The anatomy of the Biden-Trump rematch

STANFORD — As the world splits into rival geopolitical and military blocs, economic ties are fraying, and political, military and business leaders worldwide are growing increasingly anxious about America’s presidential election this fall. As is usually the case, the outcome will be heavily influenced by voters’ perception of economic conditions and the incumbent’s economic policies.

In 1980, a recession and high inflation gave rise to the “misery index” (reflecting the inflation rate plus the unemployment rate) and allowed Ronald Reagan to crush the incumbent president, Jimmy Carter. But US Federal Reserve Chair Paul Volcker’s aggressive policies to rein in inflation then caused a deep recession, dooming Republicans to large losses in the 1982 midterm elections. By 1984, however, the annual growth rate had reached 7 per cent, and Reagan was handily reelected.

In the looming contest between former president Donald Trump and President Joe Biden (both of whom have very high disapproval ratings), the economy, once again, is voters’ leading concern, followed by illegal immigration and abortion. On abortion policy, the Supreme Court’s decision overturning Roe vs Wade kicked the issue back to the states, some of which have enacted stringent prohibitions. Democrats thus believe that the issue will weigh in their favour, particularly among suburban women.

The same goes for Trump’s efforts to overturn the outcome of the 2020 election, which are now being adjudicated along with his myriad other legal problems. In a stinging unanimous decision, however, the Court recently rejected Democrats’ attempts to disqualify Trump on the basis of a previously obscure provision of the Fourteenth Amendment. Moreover, Trump’s lawyers have so far succeeded in delaying the trials that would have the greatest consequences for the election.

Meanwhile, Republicans are drawing confidence from the blame Biden gets for the chaos created by a massive surge of illegal immigration following Biden’s reversal of Trump’s border restrictions. With a majority of Americans now in favor of building Trump’s proposed border wall, Republicans believe this issue can secure them not only the presidency, but also the Senate, House, and many state-level offices. “Progressive” district attorneys’ policy of releasing criminals (even violent ones) without bail and refusing to prosecute many offenses has only added to voters’ angst. New York City now has National Guard troops patrolling subways.

Trump also has a loyal, energetic base, whereas Biden’s reelection bid generates almost no enthusiasm, even among Democrats. Still, many Americans strongly oppose a second Trump term and more than 20 per cent of those who voted in the Republican primaries say they will not vote for Trump.

But Biden is not without his own legal and ethical issues. He escaped an indictment for mishandling classified documents (a charge Trump still faces, along with obstruction of justice), but, in ruling out prosecution, the special counsel made a point of highlighting his frequent and glaring memory lapses. And despite Biden repeatedly denying that he ever enabled his son Hunter’s sleazy influence peddling, Hunter’s own congressional testimony suggests otherwise.

Biden is clearly frustrated at not getting credit for low unemployment (which stands at 3.9 per cent), strong growth (which reached an annualised rate of 4.9 per cent and 3.3 per cent in the last two quarters of 2023), and slowing inflation (3.2 per cent as of February 2024). He regularly points to the Bipartisan Infrastructure Law, the Inflation Reduction Act (IRA), and the CHIPS and Science Act as game-changing successes. But a recent poll shows that only 23 per cent of Americans think his policies have helped them, compared to 53 per cent who say they have been hurt by his presidency. For Trump, the figures were 49 per cent and 37 per cent.

Most Americans correctly believe that Biden’s excessive deficit spending was a leading cause of the worst inflation in 40 years. After accounting for inflation, median weekly earnings are down, implying that many households have fallen behind on Biden’s watch. Polls also show Biden losing support among young, Black and Hispanic voters. Given these cohorts’ lower average incomes and relative lack of financial assets, they have been hurt most by high inflation, while benefiting the least from the strong stock market.

Biden and Trump have very different economic-policy agendas, though neither seems especially committed to doing much about the unsustainable US budget deficit (caused primarily by growing entitlement spending) or the rising debt-to-GDP ratio (now almost 100 per cent, up from 40 per cent in 2007).

For his part, Biden wants to spend trillions more on (potentially inflationary) transfer payments, tighten business regulations, and increase taxes on business income and capital gains, all of which would hamper long-term growth. Worse, his military budgets have been light, despite the obvious need to respond to an increasingly dangerous world.

Of course, while Trump criticises Biden’s spending, proposed tax hikes, and regulatory policies, during his first term as president he never showed much interest in controlling spending, either. After introducing sweeping tariffs (many of which the Biden administration has maintained), he is now threatening to impose harmful import levies of up to 60 per cent. He has also suggested that he would abandon NATO if some American allies don’t spend more on defense (which most, including the perpetual laggard, Germany, are now doing).

Beyond these proposals, Trump’s two big campaign promises are to re-establish aggressive border enforcement and to promote US fossil fuels. But though he might try to roll back Biden’s costly green-energy programmes, subsidies, like those established under the IRA, are famously easier to create than they are to repeal.

Whether the US ends up with divided government or one-party control will likely come down to contests in just a few key states. Sometimes, divided government has led to important policy achievements, such as when president Bill Clinton worked with congressional Republicans to reform welfare and balance the budget. On other occasions, it has produced stalemate (which is not so bad if it blocks bad policies).

Some Republicans and many independents (who now constitute the largest voter bloc) approve of Trump’s policies, but worry about his behaviour. But a majority of 2020 Biden voters are deeply concerned about his declining physical and mental acuity. Will wavering Democrats and Republicans ultimately rally behind their parties’ respective candidates, as they have done historically? Given the causes of the deep fissures between and within both parties, most of which will outlast Trump and the strong reactions he elicits, I would advise against relying too heavily on historical precedents this time around. The economy certainly matters; but much else is up in the air.

Michael J. Boskin, professor of Economics at Stanford University and senior fellow at the Hoover Institution, was chairman of George H.W. Bush’s Council of Economic Advisers from 1989 to 1993. Copyright: Project Syndicate, 2024. www.project-syndicate.org