The voter is not the president’s bookkeeper

Donald Trump has suffered a crushing political defeat. The Democrats have won majorities in both chambers of Congress. High living costs and economic discontent contributed to this result. Voters have thereby withdrawn part of the congressional power base on which the president has so far been able to rely.

This does not yet amount to a scientific verdict on every single measure taken by his administration. Elections do not settle textbook questions of economics. But they occasionally force those in power to take note of a bill that can no longer be concealed behind public announcements of success.

A family need not know the theory of tax incidence to notice higher prices. An entrepreneur needs no seminar on uncertainty to postpone an investment whose calculations have been rendered useless by shifting government decisions. Citizens experience the consequences. The government bears the responsibility for understanding the connections and justifying its decisions accordingly.

Anyone who claims every success personally cannot suddenly point to the limited powers of the president when it comes to the costs.

Long-term thinking was part of American power

America’s international strength also arose from its ability to organise its own advantage over long periods. Governments built relationships and institutions within which other countries had a reason to cooperate. From these grew export markets, investment opportunities, political support and financial advantages.

This policy was driven by interests. It was often contradictory and by no means free of serious mistakes. Its strategic value lay in the fact that it took account of partners’ reactions beyond the next day of negotiations. An agreement was meant to remain useful tomorrow, even if the American president was by then someone else.

It is precisely this time horizon that is too often missing from Trump’s political accounting of success. A concession extracted under pressure is booked publicly as a gain. What the partner learns from it, how it changes its investments and which dependencies it avoids in future barely appear in this account.

For a great power, this is a dangerous foreshortening. It can use its position for a time to extract advantages. In doing so, it must distinguish whether it is increasing its future earning power or merely using up part of its political capital.

Bretton Woods: an advantage that also served others

In July 1944, 44 states agreed at Bretton Woods on a new international monetary order. Participants were to maintain fixed yet adjustable exchange rates. The dollar formed the central point of reference; the United States guaranteed foreign monetary authorities its convertibility into gold. The International Monetary Fund was to accompany the order and help with balance-of-payments problems.¹¹

The United States gained a pre-eminent position. At the same time, a framework emerged for its partners in which international economic relations were to become more reliable after the Great Depression and the war. The American advantage was tied to a service that other countries needed.

Therein lies its historical significance. Those responsible created rules for recurring relationships. They did not have to start afresh with every transaction to negotiate the terms of political cooperation. Such rules extend the period over which people and companies can plan.

Bretton Woods, too, was no permanent guarantee of success. The system contained tensions and eventually broke down. But its construction shows a form of political thinking that understood economic order itself as a source of national strength. A country can gain precisely by opening up reliable opportunities for others.

Nixon’s last year: the capacity to act despite Watergate

In 1971 Richard Nixon suspended the dollar’s convertibility into gold. By 1973 the system of fixed exchange rates had collapsed. Then the war in the Middle East and the Arab oil embargo intensified economic uncertainty. The United States faced an energy crisis and a changed international financial order.^12,13

Nixon was already badly weakened by Watergate. Even so, his administration developed broader cooperation with Saudi Arabia in 1974. Henry Kissinger linked economic, technical and security interests. In June a joint economic commission was established. Treasury Secretary William Simon worked to invest the sharply increased oil revenues in the international financial system.

Saudi Arabia needed technology, infrastructure, expertise and investment opportunities. The United States sought more stable relations, economic contracts and a use of the oil surpluses that would support international financial flows. The later GAO investigation explicitly described the link between economic development, closer political relations and the recycling of petrodollars.⁸

This did not make the dollar the world’s leading currency for the first time. That story would be historically false. The cooperation supported its existing international role. It was one building block of a broader order, not a single treaty that invented the world monetary system.

Nixon resigned in August 1974. The cooperation continued under his successor. A technical agreement followed in 1975. Here a politically failing president left behind a relationship that survived his departure.

This excuses neither Watergate nor Nixon’s economic-policy mistakes. It shows the value of state expertise and institutional continuity. A country must be able to act for the long term even when its head of government is less and less capable of doing so.

The dollar is no personal achievement

The dollar’s international standing is an asset built up over decades. It rests on the size of the American economy, deep financial markets, legal reliability and the expectation of being able to hold American claims and sell them again when needed. This gives government and business more favourable financing opportunities.

Other countries do not finance America out of gratitude. They seek assets that suit their own needs. The American privilege consists in being able to offer assets particularly suited to this demand. Maintaining it requires economic and institutional discipline.

Anyone who damages the reliability of government decisions, independent data or long-term commitments works against the foundations of this advantage. For that, the dollar need not lose its leading role entirely. Even a partial shift in demand can make financing more expensive for the United States.

It would therefore be a remarkable miscalculation to celebrate additional revenue from a short-term means of pressure while ignoring higher long-term financing costs. What matters is the overall balance. It also includes damage that has not yet become fully visible during the term of office of the person who caused it.

Tariffs are not gifts from abroad

Trade policy should be judged with similar sobriety. Tariffs can protect certain companies and generate revenue for the state. At the same time they burden importers, downstream manufacturers and consumers. The exact distribution must be examined. It does not follow any presidential wish.

Research on the 2018 tariffs showed extensive pass-through to American import prices. Fed economists also found relative declines in employment in more heavily affected industries, because higher input costs and foreign retaliatory measures outweighed the positive effects of protection.^2,5,6

A trade balance is not a company’s profit-and-loss account.

A government may accept such costs for reasons of national security. It must then name the dependency in question, select appropriate instruments and explain why the expected benefit justifies the burden. It must also check whether the protected companies actually become more productive.

The claim that foreigners simply pay the bill spares this work only rhetorically. Economically, it remains necessary. Equally necessary is the distinction between a bilateral trade deficit and a trade barrier that has actually been demonstrated. The size of the second cannot be read off from the size of the first.

A trade balance is not a company’s profit-and-loss account. Anyone who treats it as one begins their policy with a false notion of its subject matter.

Unpredictability has a price

A new production plant needs more than political encouragement. It needs a robust expectation about sales, costs, financing and labour. The longer the investment takes to pay off, the more important the rules under which it operates become.

Frequently changing tariffs, deadlines and exemptions raise the value of waiting. A company postpones an order, holds back cash or chooses a different location. The investment that never happened appears on no list of closed factories. It is nonetheless missing from the country’s future productive capacity.

Empirical research links policy uncertainty with delayed investment, more cautious consumption and less favourable financing conditions. This effect is not a personal judgement on Trump. It is an economic mechanism that a responsible government must factor into its decisions.³

Partner countries do their sums too. Those regularly confronted with new demands look for additional suppliers, alternative export markets and greater room for manoeuvre of their own. This hedging is reasonable. But it can cost America business and influence. The partner may give way today and invest differently tomorrow.

Hayek and Keynes would have objected

Hayek and Keynes would have disagreed about many policy responses. Nevertheless, as guidance for our question, two requirements can be drawn from their work: political leadership must acknowledge the limits of its knowledge and take the expectations of others seriously.

Hayek’s argument about dispersed knowledge strikes at every attempt to make one individual’s overview a substitute for decentralised information. Companies, households and specialist agencies know things that the head of government cannot know. Anyone who judges their signals by political loyalty lowers the quality of their own decisions.⁹

Keynes draws attention to investment under uncertainty and to the possibility that an economy fails to make full use of its productive capacities. Personal confidence in the presidency is not enough to create a willingness to invest in the private sector. Expectations, too, must be supported by transparent conditions.¹⁰

Acemoglu’s institutional perspective adds the question of power: can new firms, new insights and new people challenge established interests? Are rules applied universally? Or does political proximity decide who gets opportunities?¹

None of this yields a common party programme for these authors. But it does produce a clear test: does a policy preserve the conditions under which knowledge, initiative and competition can become productive over the long term?

Those who live off an inheritance can show good numbers

A strong economy can keep growing despite harmful policies. Companies develop new products. Workers improve their skills. Past investments bear fruit. Other policy measures can offset burdens. The link between government decisions and aggregate economic outcomes is therefore neither direct nor clear-cut.

In its projection of February 2026, the CBO still expects American growth. At the same time, it estimates that the higher tariffs will lower economic output compared with a path without these changes. Both can be true at once.⁴

The right question is therefore also how much prosperity would have been possible under more reliable conditions. Forgone investment, lost cooperation and slower productivity gains are real costs. Those who cause them can easily point out that the economy is still growing.

Here the political account resembles that of a company that cuts necessary maintenance investment. In the short term, reported earnings improve. The bill comes later. A government must not use this time lag to pass off withdrawals from the existing stock as newly created prosperity.

Populism hands out hope and leaves behind costs

Anyone who sells the consumption of long-term substance as newly created prosperity is employing a central method of populist economic policy: the immediate advantage is put on display, the later bill is concealed. This approach is the privilege of neither the left nor the right.

The economic damage has been studied empirically. Manuel Funke, Moritz Schularick and Christoph Trebesch analysed 51 populist leaders between 1900 and 2020. After 15 years, GDP per capita was on average around ten per cent below a plausible counterfactual without populist leadership. That is not a forecast for every individual case. It is a substantial long-term loss of prosperity.⁷

This does not yet prove who within a society loses how much. But the distribution deserves particular attention. Those who live on their current income and have few savings can do little against rising prices, poorer public services and insecure employment. Wealth and political connections, by contrast, can offer protection and ways out.

The claim to govern for the people is therefore no substitute for a distributional accounting. It must be examined who bears the costs, who receives exemptions and who profits from access to power. Where those in government or their entourage enrich themselves, abuse of office is added to economic failure. That must be demonstrated in concrete terms.

The political affront lies in the fact that it is precisely those whose hopes were raised highest who are especially vulnerable. Their disappointment must not once again become the raw material of the same politics.

Democracy must now use its advantage

The midterms have made a correction possible. From January, the new majorities open the way to stronger congressional oversight. They guarantee neither better policy nor a swift repair of damaged relationships. The Democrats, too, must have their proposals judged by costs, side effects and results.

Their mandate extends beyond investigating past misconduct. They must help create more reliable conditions for investment, scientific work and international cooperation. Existing commitments should be verifiable, and justified changes should be made transparently. This work is less spectacular than the next presidential announcement. Its effect may last longer.

The advantage of democratic institutions lies in the ability to limit power and to correct mistakes peacefully. For this, those involved must allow contradictory information. A legislature that merely organises allegiance fails at this task just as much as a government that treats bad news as personal disloyalty.

Politicians are elected for a few years. Many of their decisions have effects over decades. Responsible leadership must therefore preserve options whose benefits become visible only after its own term in office. This is not a special virtue of individual statesmen. It is part of the proper exercise of office.

Europe in particular should not derive a comfortable sense of superiority from this. Here, too, necessary investments are postponed, organised interests are spared and short-term relief is financed at the expense of future options. The American election is therefore also a call for self-examination. Anyone who criticises Washington for a lack of reliability must offer predictable rules themselves. Anyone who demands scientific expertise must accept inconvenient findings even when they run counter to their own political preferences. Long-term thinking begins with the willingness to bear costs today whose benefits others will receive later. This willingness cannot be replaced either by national complacency or by justified criticism of an American president.

“It’s the economy, stupid” remains a useful reminder. American strength was built by generations who could think beyond the next transaction. Trump must be judged by the stock of trust, knowledge and room for manoeuvre that he hands over to his successor.

Those affected usually pay the bill for political unreason first. In this election they handed part of it back to those responsible. Whether this becomes more than an electoral defeat depends on whether Washington learns once again to calculate beyond the next deal.