Republican Donald J. Trump’s decisive victory in the Nov. 5 election has inspired Democrats on how a convicted felon who tried to overturn his 2020 election defeat could beat a mainstream candidate like Vice President Kamala Harris. Now the University of Chicago comes along with an explanation that not only makes sense, but could foreshadow what lies ahead.
The university’s Booth School of Business isn’t generally known for its simple answers, but according to a study by two of its professors, the key to Trump’s victory comes down to a surprisingly simple theory: Trump won because that the economy was strong under outgoing President Joe Biden. . This claim undermines the standard analysis that inflation, inequality and a lack of upward mobility have left the electorate angry and disaffected, opening the door to Trump’s populist campaign.
According to the University of Calgary study, Americans over the past century have consistently voted Republican when times were good, primarily because they believed the Republican Party favored cutting taxes and promoting business. When times are bad, Americans turn to Democrats, whom they associate with a stronger safety net and control of business.
The research findings contradict a competing theory that said voters were so angry about rising prices that they failed to recognize the overall strength of the current economy. “The consensus in the media seems to be that although the economy is strong, people see it differently,” wrote finance professors Lubos Pastor and Pietro Veronesi. “But we find it hard to believe that Americans elected Trump because they are confused about the economy.”
The professors say most presidential elections dating back to the 1930s support their theory. Americans lived in the Great Depression when they supported Democrat Franklin D. Roosevelt, and in the Great Recession when they supported Democrat Barack Obama. John F. Kennedy, Jimmy Carter and Bill Clinton – all Democrats – took office after severe recessions.
In times of economic boom, when America can afford to take a less-than-cautious approach, voters are “more willing to take risks,” as professors put it, by supporting Republicans. So Trump won in 2016 when the economy was good, lost in 2020 when COVID-19 crippled the country, and won again in 2024 because, the professors say, “risk aversion is low in because of a strong economy.
So, is the economy really doing well? Yes, in almost every way. Inflation is down, unemployment is low, the dollar is strong, and the stock market has soared. U.S. consumer confidence has recovered recently, suggesting Americans are feeling pretty good despite rising prices for everything from health care to Thanksgiving groceries.
This positive consumer sentiment is especially justified when comparing the United States with other major advanced economies. Europe is lagging behind, with Germany, its economic engine, flirting with recession and going through a political crisis. The UK faces long-term decline, and Japan’s aging population and low birth rate bode ill for its future. Even Canada, which usually does well when the United States is doing well, is feeling decidedly bad these days, putting longtime Prime Minister Justin Trudeau’s regime in jeopardy.
Yet, as anyone familiar with investing has heard time and time again, past performance is no guarantee of future results. And, in fact, while the outlook for the U.S. economy is better than that of many other countries, it’s not exactly rosy.
The Federal Reserve began cutting the interest rates it controls in September, not only because inflation was largely under control, but also because other indicators, notably those in the labor market, suggested a weakness. And while the stock market gets much more attention, bond markets have sounded the alarm as interest rates have remained volatile even as the Fed has become dovish. That means consumers are still paying more than they would on their mortgages, auto loans and credit cards.
Furthermore, the stock market boom may be at a late stage. Research from the University of Chicago indicates that when risk aversion is low, as it is today, future gains in the stock market are expected as well. “Prepare for subpar stock returns under the new Trump administration,” they warn.
Research suggests that a bad stock market has more to do with the business cycle than “Trump’s fault.” But the president-elect could certainly make things worse in a hurry.
If Trump implements his tariff plan, he risks reigniting inflation. His planned tax cuts would increase the federal budget deficit, pushing interest rates higher. Robert F. Kennedy Jr., Trump’s nominee to head the Department of Health and Human Services, has set his sights on large agriculture, food and pharmaceutical industries, three industries that thrived under previous Republican administrations. And no one knows what the economic impact will be if Trump, as promised, deports America’s entrenched workforce of undocumented immigrants.
Indeed, no one can say with certainty what the future course of the stock market or the U.S. economy will be, and we accept simple explanations of election results with healthy skepticism. But if the University of Chicago theory is correct and tough times do indeed favor Democrats, here’s a corollary: Republicans better do what they can to protect the economy, or they might find themselves at risk. ‘outside and look from the inside during the next presidential election. 2028.
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