Roshni Yaradi

January 18, 2021

In 2016, Hillary Clinton said that Donald Trump “could bankrupt America like he’s bankrupted his companies”^[i] if elected President. At the time, it was yet another clever sound bite that the press used in conjunction with phrases such as, “I mean ask yourself, how could anybody lose money running a casino, really?”^[ii] After all, for most people before November 8, 2016, the idea of Trump winning the election was akin to the idea that pigs might fly.  

Trump has now served almost one full term as President of the United States and many of his policies, including economic ones, have come under increased scrutiny both during his re-election campaign and after his refusal to concede. Though some Americans have fared better under the Trump administration, others have not, making it unclear as to whether it has actually improved across the board. While all the praise or blame for this could be placed on Trump’s policies, one could also cite the continued effects of the outgoing Obama administration. Something major that has to be taken into account when considering the current state of the economy is the COVID-19 pandemic that undoubtedly had adverse effects. 

So, what is the truth? Did Trump tank the economy, fulfilling the Clinton prophecy, so to speak, or did he hold it together considering the circumstances? I would argue that Trump did, in fact, create an economy destined to fail.

In economic theory, right-wing policies tend to fall under the umbrella of classical economics, as opposed to the Keynesian economics typically endorsed by left-wing thinkers. One major difference between these two theories is their time frame; Keynesian economists tend to think short-term, whereas classical economists focus on the long-term. Keynes famously said, “In the long run we are all dead”^[iii] to illustrate the importance of short-term thinking in certain situations. Donald Trump has deviated from tradition and leaned towards Keynesian policies throughout his term in office.^[iv] This article is not meant to be an analysis of these economic theories in the hypothetical sense, so I will instead focus on the practical effects of Keynesian theory under Donald Trump, and touch on Barack Obama’s administration as well, to put the theory in perspective.

Importantly, Keynes himself began formulating his theory because he believed that the country needed a different way of handling economic downturns, such as recessions and depressions. In other words, Keynes’ prescription was mainly meant to be applied to economies in trouble rather than ones in good shape.^[v] It worked for Obama. He emulated Keynesian economics during his two terms, increasing government spending, though also increasing taxes on higher income Americans.^[vi] Though the Obama administration had to deal with the Great Recession^[vii] and a mortgage crisis from the start of his Presidency in 2009, they were able to push the economy to recovery and a subsequent boom. Context is a reason that Democratic presidents other than Obama since Keynes, instead of following Keynesian economics to a T, have implemented some different amalgamations of policies, such as Clintonomics^[viii], unless they had to pull the country out of a recession or depression, like Franklin D. Roosevelt and John F. Kennedy did^[ix].

Trump, unlike Obama, inherited an impressive economy. In fact, the economy hit record levels of employment, median household income, net worth, and stock market level. There was very low inflation and a moderate federal budget deficit.^[x] Trump was able to keep the economic growth going during the first couple years of his term through tax cuts and increased spending. Real GDP, the unemployment rate, and job creation all improved from 2017 to 2020. However, inflation and real wage growth worsened.

Even though the economy was in good shape when Trump took office, the economic policies of the Trump administration closely follow that of Keynesian economic theory – tax cuts and additional spending as described above, both of which increase the federal budget deficit, and the former of which acted to cancel out Obama-era tax increases on the very wealthy.^[xi] The Keynesian nature of the economic policies of the Trump administration show that they are focused on the short-term effects of actions taken even though the economy itself was healthy. The improvement of some aspects of the economy combined with the worsening of others illustrates the temporary nature of Trump’s overall economic plan. The administration was willing to take a chance on the long-term effects of inflation and wage growth in order to temporarily boost the economy, a fact that is reflected in the rise of real GDP but the correlated rise in the inflation rate.

Then, COVID-19 arrived at America’s shores. Due to the federal government’s reluctance to shut down the country and stop the spread of the virus, we are still grappling with the economic effects of the virus’ landfall in the United States. The unemployment rate rose from 3.5% in February 2020 to 14.7% in March. As of November 2020, the unemployment rate is 6.7%.^[xii] Higher unemployment, and the failure of the interest rate to fully recover, are signals of economic distress.^[xiii] The GDP, having hit a peak at $19.3 trillion at the end of 2019, dropped by nearly $2 trillion in Q3 of 2020. It has since recovered to about $18.6 trillion, still $.7 trillion below the peak.^[xiv]

One might argue that Trump’s initial response, or lack thereof, was an effort to control the stock market and avoid creating general panic.^[xv] Practically, though, the GDP is a measure of the health of a country’s economy. A decreased GDP might mean lower earnings for companies and lower stock prices, and generally indicate an upcoming economic downturn.^[xvi] Thus, even if Trump’s aim in his inaction was noble, he ultimately failed and the stock market crashed between February and April.^[xvii] At the same time, the death toll of the COVID-19 Pandemic in the United States hit 354,000 on January 4, 2021^[xviii]; so, the administration not only failed to help the economy, but failed to protect the country’s citizens. 

Those who defend Trump’s economic policies may argue that it is unjust to cite the pandemic as a point of comparison. After all, a global pandemic is not a typical economic downturn, in that it contains much more uncertainty than natural economic downturns do because of the added factor of a rapidly spreading virus. Even so, if a pandemic did not occur in 2020, it is very likely that the economy would have seen another downturn. 

Based on general macroeconomic theory, an increase in inflation, as seen in Trump’s economy, corresponds to a decrease of purchasing power for consumers, and Trump’s tax cuts were inefficient in spurring demand to overcome this because they largely went to high-income individuals. On the supply side of the economy, there was a marked decrease in business investment. Business investment is a critical measure of economic growth, and its decrease points towards a decrease in GDP.^[xix] Both phenomena occurred long before COVID-19 and point towards the long-term downward economic trend that was not reflected in the short-term numbers.^[xx] Further, because of his low-tax/high-borrow policies, Trump increased the federal budget deficit from less than $0.5 trillion in 2015 to almost $1 trillion in 2019.^[xxi] Importantly, increased deficits make it more difficult for an economy to grow because of higher interest rates and disincentivizing consumer borrowing.^[xxii] I would argue that such problems occurred because Trump, committed to thinking short-term, implemented economic policies in a healthy economy that were meant to be implemented in unhealthy ones.

A common objection that proponents of Trump’s economy would cite against the argument I pose here involves the state of the stock market. It is true that the stock market was in good shape and was growing sharply pre-pandemic.^[xxiii] However, the stock market is not a valuable indicator of economic security for most Americans. A healthy stock market, though important for a well-off economy, is not sufficient to indicate economic health for the majority of Americans.^[xxiv]

Trump had to file for bankruptcy for his casinos – that he assembled by “borrowing money at such high interest rates… that the businesses had almost no chance to succeed”^[xxv] – due to “high debt and lagging revenues.”^[xxvi]The parallels that can be drawn between Trump’s business acumen and his economic policies are almost poetic; the same tendency to borrow large sums of money with a focus on temporary gains and subsequent long-term loss is present in both. Maybe Trump’s comfort with short-term thinking is why he took a detour from the regular Republican economic playbook. Whatever the reason, even if we ignore the effects of the pandemic, Trump’s economic policies resulted in an economy headed towards ruin. Hillary Clinton had the right idea, after all: Trump ended up running the country like he did his businesses, and had COVID-19 not hit, it is likely that he would have bankrupted America anyway. We are lucky that he did not get the chance.

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^[i] Liz Kreutz, “Hillary Clinton Warns Trump ‘Could Bankrupt America Like He’s Bankrupted 

His Companies’,” ABC News, November 14, 2020. https://abcnews.go.com/Politics/hillary-clinton-warns-trump-bankrupt-america-hes-bankrupted/story?id=39316927

^[ii] Liz Kreutz, “Hillary Clinton Warns Trump ‘Could Bankrupt America Like He’s Bankrupted His Companies’,” ABC News, November 14, 2020. https://abcnews.go.com/Politics/hillary-clinton-warns-trump-bankrupt-america-hes-bankrupted/story?id=39316927

^[iii] Dr. Yi Wu, “In the Long Run We Are All Dead: Keynesianism, Political Economy, and Revolution by Geoff Mann,” FT Adviser, September 25, 2019. https://www.ftadviser.com/european/2019/09/25/in-the-long-run-we-are-all-dead-keynesianism-political-economy-and-revolution-by-geoff-mann/#:~:text=Keynes’%20famous%20quote%2C%20%E2%80%9CIn,as%20those%20with%20specialist%20knowledge.

^[iv] Kevin Drum, “Donald Trump is a Keynesian,” Mother Jones, December 28, 2019. https://www.motherjones.com/kevin-drum/2019/12/donald-trump-is-a-keynesian/

^[v] Adam Davidson and Alex Blumberg, “Obama Gives Keynes His First Real-World Test,” NPR, January 29, 2009. https://www.npr.org/templates/story/story.php?storyId=100018973

^[vi] “Economic policy of the Barack Obama administration,” Wikipedia. https://en.wikipedia.org/wiki/Economic_policy_of_the_Barack_Obama_administration#:~:text=The%20economic%20policy%20of%20the,deficit%2C%20and%20decrease%20income%20inequality

^[vii] Robert Rich, “The Great Recession,” Federal Reserve History, November 22, 2013. https://www.federalreservehistory.org/essays/great_recession_of_200709#:~:text=December%202007%E2%80%93June%202009,longest%20since%20World%20War%20II.&text=The%20Great%20Recession%20began%20in,recession%20since%20World%20War%20II

^[viii] “Economic policy of the Bill Clinton administration,” Wikipedia. https://en.wikipedia.org/wiki/Economic_policy_of_the_Bill_Clinton_administration

^[ix] Kimberly Amadeo, “Democratic Presidents and Their Impact on the U.S. Economy,” The Balance, October 28, 2020. https://www.thebalance.com/democratic-presidents-impact-on-economy-4129132

^[x] “Economic policy of the Barack Obama administration,” Wikipedia. https://en.wikipedia.org/wiki/Economic_policy_of_the_Barack_Obama_administration#:~:text=The%20economic%20policy%20of%20the,deficit%2C%20and%20decrease%20income%20inequality

^[xi] “Economic policy of the Donald Trump administration,” Wikipedia. https://en.wikipedia.org/wiki/Economic_policy_of_Donald_Trump_administration

^[xii] “Civilian unemployment rate,” U.S. Bureau of Labor Statistics. https://www.bls.gov/charts/employment-situation/civilian-unemployment-rate.htm

^[xiii] Peter Westfall, “Guide to Unemployment,” Investopedia, October 26, 2020. https://www.investopedia.com/terms/u/unemployment.asp#:~:text=Unemployment%20occurs%20when%20workers%20who,may%20signal%20an%20overheated%20economy.

^[xiv] “Economic policy of the Donald Trump administration,” Wikipedia. https://en.wikipedia.org/wiki/Economic_policy_of_Donald_Trump_administration

^[xv] Amber Phillips, “Was the stock market the object of Trump’s ‘don’t create a panic’ coronavirus approach?” The Washington Post, September 10, 2020. https://www.washingtonpost.com/politics/2020/09/10/was-stock-market-object-trumps-dont-create-panic-coronavirus-approach/

^[xvi] Leslie Kramer, “What Is GDP and Why Is It So Important to Economists and Investors?” Investopedia, October 17, 2020. https://www.investopedia.com/ask/answers/what-is-gdp-why-its-important-to-economists-investors/

^[xvii] “2020 Stock Market Crash,” Wikipedia. https://en.wikipedia.org/wiki/2020_stock_market_crash#:~:text=The%202020%20stock%20market%20crash,and%20ended%20on%207%20April.&text=The%20crash%20signalled%20the%20beginning%20of%20the%20COVID%2D19%20recession.

^[xviii] “Coronavirus disease statistics,” Google, January 4, 2020. https://www.google.com/search?q=covid+deaths+us&oq=covid+deaths+us&aqs=chrome..69i57j0i433j0i131i433l2j0i20i263i433j0l3.4717j0j1&sourceid=chrome&ie=UTF-8

^[xix] “Business Investment Spending Slowdown,” Every CRS Report, April 9, 2018. https://www.everycrsreport.com/reports/IN10882.html

^[xx] Josh Bivens, “The Trump administration was ruining the pre-COVID-19 economy too, just more slowly,” Economic Policy Institute, October 21, 2020. https://www.epi.org/blog/the-trump-administration-was-ruining-the-pre-covid-19-19-economy-too-just-more-slowly/

^[xxi] “Federal Deficit Trends Over Time,” USA Spending. https://datalab.usaspending.gov/americas-finance-guide/deficit/trends/

^[xxii] John W. Schoen, “How does the federal deficit affect me?” NBC News, March 10, 2005. https://www.nbcnews.com/id/wbna7089617

^[xxiii] Josh Bivens, “The Trump administration was ruining the pre-COVID-19 economy too, just more slowly,” Economic Policy Institute, October 21, 2020. https://www.epi.org/blog/the-trump-administration-was-ruining-the-pre-covid-19-19-economy-too-just-more-slowly/

^[xxiv] Josh Bivens, “The Trump administration was ruining the pre-COVID-19 economy too, just more slowly,” Economic Policy Institute, October 21, 2020. https://www.epi.org/blog/the-trump-administration-was-ruining-the-pre-covid-19-19-economy-too-just-more-slowly/

^[xxv] Russ Buettner and Charles Bagli, “How Donald Trump Bankrupted His Atlantic City Casinos, but Still Earned Millions,” The New York Times, June 11, 2016. https://www.nytimes.com/2016/06/12/nyregion/donald-trump-atlantic-city.html

^[xxvi] Russ Buettner and Charles Bagli, “How Donald Trump Bankrupted His Atlantic City Casinos, but Still Earned Millions,” The New York Times, June 11, 2016. https://www.nytimes.com/2016/06/12/nyregion/donald-trump-atlantic-city.html