Conflicting Accounts About the U.S. Economy and Their Political Implications

David Plouffe says Trump's wrecked the economy. Greg Ip says the economy ran pretty hot last year and will run hotter this year. Those conflicting takes must be squared, which isn't that hard.

[I asked ChatGPT to give me an image for the title of this post. Not bad??]

I read two conflicting accounts of the current and near-term future economy yesterday, and I believe that trying to square them is important, both for our understanding of what the heck is going on out there and because of their political-economy implications.

First, we have David Plouffe writing in the NYT about how Democrats need to seriously step up if we want to win. Opposing Trump is necessary but not sufficient. Ds must offer people “a fresh agenda that voters believe can make a difference in their lives, not the same stuff they heard from Democratic candidates in recent years.” I heard Sen. Warren say the same thing the other day, calling for an economic agenda that ceases “nibbling around the edges.”

That said, step 1 is (my bold) “to make our unpopular president and his vassals own everything — higher energy and health care costs, higher food bills, war. The Republicans in Congress stood by meekly as Mr. Trump took a wrecking ball to our economy. They deserve the blame for it.”

Next we have Greg Ip in the WSJ arguing, muscularly in my view, that the overall economy was strong in 2025 and will likely be stronger in 2026. After predicting that real GDP will soon be found to have gone up 2.5% last year, a solid growth rate that’s above the underlying trend (closer to 2%), Ip writes:

President Trump is taking unprecedented steps to run the economy hot, and there is an excellent chance he’ll succeed…

This year, [fiscal policy, monetary policy, credit policy are] all three dialed toward stimulus, reflecting a single-minded focus by Trump and congressional Republicans on faster economic growth. They hope that will deliver victory in the November midterm elections.

Ip points out the longer-term risks to this strategy, which are serious, including overheating, credit bubbles, and a non-credible central bank. But if those come, they come later, and you see the near-term conundrum between the two takes.

To be clear, such alt takes are not particularly confusing. In a new NORC/AP poll, his Orangeness is a whopping 25 points underwater on the economy. That word “overall” is doing some heavy lifting. Macro not equal to micro. And I’ve lived for years, including as chair of Biden’s CEA, with strong macro numbers amidst great discomfort among the multitudes.

But while the thrust of Plouffe’s argument makes good sense, the numbers don’t at all reflect the impact of a wrecking ball. To the contrary, the question I keep hearing is some version of: “how can we be flying without much turbulence when the pilot is an inept maniac?!”

The answer is interesting and relates to numerous facts:

—In normal times, presidents don’t have that much impact on the U.S. economy, which is a $30 trillion behemoth with a lot of momentum. Sticking with the pilot analogy, it’s when heavy turbulence hits or the system fails that pilots show their skills, as Trump demonstrably failed to so when the pandemic hit, contributing heavily to his failed reelection bid.

—Tariffs have done some damage, but when your goods imports amount to just 11% of your GDP, you’re somewhat insulated. And, of course, he’s done tons of carve outs, such that the effective import tax rates are a lot lower than the statutory ones.

—The job market has softened, but it’s still generating real gains which continue to support consumer spending. WSJ: “American consumers continued to spend and borrow at a healthy clip at the end of 2025, despite a year marked by uncertainty around job security, tariffs and stubborn inflation.”

—Trump has benefitted from the timing of the AI maybe-a-bubble, which has boosted both investment and the stock market, the latter generating a wealth effect that is also a tailwind for consumer spending.

—Fiscal impulse—growth boost from tax cuts—is a real thing, and because the budget bill lowered some taxes last year but withholding tables were unchanged, a lot of folks will get refunds averaging around $1,000. In the aggregate, Ip notes that “Donald Schneider, a policy analyst at Piper Sandler, sees this injecting nearly $200 billion into the economy, enough to boost first-half annualized growth up to half a percentage point.” If tariffs come down this year, as I suspect they may, that’s more fiscal stimulus.

—Do not discount Ip’s risks. A bad pilot will eventually steer you into all sorts of heavy weather.

But here’s the rub, one Ip doesn’t mention but Plouffe leans into hard. Outside of the refunds, which, to be clear, ain’t nothing, none of this does much at all for the affordability of healthcare, housing, childcare, utility bills, groceries, etc. As I wrote yesterday, Trump and his party are simply not designed to address this problem, though Plouffe raises the critical question as to whether Ds can seize the day.

Bottom line, Ds should not believe the wrecking-ball story for two reasons. One, it’s not in the numbers, and two, it actually makes our case more, not less, powerful.

The plane may be zipping along at 40K feet, and a lot smoother than you’d expect given the madman pilot, but the folks in coach are hurting (okay, I get it: tortured-metaphor alert!). Even with a strong macroeconomy, easing inflation, faster productivity growth, people are still feeling left behind, worried about their ability to make ends meet, to accumulated wealth through homeownership, to be able to go to work and afford decent-quality childcare, to fight—whether themselves or their kids—against the potentially forthcoming labor displacements from AI. And I’m not even talking about carrying all those concerns around while worrying about getting shot by masked agents of the state who face zero accountability.

In other words, both Ip and Plouffe (the latter with the above amendments) are right. It’s up to Ds and anyone else fighting for economic justice to use both of those facts to unseat the current regime.