really was. Many Americans were in danger of losing their homes and facing bankruptcy. More than 20 million jobs were lost and US unemployment peaked briefly at 14%. Under most of the Biden administration, it hovered at around 3.5%. That was largely due to Joe Biden’s American Rescue Plan which injected $1.9 billion into the US economy. The emergency cash transfusion provided a ‘soft landing’ but it also led to inflation.

The most visible impact was in skyrocketing food prices. Other factors contributed to the sudden surge. Russia cut off Ukraine’s massive wheat exports to the Middle East which created a scramble to deal with the shortage. Climate change began to have a significant impact on the world’s farming, with unexpected droughts and floods damaging harvest. At its peak in 2023, grocery prices rose an astounding 13% in one year. By the end of Biden’s term, grocery price increases had stabilized around 1.1%.

For the average American voter, the chaos was symbolized by the dramatically increased price of a dozen eggs. Something had to change, and Trump offered a self-confident answer to growing consumer uneasiness.

Misunderstandings over the economy may have nudged Donald Trump across the finish line, but what is about to happen now has nothing to do with the economy. Trump plans to place inexperienced, and for the most part incompetent people to head America’s most important government agencies. Their mission is not to make these agencies work more effectively; it is to make them fail.

How did we get here? fact is that although the aggregate US economy is strong, the real problem is the way in which American wealth is distributed and to whom. According to the Congressional Budget Office, the top 10% of American families control 60% of the Country’s wealth, while the families at the bottom half control just 6%. The top 1% holds 27% of the nation’s assets. The inequality that is troubling America is not due to any great business acumen on the part of a few billionaires. It is more proof of the old adage that the rich tend to get richer while the poor get poorer. As a country’s center of gravity shifts towards the wealthy, dissatisfaction and frustration grow among the losers in this economic equation. We have been there before. In history, either a sense of balance is restored, usually through some form of democratic election, or if that proves impossible and there is no reasonable alternative, it is handled by violent revolution.

A sense of civic responsibility and a commitment to the common good is necessary for any nation’s survival. The US began with the realization that survival depended on a joint investment in the common good. Pennsylvania, Massachusetts, Kentucky and Virginia refer to themselves as “Commonwealths”.

Alexander Hamilton went to great lengths to convince the original 13 colonies that the union could only survive if the wealthier colonies provided financial support to the smaller colonies. That was especially true when it came to defense. Education and healthcare soon followed. The point was to achieve standards that applied to the entire country—not just the wealthier parts of it. The American Revolution was ignited by Britain’s determination to tax its colonies while excluding anyone born on the American continent from having a say in determining their destiny. Taxation by the Continental Congress constituted an investment in America’s common good. It was America’s investment in itself that eventually made America great.

In 1986, a political activist, Grover Norquist, dented that policy when he convinced Republican members of Congress to sign a pledge not to increase taxes. Norquist joked that he wanted to shrink the government until it was so small he could drown it in a bathtub. He neglected to mention that taxes are, in fact, an investment in the nation. Without that investment, infrastructure crumbles, random disease becomes epidemic, and much of the population drifts into an uneducated mob, easily influenced to act against its interests. Eventually, the nation withers and dies.

Franklin Roosevelt realized the need to invest in the nation, but he also felt that the greatest part of that investment should come from the wealthy who are most able to afford it. The result was the graduated income tax.

Over time, it’s easy to forget that society depends on investment by those most able to do so. President John Kennedy tried to remind us when he urged Americans not to ask what the country could do for them, but rather to focus on what they could do for the country.

Instead of sharing their collective responsibility, the wealthy have increasingly used their money to buy their way out of paying taxes, leaving the burden on those least able to afford it. As a result, much of our national infrastructure is falling to pieces.

The ability of American businesses to compete in the rest of the world is turning out to be a mixed bag, not because of foreign competition, but because the products we actually do produce are often not competitive. American business depends on cutting costs and firing workers and, more lately, on transferring economic operations out of the country. The aggregate profits are there; they simply don’t reach huge swaths of the American public.

The unspoken American mantra is that people are worth what you pay them and that it makes sense to pay as little as possible. The MBAs call that efficiency. But it’s also an axiom that if people no longer have enough money to buy anything, there is no point in producing new products. The effect of endless cost-cutting is to create a downward spiral leading not just to mass poverty, but also to a frozen economy in which nothing happens.

For several decades, America has been living an illusion. Starting in the 1970s, American corporations began seriously transferring most of their manufacturing to China and the Third World, where they could take advantage of cheap labor. The human cost of making hundreds of thousands of American laborers redundant had little impact on efficiency-obsessed CEOs, whose usual reply when asked about the cost of mass layoffs to society was, “Not my job.” But if not these executives, then who? As new technologies disrupted the economy at an accelerated pace, the job of easing the transition from outmoded forms of labor to new industries was left to the government, but the government was progressively left with less money and less power to ease the pain. Meanwhile, the entrepreneurs leading these new technologies were turned into billionaires overnight. Their mantra was: Move fast and break things.

Taking advantage of inexpensive labor in the impoverished Third World led to cheaper products being sold to millions in America’s lower economic brackets by mass distributors like Walmart and Costco. The illusion was that the lower economic classes, including most of the new minorities, were moving into a larger Middle Class.

Donald Trump’s insistence on funding the government with import tariffs will put an end to that illusion. Literally, everything will become more expensive, and lower-income workers who are now trying to hold down two or three jobs to make ends meet will finally be dumped in the cold. Engage in mass deportation of immigrant workers, and you will find that construction sites that currently depend on those workers will grind to a halt. Restaurants from McDonald’s to chic bistros will suddenly find that they can’t hire staff. The cost of eating out will become unaffordable to many.

Automation and artificial intelligence would inevitably have replaced mass labor in factories regardless of which policies were in place. The fact that America had transferred much of its manufacturing overseas might have cleared the way for America to move forward with a modicum of pain, but that was only possible if the country as a whole could agree to see to the needs of the population whose jobs were being made redundant. It makes sense that if you want to lead a population through change, first make them confident in the future. America has done the opposite. You don’t equip a country for change by denying science and skimping on its public education.

Donald Trump’s ability to fuel the frustrations of those who feel that they are being left behind undoubtedly explains his election success. The fact that Joe Biden was, as one commentator put it, “rhetorically challenged,” was undoubtedly a major reason that Democrats lost. Kamala Harris turned out to be more articulate than Biden but appeared too late in the game to convince the public that she could do anything different.

Instead of correcting what’s wrong, Donald Trump appears determined to move in a direction that is certain to make things worse. Not least of his absurd recent choices is his intention to appoint Elon Musk and Vivek Ramaswamy to a new government department that will theoretically attempt to reshape the US civil service by eliminating the fat. Forget the fact that Elon Musk’s efforts to reshape Twitter turned into a management disaster or that Tesla’s investors had asked themselves whether he should be fired for erratic behavior, or that Musk, a first-generation immigrant from South Africa has absolutely zero experience or understanding of how the US government actually works.

What clearly matters to Trump is that Musk is at least on paper on his way to becoming the planet’s first trillionaire. No question, that he is a brilliant, innovative, and imaginative entrepreneur, especially when it comes to electric cars and reusable spaceships, but as the current richest man in the world, he can only imagine what it is like to experience the economic hardships faced by a growing number of Americans. In fact, he has made it pretty clear that he could care less. He has tangled with the board of Tesla, made a total hash out of Twitter, which he renamed X, and divided his already fractured attention between a number of risky start-ups, none of which are confident about the future. Musk’s advice will no doubt be to further exacerbate what has been troubling America, not to control it.

Entrepreneurs are great at starting new companies. They are often lousy at maintaining their own companies once they reach a certain size. Stability, predictability, and comforting routine are not part of the entrepreneur’s zeitgeist. And yet Trump, who made little or no sense during the election campaign, picked Musk to remake America. His other choices have been even more suspect.

To anyone who listened closely, Donald Trump seemed to be rambling incoherently through much of the recent election campaign. His choices of the people he thinks should run the government are frankly idiotic, yet he is legally president, and for better or worse, we are stuck with him. It’s a replay of the emperor’s new clothes. Mitch McConnell and Trump collaborated on packing the US Supreme Court, which weakened its credibility as an independent third branch of government. Trump is now expected to turn the Republican Senate and House of Representatives into unthinking robotic clones, pledged to march in step to his Pied Piper’s tune. The American public elected this guy. It’s now up to the Republicans in Congress to decide which they care about more: the future of the nation or their careers. The record so far has not been encouraging, but as Groucho Marx used to say: It’s not over until the fat lady sings.

Veteran foreign correspondent and author William Dowell is Global Insights Magazine’s America’s editor based in Philadelphia where he writes his regular Tom’s Paine column. He is also a contributing editor to Who,What,Why. Dowell has worked for ABC News and other news organizations, including TIME Magazine in Hong Kong, Cairo, and Paris. He has reported from five continents – most notably the War in Vietnam, The Revolution in Iran, the Civil War in Beirut, Operation Desert Storm, and Afghanistan. He also taught Literature of Journalism at New York University.

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Understanding the US Economy Beyond Politics

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