The graph below shows the relationship between the federal budget situation (% of GDP) in the USA and American unemployment.
Blue dots represent years with Democratic presidents, red dots show years with Republican presidents, and green dots indicate years when Trump was president. Until around 2008, we observe a clear inverse relationship between unemployment and public budgets – when unemployment rises, public finances deteriorate. This follows textbook economics and is unsurprising.
An inverse relationship also exists from 2008 to 2014, but with a steeper gradient. This reflects a more aggressive fiscal response to economic downturns than historically seen. One may have various opinions about this, but it demonstrates a higher tolerance in the American political system for budget deterioration, or perhaps a lower tolerance for unemployment.
Around 2015, during Obama’s final presidential year, things began to go seriously wrong, worsening during Trump’s first presidential term.
From 2016 – Trump’s first presidential year – while unemployment was falling, the budget situation WORSENED. The situation deteriorated dramatically in the pandemic year of 2020. Unemployment rose to an average of 8% – an increase of about 3 percentage points. Given the historical relationship between the budget and unemployment, we should have seen a budget deterioration of around 2.5 percentage points. The actual budget deterioration was a massive 10% of GDP.
As for Biden, he did clean up somewhat – the budget situation improved markedly in 2021, though this was primarily due to falling unemployment.
Biden does not receive high marks for his handling of the budget situation, but Trump clearly failed. The graph below demonstrates this very, very clearly.
In fact, during every year of Trump’s presidency, the budget deficit grew – regardless of whether unemployment rose or fell. Therefore, it is reasonable to be very skeptical of Trump when he talks about addressing the enormous American national debt. Sooner or later, this will also impact American government financing costs.
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Links you should have a look at
PAICE – the AI consultancy I have co-founded
“Globale tanker” – if you want to book me for a keynote speech, a lecture or a workshop
