(Bloomberg Opinion) – When billionaire John Paulson was asked why he was holding a fundraiser for Donald Trump as the former president tries to win back the White House, here's what he said 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. Before Covid, the economy was probably the strongest it has ever been. The unemployment rate was at historic lows. Domestic production was on the rise. Energy production was increasing. Our trade deficit was shrinking. And the economic benefits were being widely felt across all income levels.
Some of that is true, and the parts that come with being a big star should know, 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 rich in the world; Co-founder and Chairman of Oracle Corp. Larry Ellison; Cantor Fitzgerald LP Chief Executive Howard Lutnick; Continental Resources Chairman Harold Hamm; and co-founder of Home Depot Inc. Bernie Marcus. Citadel founder Ken Griffin, a Republican donor, has said “for investors, in general, a Trump administration is good for our capital markets“but he is waiting to see who Trump will choose as a candidate before giving an endorsement.
Few are as forthright as Paulson when it comes to peddling “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 less regulation.” Tax Cuts and Jobs Act of 2017which is mostly seen to have they disproportionately benefited the rich and big business, while adding to the budget deficit, will end in 2025. Whoever wins this year's presidential election will have to decide whether to extend it.
Never mind the January 6 uprising at the US Capitol, Trump's attempts to overturn the election, or his mishandling of the Covid-19 pandemic that led to US suffering the greatest loss of life of any country as he occupied the Oval Office. Let bygones be bygones. C'est la vie. In the struggle to preserve democracy, I think it is essential to preserve the preferential treatment of “carried interest” that allows private equity and the like to classify profits as capital gains rather than ordinary income, which is taxed at higher rates, or to be exempt from filling out some forms explaining how your company is destroying the climate .
Let's start with the big picture. Consensus was building in the final year of Trump's presidency that the economy was on the ropes. The odds of a recession in the next 12 months doubled to 35% towards the end of 2019 – long before Covid-19 appeared on anyone's radar screen – from 15% in 2018, according to data compiled by Bloomberg. Analysts were busy cutting their growth forecasts after employers added fewer than 2 million jobs in 2019, the fewest since 2010, and Trump announced new tariffs on Chinese imports.
And now? The chances of a recession in the next 12 months are 30% lower. 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 growing confidence. The same polls were in steady decline throughout 2019.
Yes, the unemployment rate fell steadily under Trump, reaching 3.5% in 2019, the lowest since the 1960s. Impressive. But wage gains averaged just 3.6% in that last year before Covid, 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 the two periods.
As for “historic,” one might want to point out to Paulson that the unemployment rate stayed below 4% for 27 straight months through April, the longest stretch since the 1960s. (Although May's reading came in at 4%, it was actually 3.964%). There will be more gains, if the Business Roundtable CEO report is to be believed, as it points to expectations for stronger sales, higher capital spending and more hiring.
Justifying support for Trump by citing excessive government spending under Biden is tenuous at best. Of course, The American Rescue Plan Act, Law on Investments and Infrastructure Works, Inflation Reduction Law AND The act of chips and science caused the budget deficit to increase. But the programs are starting to pay off and the deficit has shrunk to 5.75%, not much different from 4.91% in early 2020 (starting at 3.05% in late 2016, the rate rose steadily each year Trump was in office). . Unlike the Tax Cuts and Jobs Act of 2017, these programs are actually making the American economy stronger. The Chips and Science Act alone, signed into law by Biden in 2022, has led to almost $150 billion in investment in American semiconductor research, development and manufacturing.
And as I pointed out recently, the US economy has generally been de-leveraged when it involves not only government, but households, businesses and financial institutions. Still, America's debt has fallen to 334% of GDP from a peak of 368% in 2009, according to economists at Wells Fargo & Co.
That helps explain why demand at the Treasury Department's debt auctions hasn't abated, and non-U.S. investors added a net $1.02 trillion of Treasuries to their holdings under Biden through March, compared with $1.07 trillion over the four years under Trump. It's hard to imagine that America's creditors would continue to lend us all this money if they thought the economy under Biden was going in the wrong direction. The only downside 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 production announcements in the US” since the potato chip and inflation reduction acts were signed into law. And although the perception is that Biden has a bias against the energy industry, the fact is that the US is the largest oil producer in the worlda position that has it only gets stronger under his administration.
It is often said that a currency is to a nation what a share price is to a company. If true, then America has been a buying spree. The Bloomberg Dollar Spot Index, which tracks the greenback against its major peers, fell 11.6% under Trump (including a 6.5% decline over the first three years of his presidency). Under Biden, it has rebounded strongly, rising 12.7%. In fact, of the 31 major currencies tracked by Bloomberg, the only one that hasn't been pegged against it is Mexico's peso.
As Robert Rubin, the former Treasury secretary in the Clinton administration, often said, a strong dollar is in the country's best interest, and the government must be careful not to undermine confidence in the currency. First, a strong dollar makes it a reliable store of value, which attracts the foreign capital needed to service America's budget and trade deficit. Second, a strong dollar makes imports cheaper, which helps lower inflation rates.
It is perhaps no coincidence that the dollar's weakness under Trump came as he also peddled short-sighted ideas about undermining her power as a way to help exporters. But despite Paulson's assertion of a narrowing of the trade deficit under Trump, it has actually expandedshowing that a depreciating currency does not always encourage exports at the expense of imports.
It may be a cliché that the stock market is not the economy, but that didn't matter to Trump. Hardly a week went by without him announcing the stock gains 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 risen 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%. These numbers tell only part of the story. As the chart below shows, investors value US stocks much more now than they did under Trump, both on an absolute basis and relative to the rest of the world.
What about the elephant in the room, otherwise known as inflation? There's no denying that inflation rates rose under Biden, but the reason is more nuanced than rampant government spending. The big gains in the money supply came during 2020, when the government put in place crucial programs to support the economy during Trump's lockdowns. Also, disruptions in 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 rich and big business got what they wanted from Trump: lower taxes and less red tape that came after an executive order required cutting two regulations for every new one added. It is not clear that the economy has benefited or that financial markets have rewarded the Trump administration for these policies. If the billionaires who support Trump want lower taxes for themselves and their businesses, they should just say so and argue why it would benefit America instead of relying on easily dismissed “alternative facts” about the economy.
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