According to a top economist for the president who created the most jobs during his terms of any in recorded history, President Donald Trump is causing long-term damage to the US economy... and only following his accomplished predecessor's example can reverse the damage.
In a recent editorial for Washington Monthly, Dr. Robert J. Shapiro — who served as Under Secretary of Commerce for Economic Affairs under President Bill Clinton after advising his successful 1992 campaign — broke down exactly how Trump is messing up and America could benefit from learning by Clinton's example.
"Our national debt now tops $40 trillion, including $32.2 trillion held by private and foreign government investors," Shapiro wrote. "That part alone is more than the combined national debts of China, the European Union, and Great Britain."
He added, "Such outsized deficits and national debt didn’t just “happen.” Successive presidents and congresses made them happen, principally by repeatedly cutting taxes and giving out blank checks for defense."
By contrast, Clinton balanced the budget and caused four surpluses during the 1990s. How?
"The answer to our outsized deficits and debt, of course, is to address the source, by raising revenues and cutting defense spending," Shapiro wrote. "That’s what Bill Clinton did and balanced the budget and produced four hefty budget surpluses in the 1990s. Far from hobbling the economy, GDP and incomes grew faster under Clinton’s policies than during any presidency in the past half-century."
He did this by using his consummate political skill to persuade key Democrats to support him.
"Clinton convinced Democrats in Congress to double down with larger tax increases for wealthy people, raised the corporate tax rate, increased Medicare taxes for wealthy people, and hiked the federal gasoline tax," Shapiro argued. "It worked: Those changes, along with strong economic growth, increased federal revenues 54 percent after inflation over his two terms. Clinton also convinced Democrats to cut defense spending by 12 percent on a sustained basis, another first."
By contrast, Trump's economic policies are directly responsible for worsening all of the same economic problems that Clinton succeeded in addressing.
"Today’s inflation isn’t a byproduct of an unanticipated economic shock," Shapiro wrote. "It’s the direct result of deliberate policy blunders—Trump’s tariffs and bungled war on Iran, along with his pressure campaign on the Federal Reserve to cut short-term interest rates, even at the risk of more inflation."
AlterNet spoke exclusively with Shapiro to dive into the details of what modern Americans should learn from Clinton. The following transcript has been lightly edited for length, clarity and context.
How Trump is destroying the economy.
MATTHEW ROZSA: I'm going to quote from a section and then ask my question. You wrote: "Successive presidents and Congresses made them happen" — referring to the deficits — "principally by repeatedly cutting taxes and giving out blank checks for defense." To what extent is this specifically Trump's doing, percentage-wise?
DR. ROBERT SHAPIRO: Not so much in the first term. He did cut taxes and he did increase defense spending, but the cost of the 2017 tax changes was significantly less than the cost of the Big Beautiful Bill. If you look at the historical pattern, Clinton undid what Reagan did — he restored the revenue base and brought defense spending down to reasonable levels. Then Bush undid what Clinton did. Obama undid only about a quarter of what Bush had done. And so the deficit, as a share of GDP, begins moving up.You can see it in the data — it's about 3.3 percent of GDP on average during the 2010s, through 2019, since I don't count recession years. Then you get Biden. Biden doesn't undo any of what Trump did; he leaves it all in place. He runs very large deficits at first because of post-pandemic spending, to maintain demand. And he makes no effort to address certain underlying features — mainly the aging of the boomers, which is completed during the Biden years as the last cohort moves into retirement. So Medicare spending, in particular, goes up. He has some additional spending, but nothing of great magnitude. He essentially ignores the deficit.
Then Trump comes in and doubles down. What Biden had done would have led to a gradually shrinking deficit over the next ten years, because the economy is growing. What Trump does instead is say, "No — we're going to have huge deficits as far as the eye can see," meaning deficits equal to six or seven percent of GDP, which is unprecedented in the postwar era. It's a real outlier. And that's driven entirely by his tax changes, which carry enormous budgetary costs, plus a wholesale, large-scale increase in defense spending. So how much of this is Trump? A majority of it — not all of it, but a majority.
ROZSA: Thank you. My next question is about this line: "That's what Bill Clinton did, and balanced the budget and produced four hefty budget surpluses in the 1990s. Far from hobbling the economy, GDP and incomes grew faster under Clinton's policies than during any presidency in the past half century." Why have both sides — Obama and Biden on the left, Bush and Trump on the right — neglected to pursue this since his administration?
SHAPIRO: That's a very good question. On the Republican side, every Republican president since Reagan, with the exception of George H.W. Bush, has cut taxes — particularly for high-income people and corporations. That's much more true of W. and Trump than it was of Reagan himself; Reagan's tax cuts were broader, and he later reversed some of the corporate tax cuts in the face of large deficits. He still believed deficits carried real costs. So part of it is that the cost of admission for being a Republican president is cutting taxes for high earners and corporations. Part of it is that, for various reasons, there didn't seem to be any economic cost to the deficits under Bush.
Bush mismanaged economic policy very badly — we got a huge financial crisis — but the deficits, which averaged about 2 percent of GDP under him, didn't appear to carry any cost. In politics, you generally only notice the cost of deficits once that cost becomes very large. That's why the bond market is noticing it now — the deficit has gotten so large, and it's happening at a time of rising inflation, which is the other element here.
The simpler answer is that Bill Clinton is the only president in fifty years who actually governed based on mainstream economics. Every other president has ignored it. Why did he do it? That's just characteristic of him. One of the striking things about the Clinton administration was that there were economists with national reputations in virtually every department of government. That meant every policy went across the desks of serious economists, and Clinton believed in listening to them. In that respect, he was an outlier — nobody else did that.
There hasn't been a truly serious economist in either of the Trump administrations. The chairman of Trump's Council of Economic Advisers was someone who had never published a single article in a peer-reviewed journal. Obama had serious economists, but Obama was never that interested in economic issues. He had to address the financial crisis because it happened right as he was elected, but that wasn't his real interest. Economic development and the economy were Clinton's real interest — that, and civil rights.
So part of it just comes down to the different personalities and inclinations of the people who happen to get elected president.
How Clinton's example can fix things.
ROZSA: I think that's a very important insight, and it leads naturally to my next question. "Clinton convinced Democrats in Congress to double down with larger tax increases for wealthy people, raised the corporate tax rate, increased Medicare taxes for wealthy people, and hiked the federal gasoline tax. It worked." Do you believe the political will exists on either side to implement similar policies today
SHAPIRO: Yes, I think it does — obviously not with this president, but it requires presidential leadership. And it doesn't require that much: the public supports this. All the polls say the public supports raising taxes on high-income people and corporations and cutting defense spending. It's there. But to get it through Congress — when Clinton enacted his first budget, which included all of this, he didn't get a single Republican vote. He had to twist arms to get it through the House, because House Democrats knew they'd be attacked in the midterms for raising taxes. They were, and we lost Congress. That also had to do with the failure of the healthcare initiative — voters punish failure. But he had to twist arms; that's why I said he had to convince Democrats.
I think someone who runs for president in 2028 on a promise to raise more revenue from high-income people and corporations, and bring discipline to defense spending, can absolutely get a budget like that passed.
It requires leadership, because politicians today are so risk-averse. They try to say as little as possible so they don't make themselves a target. That's one of the reasons so much of politics now is about attacking the other side rather than presenting your own initiatives — initiatives just give your opponents something to attack. And in an era where there's very little cost to attacking your opponent's positions, even when the attacks are wrong or made up, and the media don't really hold politicians accountable for that anymore the way they used to, politicians want to make themselves as small a target as possible. So they're reluctant to propose much of anything.
ROZSA: I have two more questions. The next one is about this line: "Today’s inflation isn’t a byproduct of an unanticipated economic shock. It’s the direct result of deliberate policy blunders—Trump’s tariffs and bungled war on Iran, along with his pressure campaign on the Federal Reserve to cut short-term interest rates, even at the risk of more inflation." Can you explain, in layperson's terms, how the tariffs, the war on Iran, and the Federal Reserve's policies have each made this worse?
SHAPIRO: Certainly. Tariffs directly raise prices. Tariffs are applied to the importer — when we place a 10 percent tariff on goods exported to the United States from Europe, that tariff is paid by the importer who receives those goods. So it's paid by Walmart, or Costco, or whoever bought the goods. It is not paid by the European producer or exporter. It's paid by the importer, because we can only impose taxes at our own border — we can't go to France and impose a tax on a French company. So the importers pay the tax and raise their prices to cover it. Tariffs very directly increase prices and, consequently, inflation. Think of tariffs as a sales tax paid by importers.
As for the bungled war in Iran: Iran's leverage has been to restrict transit through the Strait of Hormuz, through which passes not just Iranian and Iraqi oil, but a lot of Saudi oil as well. Because so much less oil is getting through the Strait, we've reduced the global oil supply. When you reduce supply without reducing demand, the price goes up. We've seen that in the price of oil, which went from around $65–70 before the war in Iran to $90–110 at its worst. That flows through not just to gasoline prices but to the price of everything that uses energy — it's a direct increase in the cost of one of the basic factors of production for everything, most directly gasoline for your car and utilities like air conditioning or heating. That's a direct result, and the cause isn't economic at all — it's entirely a political decision to pursue a particular policy.
As for the Federal Reserve: Trump has been attacking the Fed for as long as he's been in office for not cutting interest rates. But you don't cut interest rates when inflation is rising, because cutting rates stimulates the economy — meaning you increase demand without increasing supply, so prices go up. Powell refused to cut rates because he said, in effect, "We're in an inflationary period; once we contain inflation, we can cut rates." Trump has made that much harder by increasing inflation through both the tariffs and the effects of the war on Iran. Even [Kevin] Warsh, Trump's handpicked successor to [Jerome] Powell, hasn't cut rates. But the market believes there's a significant possibility that he will, given the pressure Trump has been putting on him — and in anticipation of that, they've been driving long-term rates up.
We'll see what Warsh does. My own guess is that he'll wait until right before or right after the election to raise rates, because he doesn't set policy alone — interest rate policy is made by a committee at the Federal Reserve comprising the seven members of the Board plus five of the regional bank presidents, and there's increasing pressure among them to raise rates. They're letting him put it off a little while longer, but there's no good news on inflation. Just this week, Trump announced 50 percent tariffs on our largest trading partner, Canada, which will further increase inflation. The markets don't have much confidence in Warsh anymore, so they're pricing in a higher-than-normal likelihood that he'll cut rates — even though I don't think he will — and in anticipation of the inflation that would result, they're raising long-term rates.
Final thoughts.
ROZSA: I appreciate that. Now, for my final question: what else would you like to say about this subject that I haven't asked about?
SHAPIRO: Well, one of the main points of my piece is that, in every respect that affects deficits and debt, the United States has become a global outlier. We have by far the largest deficits we've ever run during an economic expansion. Our national debt held by investors alone is $32 trillion of the $40 trillion total — the other $8 trillion is held by government trust funds, mainly Social Security and the Fed. Our national debt is greater than the combined national debts of China, Europe, and Great Britain. Our defense spending is greater than the combined defense spending of China, Russia, India, Ukraine, and Europe. And our tax burden — all taxes at every level, as a share of GDP — is smaller than that of any other developed nation comparable to the United States.We have become an outlier in all of these ways, and the bond market is beginning to say: you can't sustain this. We are playing with dynamite.
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