Lessons for Donald Trump ... from Grover Cleveland
The 22nd — and 24th — president had a disastrous second term
Snow started falling in Washington, DC, early on March 4, 1893. There was a wind from the northwest and temperatures hovered in the mid-20s when Grover Cleveland took the oath of office as president before a small crowd on the Capitol’s East Portico.
For the first time in American history, a president was about to serve a non-consecutive second term. Aside from the weather, the portents were good.
When he took office for the second time, Cleveland’s party, the Democrats, held undivided control of government for the first time in 35 years, his biographer Troy Senik noted.
“Cleveland distinguished himself as one of the few truly honest and principled politicians of the Gilded Age,” according to the Encyclopedia Britannica.
Yet his second term would be a disaster. It even helped to foster the idea that re-elected presidents suffer from a “second-term curse.”
On Tuesday, voters made Donald Trump only the second president to return to the White House after getting voted out of office. The United States today is very different from that of the late 19th century but there are some revealing contrasts.
Grover Cleveland was a booster of the civil service system, which has come under attack from Trump’s team, and a critic of high tariffs, which the former president enthusiastically endorses.
More generally, the experience of Cleveland’s second term suggests the need for presidents to cast aside ideology and respond flexibly to the ups and downs of the economy.
Stoic
As Senik wrote in “Man of Iron: The Turbulent Life and Improbable Presidency of Grover Cleveland,” Cleveland’s reaction to winning the presidency was “stoic rather than effusive.” Cleveland said, “We must hear, above victorious shouts, the call of our fellow countrymen to public duty, and must put on a garb befitting public servants.”
In his second inaugural address, Cleveland said, “While every American citizen must contemplate with the utmost pride and enthusiasm the growth and expansion of our country, the sufficiency of our institutions to stand against the rudest shocks of violence, the wonderful thrift and enterprise of our people, and the demonstrated superiority of our free government, it behooves us to constantly watch for every symptom of insidious infirmity that threatens our national vigor.”
Yet when a crisis soon developed, Cleveland’s response was inadequate.
US gold reserves had fallen from $190 million in 1890 to about $100 million, a disturbing development since holders of dollars could demand to trade them for the gold that backed up the currency. The economy was slowing, raising the prospect of companies being unable to pay their debts to the banks.
“Fearing for the safety of their deposits, men and women began to withdraw funds from banks. Fear spread and withdrawals accelerated, leading to widespread runs on banks,” wrote Gary Richardson and Tim Sablik of the Federal Reserve Bank of Richmond.
In what would come to be known as the Panic of 1893, 600 banks would close and the jobless rate would reach as high as 19 percent, Senik observed. Dozens of railroad companies collapsed.
The president believed in a limited government and lost popularity because he did little to help citizens cope with the crisis. It wasn’t until the presidency of Franklin D. Roosevelt in the 1930s that the nation’s leaders began to view government spending as one of the key ways to fight (and prevent) depressions.
In the 1894 midterms, Cleveland’s party lost a record number of seats in Congress — more than 100 — as a result of the depression. The reaction of the Democrats to the wipeout was not unlike the party’s repudiation of President Joe Biden after this year’s disastrous presidential debate.
“At the 1896 National Democratic Convention, Cleveland was replaced by then little-known Nebraska Representative William Jennings Bryan. Cleveland left office bitter and depressed and never forgave his party for abandoning him,” Greg Timmons wrote for History.com.
Wall Street’s party
On Wednesday, the day Trump’s victory was declared, stocks rose to record levels. The S&P 500 was up 2.5% and the Dow Jones Industrial Average jumped 1,503 points. Bitcoin and other cryptocurrencies soared. Investors think Trump will emphasize tax cuts, deregulation and other efforts to promote economic growth.
Trump is not shy about claiming credit for gains in stock prices. But the reality is that presidents have only limited tools to control larger economic forces.
The second Trump administration will begin with a number of potentially worrying realities: Stocks are trading at a high level already. The US dollar also is riding high, making made-in-America products less competitive overseas. Trump’s tariff plans could sharply reduce international trade.
In the Wall Street Journal, James Mackintosh cautioned, “If he follows through on the promise to deport millions of immigrants who entered the country illegally, it would be a major supply shock, reversing one of the issues that has helped to cool the jobs market and reassured the Federal Reserve that inflation is back under control.”
It's the debt, stupid
Also concerning is the impact Trump’s policies could have on the national debt. The Committee for a Responsible Federal Budget projects that “Trump’s plan would increase the debt by $7.7 trillion.” The national debt is already at 99 percent of America’s GDP, the highest level since World War II.
“Rising debt reduces business investment and slows economic growth,” according to the Peter G. Peterson Foundation. “It also increases expectations of higher rates of inflation and erosion of confidence in the U.S. dollar.”
The inflation surge cost President Joe Biden and Vice President Kamala Harris dearly, as Trump is well aware. The Federal Reserve’s interest rate hikes, along with the end of pandemic-related supply chain disruptions, have brought inflation under control. But if Trump’s policies reignite inflation, he will have to explain why.
A key indicator is the health of the bond market. As Joe Rennison wrote in the New York Times, bond investors “ fret about government largess and the resurgence of inflation under the president-elect.”
“That concern has been reflected in rising yields on government bonds, which means investors expect to be paid more in interest in exchange for lending to the government.”
The bond market has tremendous power to shape perceptions of a political leader, as Liz Truss, briefly the prime minister of the UK, discovered. The bond market reacted so negatively to her plans for tax cuts that Truss’s time at 10 Downing Street was shorter than the shelf life of a head of lettuce.
When James Carville served as an adviser to President Bill Clinton, he said, “I used to think that if there was reincarnation, I wanted to come back as the President or the Pope or as a .400 baseball hitter. But now I would want to come back as the bond market. You can intimidate everybody.”
“I would want to come back as the bond market” — James Carville
Clinton had to rein in his plans for government spending to appease the bond market. His 1993 budget “raised taxes on the wealthy and dramatically altered the nation’s fiscal path.” By 1998, the US was running a budget surplus, for the first time in nearly three decades. By contrast, the nation is now operating at a $1.8 trillion deficit.
Last fiscal year, the government paid its largest amount ever for interest on the national debt — $658 billion, more than a third higher than the previous year.
Trump is the self-proclaimed “king of debt” but that doesn’t mean his resources — or those of the US government — are unlimited.
The Grover Cleveland legacy
Grover Cleveland survived a personal scandal that broke into view during his first run for the White House. He was criticized for allegedly fathering a child out of wedlock (“Ma Ma, where’s my Pa,” was the chant directed at Cleveland). Though his paternity couldn’t be definitively established in a pre-DNA age, Cleveland admitted to an affair a decade earlier with a widow, Maria Halpin.
In 1886, Cleveland married Frances Folsom, who was 27 years younger, at the White House. They had five children.
Cleveland biographer Senik noted that there are no monuments to the former president in Washington, but the paternity scandal wasn’t the reason why.
It’s partly because of the things the 22nd and 24th president refused to do, the kind of politically advantageous policies he could have adopted but didn’t because he thought they were wrong.
“Virtually everything worth saying about Grover Cleveland boils down to one elemental fact: he possessed moral courage at almost superhuman levels,” wrote Senik. “He was consistently motivated by conviction, even when he knew he’d suffer political harm as a result.”