A report from the Labor Department yesterday showed that inflation has dropped again, falling back to 2.4%, the same rate as it was just before the coronavirus pandemic. Today the Dow Jones Industrial Average jumped 400 points to a record high, while the S&P 500 closed above 5,800 for the first time.
Washington Post economics columnist Heather Long noted that [b]y just about every measure, the U.S. economy is in good shape. Inflation is back down, growth remains strong at 3%, unemployment is low at 4.1% with the U.S. having created almost 7 million more jobs than it had before the pandemic. The stock market is hitting all-time highs. Long adds that many Americans are getting sizable pay raises, and middle-class wealth has surged to record levels. The Federal Reserve has begun to cut interest rates, and foreign leaders are talking about the U.S. economy with envy.
Democratic presidential nominee and sitting vice president Kamala Harris has promised to continue the economic policies of the Biden-Harris administration and focus on cutting costs for families. She has called for a federal law against price gouging on groceries during times of crisis, cutting taxes for families, and enabling Medicare to pay for home health aides. She has proposed $25,000 in down payment assistance for first-time homebuyers and promised to work with the private sector to build 3 million new housing units by the end of her first term.
The Committee for a Responsible Federal Budget, which focuses on the direct effect of policies on the federal debt, estimated that Harriss plans would add $3.5 trillion to the debt.
Republican presidential nominee Donald Trump has promised to extend his 2017 tax cuts for the wealthy and corporations and to impose a 10% to 20% tariff across the board on imported goods and a 60% tariff on goods from China. Tariffs are taxes paid by American consumers, and economists predict such tariffs would cost an average family more than $2,600 a year. Overall, the effect of these policies would be to shift the weight of taxation even further toward middle-class and lower-class Americans and away from the wealthy.
The Committee for a Responsible Federal Budget estimates that these plans would add $7.5 trillion to the debt.
But there is more: Trump has also made deporting undocumented immigrants central to his promises, and his running mate, J.D. Vance, has claimed the right to determine which government policies he considers legal, threatening to expand deportation to include legal migrants, as well.
Michael Hiltzik of the Los Angeles Times noted on October 8 that in March, the Peterson Institute for International Economics pointed out that the immigrants Trump is targeting are vital to a number of U.S. businesses. Their loss will cause dramatic cutbacks in those sectors. Taken together, the study concluded, Trumps deportations, tariffs, and vow to take control of the Federal Reserve could make the countrys gross domestic product as much as 9.7% lower than it would be without those policies, employment could fall by as much as 9%, and inflation would climb by as much as 7.4%.
And yet, in a New York Times/Siena Poll of likely voters released on October 8, 75% of respondents said the economy was fair or poor. Further, although a study by The Guardian showed that Harriss specific economic policies were more popular than Trumps in a blind test, 54% of respondents to a Gallup poll released on October 9, thought that Trump would manage the economy better than Harris would.
Part of Americans sour mood about the economy stems from the poor coverage all the good economic news has received. Part of it is that rising prices are more immediately obvious than the wage gains that have outpaced them. But a large part of it is the historic habit of thinking that Republicans manage the economy better than Democrats do.
When President Ronald Reagan took office in 1981, he promised that returning to a system like that of the 1920s would make the country boom. He called his system supply-side economics, for it invested in the supply side investors rather than consumers who made up the demand side. The whole thing is premised on faith, Reagans budget director David Stockman told a reporter. On a belief about how the world works.
Under Reagan, deficit spending that tripled the national debt from $995 billion to $2.9 trillion more federal debt than in the entire previous history of the country along with lower interest rates and deregulated savings and loan banks, made the economy boom. Americans watching the economic growth such deficit spending produced believed supply-side economics worked. Tax cuts and spending cuts became the Holy Grail of American politics, and the Democrats who opposed them seemed to be unable to run an economy.
But that belief was not based in reality.
In April the nonpartisan Economic Policy Institute found that since 1949 the nations annual real growth has been 1.2 percentage points higher under Democratic administrations than under Republican administrations (3.79% versus 2.60%), total job growth averages 2.5% annually under Democrats compared to barely over 1% under Republicans, business investment is more than double the pace under Democrats than under Republicans, average rates of inflation are slightly lower under Democrats, and families in the bottom 20% of the economy experience income growth 188% faster under Democrats than under Republicans.
Democratic President Joe Biden returned the country to the proven system that worked before 1981, and the economy has boomed. While Trump has vowed to return to the tax cuts and deregulation of supply-side economics, Vice President Harris has promised to retain and fine-tune Bidens policies.
But Harris has to overcome more than a century of American mythmaking.