Democrats Must Confront Economic Pessimism

With American families contemplating back-to-school spending and winter holiday budgets, the worrisome economic news is eerily on script: Donald Trump’s tariffs are indeed increasing prices for key goods, job losses due to AI and other payroll cuts are mounting, business investment in equipment is slowing, and total household credit card debt, after briefly falling at the start of Trump’s term, has climbed again to its previous record of $1.21 trillion.

Meanwhile, Trump’s braggadocio hasn’t lifted consumer expectations. Recent polling indicates that Americans’ fears of inflation have worsened since January and that a majority blame his administration for volatile prices. As TLP’s executive editor John Halpin noted last week, seventy percent of Americans believe that the economy overall is in poor shape, while an additional third maintain that it is actually in recession. That’s down from the stunning 56 percent reported by the Guardian in May 2024, before Joe Biden ended his disastrous reelection campaign. But it is hardly favorable for a president whose extraordinary return to office was largely fueled by “nostalgia” for pre-pandemic price levels and his hazy pledge to tackle inflation without any cost to growth and employment.

The Democratic response is similarly unfolding as expected. Despite persistent disagreement among congressional Democrats over the merits of strategic protectionism, the party on the whole is still banking on a massive public backlash to Trump’s never-ending trade wars. It may yet come. Should prices soar by year’s end, Democrats will have a clear-cut message for the 2026 midterms. Not only have Republicans extended tax cuts that heavily favor the very wealthy at the expense of SNAP beneficiaries, Medicaid recipients, and other low-income Americans, Democrats will argue, but Trump has also enacted policies that are doing the opposite of what he promised.

Democrats would no doubt savor the tables being turned on Trump when it comes to inflation. There are evident weaknesses to their current approach, however. Above all, it is almost entirely reactive. Democratic messengers and liberal economists have counted on the specter of stagflation sinking Trump’s poll numbers, instead of offering a vision that might resonate more strongly with the public than “Bidenomics” did. This is not exactly a display of courage. Bedeviled by their consistently dismal poll numbers, Democrats would rather watch Trump flail in the spotlight than take any chances that might distract from the emerging narrative about Trump’s economic sophistry.

To some extent, hoping for a silver bullet is the easier thing to do. The trouble is the American electorate is still in a deeply anti-establishment mood; economic headwinds for Trump (short of something parallel to the Covid shock) are not necessarily going to redound to the Democrats’ benefit. And even if they did, Democrats do not have the luxury to either be timid or hold their cards. Against Trump, of all people, Democrats face a credibility gap not seen since the Reagan era. Yet there is an opportunity to make substantive pledges that stand in contrast to Trump’s hollow “golden age” rhetoric. The moment thus calls for fearless examination of what will be required to restore Americans’ faith in their future—but also gird society for the unprecedented changes it will soon be forced to navigate.

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After two administrations (Obama II and Biden’s) in which their party was punished at the polls for its perceived failings on the economy, Democrats are in an existential crisis over how to win back ordinary wage earners and deliver lasting gains to those yearning for middle-class stability. Undoubtedly, the party is still perplexed (and probably embittered) by the divergence between what was accomplished legislatively in the Biden era and public reception of signature policies such as the American Rescue Plan, the CHIPS and Science Act, and the Inflation Reduction Act.

The average voter’s indifference to—and occasional ignorance of—headline-grabbing investments in infrastructure and manufacturing certainly mystified pro-Biden economists like Paul Krugman as well as the broader ecosystem of progressive media. On paper the Biden administration had introduced developmentalist policies that progressive think tanks have long called for and that party strategists thought would hearten despondent workers. But despite catalyzing a surge in large-scale business activity in several struggling counties, “left behind” America continued to provide lopsided margins for Trump in the 2024 election.

It seems it will take a while longer for Democrats to emerge from the fog of what transpired in the Biden era. Their agony over Trump’s astonishing political longevity is palpable, and their anger is in some ways justified. Yet Democrats have forgotten that it is not just policymaking but steady, demonstrable leadership and efficient governance that builds public confidence. And they appear to still not understand that the pandemic recession was a double-edged sword that would only temporarily work in their favor. While it gave them “political capital” to experiment with ideas that in some cases had been floated as early as the 1980s, the public wasn’t in a terribly patient mood after the painfully slow recovery from the Great Recession and Covid’s massive social disruption. Fatally, the party was unprepared for the discontent ready to explode over skyrocketing prices and the punishing housing squeeze, the latter of which was and remains most acute in Democratic-controlled counties.

In hindsight the optics were dreadful, too. Biden was a visibly aging figurehead who occasionally announced projects that would take years to be built in districts that party leaders hadn’t actually set foot in since Barack Obama’s 2008 campaign (and maybe not since Bill Clinton’s 1996 reelection). There was a presumptive air to how it would all translate politically. Although a Democratic president was finally responding to the socioeconomic damage wrought from industrial decline, these were only the first steps to addressing forty years of trade shocks and offshoring. And because of the plain emphasis on technocratic clean energy solutions to longstanding, multifaceted regional challenges, Democrats were seen as detached from the new everyday burdens created by inflation and rising interest rates.

The likely takeaway for party insiders should nevertheless concern a liberal-left alliance whose rejuvenation depends, in part, on fusing a “liberalism that builds” with a willingness to aggressively check abuses of market power. After Kamala Harris was crowned the party’s presidential nominee last August, the party dropped all pretense of ambition on the policy front. That hasn’t changed despite the various openings already afforded by Trump’s flagrant crony capitalism. There are a few proposals leftover from the ill-fated Build Back Better plan to improve public school facilities, subsidize child care, and cap certain medical fees. And should the Democrats regain power in the 2026 and 2028 elections, they may push to reverse the GOP’s more egregious cuts to the safety net and labor protections. But if Democrats have reached any internal conclusion about the main lessons of the Biden administration’s attempt to chart a “post-neoliberal” path—on global trade and manufacturing, labor markets, fiscal policy, and competition law—it is to quietly accept failure and move on.

In other words, much of the party seems to simply want to be relieved of developing a fresh agenda that meaningfully contrasts with Trump’s. Particularly since the “One Big Beautiful Bill” was passed last month, the party’s congressional leaders have reverted to denouncing the GOP’s most regressive budgetary priorities—familiar terrain that allows Democrats to throw on their populist garb without having to make concrete commitments to the working class.

That might eventually pay political dividends if the economy contracts early next year, unemployment blows past, say, six percent, and severe neediness spikes. But it does not exactly constitute a plan for how to deliver, through all the major economic levers available, what millions of anxious Americans want: the genuine freedom to build their lives as they see fit, unimpeded by financial predation and obstacles that favor rentier interests over mass prosperity and intergenerational advancements.

To be clear, the party doesn’t have to start with a clean slate. “Anti-Bidenism” is no more helpful to improving the party’s standing than exaggerating “historic gains” for low-wage workers was or refusing to admit the party arrogantly played down inflation, Biden’s frailty, and other unmistakable liabilities. That’s not to say good intentions are ever enough in politics. If one thing has united the left and center-left amid all their contentiousness of recent years, it's that the Democratic Party needs to get clear about how to deliver reform so that voters actually see without delay the difference in their own lives and communities. Still, the overall thrust of the Biden agenda—to repair the industrial base, deter monopolistic practices, and spark welfare-enhancing productivity—should not be reduced to its weaknesses in implementation or conflated with other stances that sullied the party’s image.

Democrats determined to salvage the bones of Bidenism don’t have time to waste. The prophets of AI maintain the American economy is on the brink of a transition whose magnitude could easily dwarf the historic wave of deindustrialization, technological change, and market deregulation that coincided with, and was amplified by, Reaganism and the end of the Cold War. Democrats therefore need to act with urgency and invention, not just bemoan Trump-the-wrecking-ball. If the party refined some of Biden’s better “place-based” industrial policies and paired them with the stronger focus on affordability that is clearly desired by voters who deserted Democrats in 2024, the party would at the very least have some skin in the game.

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What else, though, should a party historically aligned with fighting for egalitarian development and workers’ rights prioritize, knowing that economic turbulence is likely to intensify in the year ahead?

First, Democrats need to get ahead of the Trump administration in advocating for a faster swing to a more dovish monetary policy. Although Democrats of late have been fixated on defending institutional independence in every conceivable context, Fed Chair Jerome Powell is not an unblemished player in the Democrats’ tortured saga. As economist James K. Galbraith has repeatedly noted, elevated interest rates were counterposed to expediting Biden’s manufacturing agenda, compounded consumers’ distress from inflation (by, for instance, spurring credit card companies to increase monthly interest rates), and have continued to clog housing construction and business investment. Overcaution by the Fed could also worsen the stagflationary consequences of excessive tariff rates, which, in light of other Republican priorities, seem bound to diminish workers’ real purchasing power. While Democrats may not want to inadvertently “aid” Trump’s attempts to avoid recession by breaching the Fed’s autonomy, they will ultimately rue being seen as passive, or worse, on the wrong side of this issue.

Second, Democrats should brace for a downturn and coordinate, wherever possible, on improving state unemployment insurance (UI) systems and revamping local job training programs. Without much fanfare, blue state Democrats, led by their attorneys general, have periodically banded together to “resist” Trumpian overreach, but the top focus in the near term should be fortifying the economic resilience of places where Democrats do wield power. In particular, Democrats need to anticipate and contain the fallout from increasing white-collar job losses and anemic manufacturing output, which could soon reverberate throughout the freelancer, gig worker, and service industries that fuel urban dynamism and collectively employ large numbers of working-class minorities. A Democratic bicameral bill to overhaul UI, while unlikely to gain traction in the current Congress, could serve as a model for blue states determined to close gaps in coverage.

Third and relatedly, Democrats need to embrace the fact that, in the age of Trump, individual states and large cities are once again the main “laboratories of democracy.” Accordingly, they need to demonstrate an emphatic resolve to address quality-of-life and cost-of-living problems that have boiled over in coastal cities once lauded as offering greater upward mobility and opportunity than the rest of the country. Local Democratic power brokers would be wise to take a page from the party’s anti-monopoly wing and pursue policies that markedly improve consumer welfare, make it easier to raise a family in the city, and renew the sense of possibility and freedom that attracts young workers and hardware-based innovators.

Finally, Democrats need a more compelling answer to the erosion of democratic capitalism over the last quarter century. While they occasionally deride Trump’s “plutocrat buddies,” they are still haplessly squishy when it comes to explaining and opposing the market distortions generated by monopoly power in all its guises. This is a missed opportunity to respond to pervasive economic discontent and channel populism toward better ends. Americans, though perennially depicted as overly individualistic and motivated by greed, recoil from the economic domination that arises from the latter. To the extent ordinary Americans are consciously “pro-enterprise,” it is because they believe entrepreneurship can still be rooted in a community ethos—and they want to see more of that ethos in their lives. Accordingly, they want the government to competently harmonize policies that ensure social justice, promote equal opportunity, and encourage purposeful individual initiative.

In too many places, however, the foundations for such initiative have been shattered. And aid—no matter how important to preventing utter destitution—is no substitute for a thriving community. Democrats in Washington may grasp these challenges in the abstract, but too few have really absorbed the implications for democracy.

As ever, seemingly mundane lessons from our not-so-gilded past offer some guidance. Smart, left-leaning liberals once tapped into Americans’ distinctive blend of communitarianism and self-reliance in their efforts to build a well-regulated economy that treated enablement and a dignified welfare state as two sides of the same coin. They tended to believe, without excess idealism, that modern statecraft should expand the scope of the public interest, and that doing so would enhance the ability of every individual to meet his or her potential. These philosophical building blocks of American social democracy need to be rediscovered by today’s Democrats. But it urgently needs to happen in their own backyards first if Democrats are to regain any sort of competitive edge in regions at the core of the Trumpian realignment.

There are certainly other items on the wish list of populist Democrats—not least a wealth tax—that should be front and center. Ultimately, though, Democrats must get to the root of the economic pessimism that has been consuming working (and out-of-work) Americans for nearly a generation. More than any single policy idea, that will demand confronting the reality that, for millions, the American dream is a fiction. Democrats will then have to prove it can be otherwise. Rather than simply hoping Trump’s golden age fizzles, Democrats must get to work persuading withdrawn America it can and must have a stake in our collective future.