Commentary: Why a booming economy is not helping Trump

NEW YORK: An American president’s party normally loses ground in midterm elections but this year is unusual. 

Economic growth accelerated sharply to near 4 per cent in the third quarter, yet Donald Trump’s approval rating is plummeting, particularly on the economy. His party is haemorrhaging support. Should it lose both houses of Congress next month, which betting markets see as a live possibility, it would be the first such defeat in economic conditions this favourable since the 1950s.

How could this happen? For many Americans, this feels like the wrong kind of boom - marred by a rising cost of living and the fact that growth is driven mainly by the wealthiest consumers and by heavy investment in AI, which the electorate has come to hate and fear more intensely than any previous tech breakthrough.

FRUSTRATION BUILDING

Frustration with the US economy predates both AI and Donald Trump’s second term. Most Americans have been increasingly dissatisfied about the state of the nation for decades, but the share who say the country is heading in the right direction collapsed over the past year from around 40 per cent to 20 per cent. 

The big source of dismay: affordability. The share of voters who cite cost of living as the most important issue has risen sixfold in recent years to a record high, over 25 per cent.

And it is clear which prices are causing the most grievance: housing and energy, with the Iran war restricting oil supplies and AI raising demand for electricity. In the last year, petrol prices are up more than 40 per cent, and overall consumer prices have been rising at well over 3 per cent. With mortgage rates now topping 7 per cent, US housing is less affordable than at any point in the past two decades.

There is a widespread perception that power-hungry data centres are pushing up utility bills. Nine in 10 Americans do not want one in their town, and most of these projects face local opposition. It’s hard, however, for Republican Congressional candidates to address these concerns when their president says slowing data centre construction would leave the US “backwards and poor”.

Unsurprisingly, AI is the first widely hated product of the digital age. In earlier decades, a solid majority of Americans saw computers and the internet as big pluses for society. Now most say they are “more concerned than excited” about AI. 

Anxiety is rising most sharply among people in their 20s, who are increasingly worried about a jobless future. By asking voters to accept higher prices as the cost of his war in Iran, and AI as the cost of staying ahead of China, Trump is fighting against the national mood.

The consistent message from the White House and many congressional Republicans is: Learn to love AI, we need it to compete with China. It’s an odd lecture coming from a party that won the White House and Congress by bashing globalist elites.

LAND OF HAVES AND HAVE-NOTS

Broad GDP growth can fail to capture what people feel on the ground. Popular discontent reflects more granular details, like the fact that wage growth, adjusted for inflation, has turned negative in recent quarters. One key exception is workers with AI skills, who command wages up to 120 per cent higher than their peers.

So the sense of America as a land of haves and have-nots has an AI twist. 

Investment is growing around 25 per cent a year in AI-related industries, but by less than 1 per cent in other industries. Construction is contracting on average but growing at a double-digit pace for data centre projects.

This tide of money is lifting other businesses only if they find an AI angle - think of the Japanese toilet manufacturer that saw its stock price jump after it started making ceramics for computer chips. Now, on days when the stock market goes up, nearly half of the stocks go down - an unprecedented phenomenon.

Most voters have reasons to feel left out of the blessed AI circle. The wealthiest own the most stocks, and the mostly AI-driven gains are rising this year, creating a reverse Robin Hood effect. The 0.1 per cent are gaining more than the 1 per cent, who gain more than the 10 per cent, and so on down the income ladder. Similarly, mortgage delinquency rates are rising on a sliding scale, fastest in the least wealthy neighbourhoods.

Since World War II, a booming economy has tended to cap midterm losses for the president’s party. Historically, when growth has accelerated towards 4 per cent before an election, the incumbent rarely lost control of either house of Congress and lost control of both just once, in 1954. 

Should the Republicans get swept aside this year, Trump - who rebuilt the Republican Party as a vessel of anti-incumbent anger - will have turned his party into a target.