When Ronald Reagan beat Jimmy Carter in the 1980 presidential election, 10 short words proved decisive. After a period in which high inflation had eroded living standards, the Republican challenger for the White House asked voters: “Are you better off than you were four years ago?”
The simple question that resonated so strongly with US voters 44 years ago has resurfaced in 2024 as the race between the vice-president, Kamala Harris, and the former president Donald Trump goes down to the wire.
By any objective measure, the answer to the question today should be “yes”. Under Joe Biden, the US economy has created more jobs (16m) than during any four-year presidential term since the second world war. In the three years before the Covid crisis caused mass – mostly temporary – layoffs in 2020, the economy under Trump created just under 7m jobs.
And if growth has been modest compared with the far more rapid expansion in the 1950s and 1960s – averaging just over 2% under Biden – it has been considerably faster than in other leading industrial economies.
Every member of the G7 group plunged into recession when the pandemic struck, but the US has posted by far the strongest recovery. Figures supplied by the House of Commons library showed the US economy almost 11% bigger than it was at the end of 2019, compared with a rise of 3.9% for the eurozone and 2.9% for the UK.
Nor is this just a recent phenomenon. Since 2010 the US economy has grown by 34%, the EU by 21% and the gap in per-capita incomes has widened steadily over time. Last month’s hard-hitting report on EU growth by Mario Draghi, a former European Central Bank president, highlights the US lead over Europe in hi-tech sectors and says the bloc is caught in a “middle-tech trap”.
Europe has its share of world-beating companies but none of them were founded in the past 30 years – a period that has seen the emergence of Amazon, Apple, Google, Facebook, Microsoft and Nvidia. The US and China lead the way in the development of artificial intelligence: the EU lags way behind.
Germany, Europe’s powerhouse economy, is in deep trouble. It has had the weakest recovery since the pandemic, is teetering on the brink of recession, has been hard hit by the war in Ukraine and is paying the price for failure to ready the German economy for the digital age.
Nor has Europe produced anything as gamechanging as Biden’s Inflation Reduction Act, which has used generous subsidies to spur hundreds of billions of dollars of investment in clean technology.
But Harris is not – if opinion polls are right – getting as much of a fillip from the economy as she might expect. One possible explanation is that US voters may be better off than they were four years ago, but they don’t feel as if they are.
As was the case in all western economies, inflation surged in the US as a result of the impact of supply-chain bottlenecks after the ending of lockdown restrictions combined with the rise in energy and food prices triggered by Russia’s invasion of Ukraine.
The US was less exposed than Europe to higher gas prices and the peak in inflation was lower at 9.1% than in the eurozone (10.6%) and the UK (11.1%) and has subsequently declined to 2.4%.
According to the National Institute of Economic and Social Research thinktank: “The divergence in economic performance among advanced economies since the onset of the Covid-19 pandemic has become increasingly evident, with the US notably outperforming its peers.” The NIESR says it is impressive that the US has had faster growth than Europe but lower inflation.
But prices in the US are markedly higher than they were when Biden entered the White House as president and it is this, rather than the current inflation rate, that appears to have affected the public mood. Trump has been quick to tell voters that inflation was lower when he was in office between 2017 and 2021 than it has been under Biden. The closely watched University of Michigan barometer of consumer confidence slipped back in October amid lingering unhappiness about the cost of living.
Adam Tooze, a professor of history at Columbia University in New York, said that while one half of him bought into the narrative of a “soft landing” and a “goldilocks economy”, the other half understood why voters were unhappy about the cost of living.
“Several times I’ve been brought up short by jaw-dropping price hikes for everyday items: milk, fruit, veg, a cup of coffee, a loaf of bread, toothpaste etc. There’s been a price shock, all right,” Tooze said in his daily newsletter. “If your budget is tight, it is not hard to understand why you are feeling pinched.”
A second reason Harris may not be reaping the benefits of a growing economy is that the fruits of that growth are being enjoyed disproportionately by the better off.
Albert Edwards, Société Générale’s chief global strategist, said: “The US consumer has surprised on the upside recently. But these gains have been primarily driven by high-income, asset-rich households. No wonder anger about rising inequality is once again shaping the political discourse.”
Economists say it is not obvious that Trump’s economic plans – which involve higher tariffs and lower immigration – would make life much better for US workers and in fact are likely to make them considerably worse off.
Nicolò Tamberi, a trade policy economist at the University of Sussex, said tariffs proposed by Trump (60% on imports from China and 20% tariff on imports from everywhere else) would cut imports by 37%, and lead to markedly higher prices.
“Changes in real consumption – what people can afford to buy considering rising prices – would drop by between 1.8% and 3% in the US. This could result in a welfare loss for the US of $567bn [£435bn] annually – a loss of $1,691 a year per person,” he said.
Despite everything, the latest odds from the bookies suggest Trump may exploit unhappiness about the state of the economy and win on 5 November. That could prompt a simple response from European voters: count your blessings. You may think you have economic problems. Ours are a lot more serious.
