Trump economy shows signs of major turnaround after Biden’s poor policies

If you’re having trouble making sense of the economy today, you’re not alone. Positive economic data (Dow Jones Industrial Average of 50,000 points) seemingly contradicts negative survey responses, while many so-called experts completely distort their predictions. But understanding the five key elements reveals that we are off to the races.

First of all, 2025 was a transition year for the economy. Under Democratic President Joe Biden, particularly his final two years in office, job growth has been disproportionately driven by government hiring. Similarly, government procurement has played a huge role in the growth of overall economic activity, as measured by gross domestic product (GDP).

President Donald Trump closed those spigots, curbed growth in government spending and laid off a record number of bureaucrats at the federal level. Shrinking the inefficient public sector while expanding the private sector is a welcome change, but initially looks negative to us on many economic measures.

Downsizing the federal workforce and cutting wasteful government spending subtracts from overall job numbers and GDP, respectively. Just as Biden managed to boost those numbers with government largesse at the expense of taxpayers, now cutting the bloat is driving down the headline numbers. Still, it’s a positive change.

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The second element is the distinction between inflation and prices. You can think of inflation as how fast you’re going on the highway and prices as mile markers on the side of the road. Your speed (inflation rate) may remain constant at 60 miles per hour, and mile markers (prices) will continue to increase at a rate of one per minute.

But now let’s say your speed drops by half, to 30 miles per hour. The mile markers continue to rise, but now only every two minutes. This is like prices increasing more slowly when the inflation rate decreases. If you come to a complete stop, your speedometer reaches zero and the mile markers never rise. That is zero inflation.

But notice that mileage marks do not go down even when there is no inflation. Real-time inflation measures such as Truflation show an inflation rate well below 1%, good enough to be outside of a recession.

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The issue today is not the inflation rate, but how bad inflation is, which has caused prices to skyrocket during the four years of the Biden administration. People aren’t angry about inflation right now, but prices won’t come back. For this to happen, we need Congress to make drastic cuts in both spending and bureaucratic red tape.

Even if Congress doesn’t act, the good news is that income growth is helping solve the problem, albeit at a slower pace, and that’s the third element in the economy that has changed significantly.

Wages have increased significantly under Biden, but prices have risen much faster. The average American’s weekly wage, when adjusted for inflation, has decreased by 4% over those four years. But with inflation much lower during the Trump administration, the average American’s weekly wage buys about 2% more than when he took office.

This tells us two very important facts: things are getting better, but we also haven’t regained the ground we lost since the Biden years.

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Symbol of these two truths is the fourth element to understand: federal finance. As the economy grew faster, tax revenues to the Treasury rose 11.8% this fiscal year, the last four months of the Biden administration, compared to the same months in the previous fiscal year.

Shrinking the inefficient public sector while expanding the private sector is a welcome change, but initially looks negative to us on many economic measures.

On the spending side of the ledger, spending increased by just 1.9%, causing the federal budget deficit to fall by 17.0%; Tremendous progress in just one year! Again, this doesn’t mean the government’s finances are all sunshine and rainbows, but it’s also not doom and gloom. We’re not where we want to be yet, but we’re definitely improving.

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This brings us to the final element: investment. Trillions of dollars in investment are flowing into the country due to tax and regulatory cuts as well as Trump’s trade negotiations. This will mean more factories, higher productivity and wages, more products and services, higher tax revenues to the Treasury, and lower inflation, if not lower prices.

All of this is incredibly bullish and paints a picture of an economy that has just turned the corner and will soon plateau. After years of trouble, the finish line of prosperity is now fully in sight.

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