(Bloomberg Opinion) -- When billionaire John Paulson was asked why he was hosting a fundraiser for Donald Trump as the former president attempts to regain the White House, here’s what he told a Bloomberg News reporter during an interview at his $110 million Palm Beach estate:
I think Trump did a phenomenal job in his first term as president. Pre-Covid, the economy was probably the strongest it has ever been. The unemployment rate was at historic lows. Domestic manufacturing was surging. Energy production was growing. Our trade deficit was declining. And the economic benefits were being felt broadly at all income levels.
Little of that is true, and the parts that are come with a big asterisk, as Paulson, who made his fortune during the financial crisis running a hedge fund that bet against the US housing market, should know. But in recent weeks, a growing number of billionaires have come out in support of the former president including Blackstone Inc. co-founder Steve Schwarzman, whose $41 billion net worth puts him among the 40 richest people in the world; Oracle Corp. co-founder and Chairman Larry Ellison; Cantor Fitzgerald LP Chief Executive Officer Howard Lutnick; Continental Resources Chairman Harold Hamm; and Home Depot Inc. co-founder Bernie Marcus. Citadel founder Ken Griffin, a Republican donor, has said “for investors, overall, a Trump administration is good for our capital markets” but is waiting to see who Trump picks as his running mate before giving an endorsement.
Few are as explicit as Paulson when it comes to trafficking in “alternative facts” to describe the Trump-era economy and financial markets. Instead, they offer, among other things, vague references to concerns about the economy or government spending — concerns that sound like shorthand for “I want lower taxes and fewer regulations.” The Tax Cuts and Jobs Act of 2017, which is largely seen to have disproportionately benefited the wealthy and big business while adding to the budget deficit, is due to expire in 2025. Whoever wins this year’s presidential election will have to decide whether to extend it.
Never mind the Jan. 6 insurrection at the US Capitol, Trump’s efforts to overturn the election or his mishandling of the Covid-19 pandemic that led to the US suffering the greatest loss of life of any country while he occupied the Oval Office. Let bygones be bygones. C’est la vie. In the fight to preserve democracy, I guess it’s crucial to retain the preferential treatment of “carried interest” that allows private equity and the like to classify earnings as capital gains rather than ordinary income, which is taxed at higher rates, or be free from filling out a few forms explaining how your company is destroying the climate.
Let’s start with the big picture. Consensus was building heading into the last year of Trump’s presidency that the economy was on the ropes. The odds of a recession in the following 12 months doubled to 35% toward the end of 2019 — well before Covid-19 showed up on anyone’s radar screen — from 15% in 2018, according to data compiled by Bloomberg. Analysts were busy slashing their growth forecasts as employers added less than 2 million jobs in 2019, the fewest since 2010, and Trump announced new tariffs on Chinese imported goods.
And now? The odds of a recession in the next 12 months stand at a slimmer 30%. As my Bloomberg Opinion colleague Matthew Winkler recently pointed out, the Business Roundtable’s survey of top CEOs and Duke University’s survey of chief financial officers both currently show rising confidence. The same surveys were in steady decline through 2019.
Yes, the unemployment rate steadily dropped under Trump, reaching 3.5% in 2019, the lowest since the 1960s. Impressive. But wage gains averaged just 3.6% in that final pre-Covid year, compared with 5.8% in the most recent 12-month period, according to the Federal Reserve Bank of Atlanta. Even after adjusting for inflation, workers are doing slightly better under Biden than Trump when comparing those two periods.
As for “historic,” someone might want to point out to Paulson that the unemployment rate held below 4% for 27 consecutive months through April, the longest stretch since the 1960s. (Although May’s reading came in at 4%, it was actually 3.964%.) There’s more gains to come, if the Business Roundtable CEO report is to be believed, as it shows expectations of stronger sales, greater capital spending and more hiring.
Justifying support for Trump by citing excessive government spending under Biden is tenuous at best. Sure, the American Rescue Plan Act, the Infrastructure Investment and Jobs Act, Inflation Reduction Act and Chips and Science Act caused the budget deficit to swell. But the programs are starting to pay off, and the shortfall has shrunk to 5.75%, not all that different than the 4.91% in early 2020 (starting at 3.05% at the end of 2016, the level steadily grew each year Trump was in office). Unlike the Tax Cuts and Jobs Act of 2017, these programs are actually making the US economy stronger. The Chips and Science Act alone, signed into law by Biden in 2022, has led to almost $150 billion of investment in US semiconductor research, development and production.
And as I recently pointed out, the US economy overall has de-levered when you include not just the government but households, businesses and financial institutions. All told, debt in America has fallen to 334% of GDP from the peak of 368% in 2009, according to the economists at Wells Fargo & Co.
This helps explain why demand at the Treasury Department’s debt auctions has not diminished, and non-US investors have added a net $1.02 trillion of Treasuries to their holdings under Biden through March, compared with $1.07 trillion in all four years under Trump. It’s hard to imagine America’s creditors continuing to lend us all this money if they thought the economy under Biden was headed in the wrong direction. The only takeaway is that they see the economy strengthening, helped by the incentives and subsidies the Biden administration has dangled in front of companies to bring their manufacturing back to the US.
A Financial Times analysis a year ago identified “75 large-scale manufacturing announcements in the US” since the Chips and Inflation Reduction acts were signed into law. And although the perception is that Biden has an anti-energy-industry bias, the fact is that the US is the the world’s largest oil producer, a position that has only strengthened under his administration.
It’s often said that a currency is to a nation what a share price is to a company. If true, then America has been a raging buy. The Bloomberg Dollar Spot Index, which tracks the greenback against its main peers, tumbled 11.6% under Trump (including a 6.5% slide during the first three years of his presidency). Under Biden, it has rebounded strongly, soaring 12.7%. In fact, of the 31 major currencies tracked by Bloomberg, the only one it hasn’t appreciated against is Mexico’s peso.
As Robert Rubin, the former Treasury secretary in the Clinton administration, would often say, a strong dollar is in the country’s best interests, and the government should be careful not to undermine trust in the currency. For one, a strong dollar makes it a dependable store of value, which attracts the foreign capital needed to service America’s budget and trade deficits. Second, a strong dollar makes imports cheaper, which helps lower inflation rates.
It’s probably no coincidence that the dollar’s weakness under Trump came as he also floated shortsighted ideas about undermining its strength as a way to help exporters. But despite Paulson’s assertion about the trade deficit narrowing under Trump, it actually expanded, showing that a depreciating currency doesn’t always boost exports at the expense of imports.
It may be a cliche that the stock market is not the economy, but that didn’t matter to Trump. Hardly a week went by without him touting the gains in stocks as a referendum on him, his policies and the economy. Here, too, the numbers tell a different story.
Since the 2020 election, the S&P 500 Index has surged 58.7% while the broader Russell 3000 Index has gained 53.1%. At this point in the Trump administration, the S&P 500 had gained 49.3% and the Russell 3000 was up 47.7%. Those numbers tell only part of the story. As the chart below shows, investors value US stocks much more highly now than under Trump, both on an absolute basis and relative to the rest of the world.
So what about the elephant in the room, otherwise known as inflation? There’s no denying that inflation rates soared under Biden, but the reason is more nuanced than profligate government spending. The big gains in money supply came during 2020, when the government put in place crucial programs to underpin the economy during the Trump lockdowns. Also, disruptions to the global supply chain that limited the availability of many goods may be as much — or more — to blame for inflation than spending.
The thing is, the wealthy and Big Business got what they wanted from Trump: lower taxes and less red tape that came after an executive order that required two regulations be cut for every new one added. It’s not evident that the economy benefited or that financial markets rewarded the Trump administration for these policies. If billionaires backing Trump want lower taxes for themselves and their businesses, they should just say that and make the case for why that would benefit America rather than relying on “alternative facts” about the economy that are easily disproved.
More From Bloomberg Opinion:
- In Jamie Dimon's America, Stocks Already Voted: Matthew Winkler
- If Trump Wins, His Deficits Will Be Yuge: Matthew Yglesias
- If Only Congress Would Focus on the Real Deficit: Karl Smith
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To contact the author of this story:
Robert Burgess at [email protected]
