Economics
Democrats need to understand: Americans think they’re worse
Published
3 months agoon
If you think Donald Trump is too crass or cruel or incompetent to be president—if you are disappointed or even astonished that, having tried and failed to subvert the will of the people in the last election, he has come back to win fair and square—you should be asking yourself this question: why, to so many Americans, does the Democratic Party seem worse?
This victory is a tremendous achievement for Mr Trump, who after his loss in 2020 and the attack on the Capitol on January 6th 2021 was counted out even by leaders of his own party. At the time Mitch McConnell, the Senate Republican leader, who privately regarded Mr Trump as “a sleazeball” and “stupid”, called the insurrection “further evidence of Donald Trump’s complete unfitness for office”, according to reporting he has not disputed in a new biography by Michael Tackett, a journalist.
Yet what might seem a psychological frailty—an inability to brook criticism or concede mistakes, much less defeat—has for Mr Trump been a mighty source of political strength, one that intensifies his connection to the voters he has made the base of the Republican Party. As in 2016, Mr Trump wielded his command of that bloc of voters this year to clear a path through crowded Republican primaries, and then relied upon “negative polarisation”, or fear of the other guys, to unite the party. “Can you believe he endorsed me?” Mr Trump chortled at a rally in North Carolina on November 3rd, gloating over how Mr McConnell eventually fell into line. Mr Trump felt no obligation to reciprocate. “Hopefully we get rid of Mitch McConnell pretty soon,” he said.
Mr Trump has shown courage, not only in weathering assassins’ attacks but in insisting on views on trade, entitlements and other matters that a few years ago were heresy within his party. With his sophisticated grasp of new and legacy media and his instinct for the basic needs and fears of many Americans, he has revolutionised how American politics is conducted and shifted the policy terrain over which it is waged. In terms of disrupting what came before, he has had more effect than even Ronald Reagan.
Unlike Reagan—or the other two-term presidents since, Bill Clinton, George W. Bush and Barack Obama—Mr Trump has never been very popular, though he managed, in this third run as the Republican nominee, at last to win the popular vote. Unlike those predecessors, Mr Trump has relied upon division, not addition, for his electoral maths. In his first term his average approval rating of 41% was the lowest ever measured by the Gallup Poll, which began tracking the statistic under Harry Truman. Democrats have good reason to think Mr Trump repels many voters when he calls adversaries “vermin” or “the enemy from within” or says illegal immigrants are “poisoning the blood of our country”.
Yet, after this victory, whatever disdain Democrats have for Mr Trump should be cause only for humility and self-scrutiny. As in 2016, Mr Trump’s broad support will present his adversaries with a Rorschach test in which they can see their preferred image of America, and it will be ugly. For some, white supremacy and misogyny will explain Mr Trump’s success, while others may attribute it to tax cuts and greed. Some will conclude that poor, non-white or female Americans have been ensorcelled into voting against their self-interest. Rather than retreat into some grand theory, they would so better ro think through how, in a divided country, President Joe Biden might have nudged the balance a few points away from Mr Trump, rather than to him. Kamala Harris was no bystander, but pime responsibility lies with the president she served.
Mr Biden did not heed his own warnings about Mr Trump. He tried to eat into Mr Trump’s support with blue-collar workers through giant investments in manufacturing and infrastructure that offered something to everyone. But, unlike Mr Clinton or Mr Obama, he ducked choices that would have respected the concerns of most Americans but disappointed left-wing Democrats. A political strategy of addition still requires some division.
Most egregious, Mr Biden resharpened Mr Trump’s most effective political wedge by doing away with obstacles he had created to illegal immigration, with no alternative. By the time he restored some of Mr Trump’s restrictions this spring, more than 4m migrants had crossed the southern border, compared with fewer than 1m under Mr Trump. That was terrible for the Democrats as a party, and worse for people they want to help and the cause they believe in: under Mr Biden, Americans who say they want a decrease in legal immigration rose from a minority to a majority, as did the number who favour mass deportation.
How to defend democracy
Even where Mr Biden had accomplishments that undermined Mr Trump’s arguments, he let himself be constrained by his party’s loudest activists. Oil production rose to record levels, but Mr Biden did not boast about that. He was also no longer up to the demands of presidential communication that Mr Trump understands so well. He was not constantly, energetically promoting his success in sustaining economic growth and raising wages. His approval rating sagged as low as 36% just asother Democrats were forcing him to face the obvious: he should not be running again. In the short time Ms Harris had, she waged a good campaign. But any politician would have struggled under such burdens. She could not separate herself enough from Mr Biden, or from the video Mr Trump’s ads used, to devastating effect, of her recently declaring positions that were alienating to most Americans.
“We have learned again that democracy is precious,” Mr Biden proudly declared during his inaugural address almost four years ago. “Democracy is fragile. And at this hour, my friends, democracy has prevailed.” Now it has prevailed again. Will Democrats get the message this time? ■
TO GET a sense of what Donald Trump’s first week did to the federal government, talk to people who work in it. “I’ve been with the government for over 10 years, I lived through the first Trump administration, and nothing compares to this,” says one Treasury employee. Some workers are busy scrubbing their personal social media for items that could be interpreted as disloyal. Others are scrubbing up their resumes, anticipating that they will soon be looking for new work. Those who plan to stay expect their jobs to get worse, as colleagues flee or are not replaced. Everyone is “in absolute panic mode”, says another senior civil servant.
As a candidate, Mr Trump promised that he would “shatter the deep state”. Since taking office, it has become more clear what he meant. In a barrage of executive orders, Mr Trump has asserted that he can do just about whatever he likes to the federal government. He has, he claims, “sole and exclusive authority” over the executive branch, to include hiring, firing and all spending decisions. In effect, Mr Trump is claiming he is not merely a president, putting into action laws enacted by the legislature. He is claiming to be something closer to a king, able to withhold or redirect expenditure as he sees fit.
On January 27th Mr Trump revealed quite how far he intends to push. He decreed that all grants and loans that the federal government makes—excepting disbursements for Social Security, Medicare, and some other vaguely defined categories—would be suspended the following day, even though Congress had approved them. This apparent usurpation of Congress’s role under Article I of the constitution was “sweeping and vast” and “really, really illegal”, says Eloise Pasachoff of Georgetown University law school. The memo laid out no legal justification for the freeze and on the evening of January 28th, a federal judge stopped it temporarily. The next day, the administration rescinded its memo; what happens next is unclear. A parallel freeze of all foreign aid created similar chaos.
In the meantime Mr Trump has launched an extralegal power grab almost as ambitious against the federal bureaucracy—the over 2m civil servants who actually implement federal policy. He has directly fired dozens of senior staff, including senior immigration officials, Department of Justice prosecutors and others he and his appointees have identified as being hostile to his goals. These included more than a dozen inspectors general (watchdogs who investigate departmental efficiency and wrongdoing). In the case of the inspectors general, the president is required by law to give 30 days notice and an explicit reason to justify firing. He did neither.
These decisions came on top of a complete hiring freeze across most departments (the military, immigration authorities, as well as jobs related to social security and veterans healthcare are exempt). He also reinstated an unimplemented order from his last term allowing his administration to redesignate any career civil service job as a political job, and thereby remove the usual job protections and sack whomever he wants. He has also pledged to shut down all “diversity, equity and inclusion” jobs, known as “deiA”, in government. To top it off, he banned all work from home.
The aim is transparently to get federal workers who do not like Mr Trump to leave. On January 28th, an email went out from the Office of Personnel Management (opm) offering every single federal employee “deferred resignation”. Essentially, the terms were: agree to leave this financial year and you can work from home until then. The touches—including instructions to reply with the word “RESIGN” by February 6th—implied the influence of Elon Musk, the billionaire head of Mr Trump’s “Department of Government Efficiency”, or “doge”. Since the opm is not actually a corporate hr department, the offer is unlikely to withstand scrutiny. Federal tech employees report that outsiders, many seemingly junior employees of Mr Musk’s companies, have come into offices to take over government it systems and do “code reviews”.
Were Mr Trump to make these changes stick—a questionable prospect—it would amount to “probably the most fundamental alteration of the civil service system since 1883” says Don Moynihan, of the Ford School of Public Policy at the University of Michigan (a verdict many in the White House would love). The president appears to have little interest in the idea that most government officials should be non-partisan specialists whose expertise is deployed to keep the public safe, among other benefits. Under Mr Trump’s plan, decisions about hiring and firing would be made by his political appointees.
According to Max Stier, of the Partnership for Public Service, a charity which works to improve government, Mr Trump is “tearing apart the civil service” so as to recreate “the spoils system” of government that persisted until the end of the 19th century. That was a model whereby new presidents came in and immediately distributed jobs to their pals as a reward for supporting their election campaigns.
Will he succeed? This seems unlikely, says Larry Jacobs, of the University of Minnesota. “Mr Trump’s orders, he says, are “impressively sweeping and breathtaking in their institutional arrogance” but he argues that much of what Mr Trump is trying to do will probably be undone by the courts or Congress. He points out that even after Mr Trump appointed sympathetic new members in his last term, the Supreme Court often overruled him. Congress has ceded much power to the presidency, but controlling the federal purse is a prerogative it is unlikely to yield readily.
Yet it could take years for challenges to work their way through the courts. The damage done in the meantime could be considerable. Employees who find other jobs after being pushed out will not necessarily return just because a court says their dismissal was wrong. Talented new hires will not join. And with government lawyers cowed by fears of firing, all manner of illegality could reign. Mr Stier worries about things like the Internal Revenue Service and the Department of Justice being used to punish Mr Trump’s enemies, without civil service lawyers able to say no.
Even the best-case outcome is not good. In the last Trump administration, hiring freezes caused parts of government to shrink and jam up (see chart). Some of this may have been intended: the issuing of green cards and citizenship applications ground to a halt thanks in part to cuts at the State Department. But queues also lengthened for basic government services like getting passports, or tax refunds.
The “swamp”, as Mr Trump might call it, may feel like a lot of busybodies in Washington dc pushing around bits of paper. It is certainly true that it can often be slow, rule-bound and unaccountable. But a system based more on political loyalty than on merit is one primed for failure. Bureaucrats make sure that foods are not poisonous; that cars do not explode when they crash; and that toxic waste is not dumped into the wilderness. “The federal government is very vulnerable,” says Paul Light, a political scientist at New York University. Mr Trump, he says, risks becoming “the president of ‘I didn’t give a shit and a lot of people got killed.’” Uneasy lies the head that wears a crown. ■
Kash Patel likes conspiracy theories. Luckily for everyone else, conspiracists are normally kept far away from America’s federal law-enforcement and intelligence machinery, with all its powers of surveillance, investigation and arrest. Typically, though, Donald Trump has tested this premise in his choice of Mr Patel to lead the FBI. The 44-year-old lawyer—whose Senate confirmation hearing is on January 30th—has called that organisation “one of the most cunning and powerful forces of the Deep State”. If Mr Trump keeps his promise to retaliate against his enemies, the task will fall to his nominee.
Like Pete Hegseth, who won confirmation as defence secretary by a whisker, in pre-Trump times Mr Patel would have had little chance of running a government agency, let alone one this size. The FBI has 38,000 employees, 55 field offices and an $11bn budget. He lacks management experience, scorns the organisation, and his partisanship flouts a post-Watergate norm that law enforcement and intelligence gathering must be insulated from politics.
Mr Patel’s animus towards the national-security establishment started with the Trump-Russia probe. As a congressional aide, Mr Patel seized on real faults in the investigation, then exaggerated them. An FBI lawyer had doctored an email to support an application to wiretap a Trump campaign adviser; this was illegal, and Mr Patel helped expose it. In his telling, however, he discredited the whole inquiry as a nefarious plot to undermine Mr Trump, orchestrated by the justice department (DoJ) and the intelligence agencies. Mr Patel has called former top brass at the DoJ and the FBI corrupt “crooks” and “gangsters” and asked: “Who’s arresting these guys?”
Perhaps he will. An appendix to Mr Patel’s book names 60 deep-state baddies. Democrats call it the Trump administration’s “enemies list”. Steve Bannon, a MAGA troublemaker, recently conceded that the book “might not be a literary thing”—“more typing than writing”—but said that the list is a good preview of future targets. The president offered a more ambiguous preview on inauguration day when he ordered the attorney-general to scour the DoJ for past instances of lawfare and seek “remedial actions”. By lawfare he meant the two (now dismissed) federal indictments against him and the FBI’s raid of Mar-a-Lago, his Florida estate. Already more than a dozen DoJ lawyers who brought those cases have been fired.
Actual prosecutions against the president’s enemies would be hard. They would contend with judges, juries, defence lawyers and evidentiary rules. Investigations of the type Mr Patel would oversee involve fewer constraints. This is especially true when the FBI can cobble together a national-security justification. Then judicial review for, say, a wiretap becomes less burdensome. Everything is classified to boot.
At the FBI, a culture of complying with the law will militate against baseless expeditions, says Daniel Richman, a law professor at Columbia University and former adviser at the bureau under James Comey, the director whom Mr Trump fired in 2017. But line agents and prosecutors will find it hard to object to an inquiry where there is a coherent basis for one, even if the motives behind it are political. Meanwhile, probes exact punishing costs from their targets.
Mr Patel is especially keen on pursuing leakers and their friends in the media. “When you have an underlying illegality committed by a government agent, anyone that participates in that illegality can and should be charged,” Mr Patel has said. He has also suggested “clawback mechanisms” for the money that news outlets make “by printing lies”.
Equally significant is what Mr Patel might deprioritise at the FBI: namely, investigations of far-right activity. This may pick up as groups that went quiet after January 6th re-form thanks to Mr Trump’s pardons. Mr Patel has insinuated that the FBI had a hand in the insurrection. That is a MAGA conspiracy theory, built on the fact that 26 FBI informants were there that day, including four who entered the Capitol. In truth the riot was among the largest intelligence failures in FBI history.
The fact that Mr Patel is even in contention for the FBI job underscores how much has changed between the two Trump administrations. In the first term, the president moved to install him as deputy director of the cia. Gina Haspel, then its boss, threatened to quit and Mr Trump backed down. He tried the same gambit at the FBI before Bill Barr intervened. Both Ms Haspel and Mr Barr had stature accrued over long, distinguished careers; with that came the wherewithal to say no. Mr Patel, by contrast, owes his ascendancy to Mr Trump. On a podcast last year, he intimated how he would handle a lawful but awful order from the president. “If the guy gives me a lawful chain-of-command authority, you want me to not execute it?”■
Economics
European Central Bank to cut rates again with Trump threat in focus
Published
19 hours agoon
January 29, 2025The European Central Bank is widely expected to kick off its 2025 meetings with another interest rate cut on Thursday, as traders aim to gauge how far the central bank is willing to diverge from a stalled Federal Reserve.
Money markets on Wednesday were pricing in 35 basis points worth of rate cuts for the January meeting, indicating the euro zone’s central bank will cut by at least a quarter-percentage point. That would take the deposit facility, its key rate, to 2.75% marking its fifth trim since it began easing monetary policy in June 2024.
Market pricing then suggests follow-up cuts at the ECB’s March and June meetings, with a fourth and final reduction bringing the deposit facility to 2% by the end of the year.
Expectations for a swift pace of easing this year have solidified, even after headline euro area inflation increased for a third straight month in December. A slight uptick in the rate of price rises was expected due to effects from the energy market, while business activity indicators for the bloc show continued weakness in manufacturing and tepid consumer confidence. Economists polled by Reuters are expecting fourth-quarter growth figures to show GDP expanding just 0.1%, down from 0.4% in the third quarter.
While this week’s ECB rate move is near guaranteed, several key questions remain that its president, Christine Lagarde, will likely be quizzed on during her post-announcement press conference — and many of those relate to the U.S. and its new leader.
One concern is whether the ECB is comfortable with the increasing distance between its own monetary policy path and that of the world’s biggest central bank, the Federal Reserve, which is set to hold rates on Wednesday. Markets are pricing in just two quarter-point rate cuts from the Fed this year, as projected by Fed members in December.
Some strategists suggest the Fed could enact just one cut, and at the very least tread water as it awaits more detail on President Donald Trump’s actual policies versus his extreme trade threats and their potential inflationary impact.
Lagarde acknowledged that divergence in an interview at the World Economic Forum last week, telling CNBC that it was the result of different economic environments. While the euro area has fallen into stagnation, the U.S. economy has continued to grow at a solid clip in the higher interest rate environment, and many investors are optimistic on the 2025 outlook despite Trump uncertainty.
“We have to look at a differentiation here through the lens of growth and the spare capacity that is building up in the U.S. We have an economy that’s performing strongly and rapidly … We can’t say the same thing when we look at the euro zone,” Sandra Horsfield, economist at Investec, told CNBC’s “Squawk Box Europe” on Wednesday.
“That divergence does mean that inflationary pressures are more likely to be sustained for some time in the U.S.,” she said, leading her to forecast one more Fed cut followed by a pause, and a greater scope for cuts in Europe.
Currency drag
The ECB has repeatedly stressed that it is willing to move ahead of the Fed and that it is focusing on its domestic picture of inflation and growth. However, a major impact of policy differentials is in foreign exchange, with higher rates tending to boost a domestic currency.
This reinforces expectations that the euro could be pulled back to parity with the greenback and suggests even further strength for an already-mighty U.S. dollar in 2025. That matters for the ECB, because a weaker currency increases the cost of importing goods, even if the central bank’s bigger concerns right now relate to domestically-generated services and wage inflation.
Lagarde downplayed the impact of this effect, telling CNBC the exchange rate “will be of interest, and … may have consequences.”
However, she also said she was not concerned about the import of inflation from the U.S. to Europe and continues to expect price rises to cool toward target. The ECB president added that bullishness around the U.S. economy was a positive “because growth in the U.S. has always been a favorable factor for the rest of the world.”
Trade question
While a weaker euro could be a factor that spurs the ECB to cut rates with slightly more caution, there is also the possibility that Trump sparks a global or even Europe-focused trade war which further slows euro zone growth and creates the need for even more cuts.
The U.S. president has not re-proposed his idea of sweeping, universal tariffs on imports to the U.S., and is currently zeroed in on duties targeting China, Mexico and Canada. However, in a speech at the World Economic Forum, he accused the European Union of treating the U.S. “very unfairly” on trade, pledging: “We’re going to do something about it.”
Trade wars could disrupt global supply chains and stoke inflation, warranting higher interest rates at the ECB, said George Lagarias, chief economist at Forvis Mazars.
“Inflation and rate risks are definitely on the upside” for the euro zone, he told CNBC by email.
“EU company selling price expectations have flattened and show an upward tendency. This is a leading indicator to the ECB’s own projections … and the Fed will likely be on a more hawkish path, so significant divergence from the ECB could risk flight of capital towards the Dollar,” he added.
On the possibility that the ECB could enact a bigger half-point rate cut, he said: “If we do see a sharp rate cut, it would mean that the board seeks to protect growth in the core of the euro zone, and make sure that political uncertainty in France and Germany or a loose fiscal policy in Italy do not cause a precipitous rise in borrowing rates.”
Bas van Geffen, senior macro strategist at RaboResearch, also said he was “less optimistic when it comes to the inflation outlook than the ECB is, or markets appear to be,” forecasting a fall in rates to 2.25% this year.
“When the ECB incorporates Trump tariffs in their baseline scenario, we would expect higher inflation forecasts on their part too,” he told CNBC.
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