Trump’s New Volcker Shock

As Reagan did 44 years ago, Trump must convince voters to stay the course through dramatic change.

President Trump is being criticized for the economy’s lack of unambiguously clear progress so far. Inflation is roughly where it was when he was inaugurated, while unemployment is up. Real wage growth remains sluggish, contributing to the economic malaise which all too many Americans feel.

This is fair if one is thinking only of the short term, as admittedly many voters are. Things aren’t much better for most Americans than they were a year ago when they wanted a change. It’s no surprise, then, that Trump’s job approval rating remains stuck in the low-to-mid 40s, with disapproval of his handling of the economy much higher than that of his overall performance.

That’s not, however, the right benchmark for serious analysts to apply. Why? Because Trump is the first president since Ronald Reagan in 1981 to try to dramatically change the national—and with it, the global—economy. He is essentially trying to switch us from an economy based on consumption to one rooted in production. No reasonable person would think that such significant structural changes would be seamlessly and painlessly applied.

That was certainly the case with Reagan. He came into office with the nation suffering from chronically high inflation coupled with high unemployment. That toxic brew, labeled “stagflation,” had prevailed for over a decade, with both prices and joblessness slowly rising throughout.

Reagan’s campaign message was clear; only a dramatic change in course would turn things around. Inflation had to come down, the private sector had to be reinvigorated with lower marginal tax rates and deregulation, controls on energy pricing and supply had to go. Doing the same things as Presidents Nixon, Ford, and Carter but expecting different results was, to Reagan, insane: he meant to break stagflation’s grasp on Americans’ pocketbooks and spirit.

Trump has been less direct about his agenda, to his detriment. But it’s not hard to see that his diagnosis and prescription is as dire and transformative as was Reagan’s.

Trump argues that America has been hollowed out—suffered “American Carnage,” if you will—because of trade, immigration, and foreign policies that put foreigners first. The rest of the world grew rich on American consumer dollars and national defense bills borne largely by the United States. Millions of Americans failed to garner any gains from this because of largescale, often illegal, immigration that kept wages down and job opportunities wanting. Undoing that noxious, interrelated combination is the core of his second term agenda.

Implementing such drastic changes will take time regardless of who is in the White House. It’s also natural that the beneficiaries of the old order—immigrants, foreign nations, and educated Americans whose jobs were protected from foreign competition or were subsidized, allowing them to garner real wage gains and lower costs for products and services—would howl as their advantages begin to fade away.

That’s what is going on worldwide right now, whether the furious complainants are European leaders, media and university toffs, or illegal immigrants. With so much change afoot, it’s not surprising that Trump’s approval ratings are down. The only surprising thing is that they are not even lower.

Again, this is not new. Reagan suffered politically at home and abroad as the winners—think unions or industries that benefitted from tax loopholes—under the old system howled to preserve their status and power. His economic changes in particular took almost two-and-a-half years to start to be felt by average people.

We often recall the “Morning in America” landslide re-election of 1984, while forgetting the depths to which Reagan sank while his program was being implemented.

It’s a history lesson Trump would do well to study and emulate. Reagan’s rhetoric and actions between his inauguration and re-election campaign are a marvelous example of how a strong leader sticks to his guns while simultaneously reducing his political losses and enabling his eventual triumph.

Reagan’s message, honed through decades of practice, was remarkably specific and clear throughout his 1980 campaign and his initial days in office. Inflation needed to come down by controlling the growth of the money supply rather than through counterproductive government wage and price controls. Employment and real wages needed to rise, not through government planning or job programs but by cutting the tax and regulatory burdens on employers and employees. Energy prices, which had more than tripled since 1973, would come down by removing price and production controls rather than through the comprehensive government energy plan favored by the experts.

The public was willing to listen to this radical plan because the economic situation was so dire. Inflation was 11.8% when Reagan took office, and it hadn’t been below 4% on an annual basis without government price controls since 1967. Unemployment was at 7.4 %, up from 5.9% in the fourth quarter of 1979. It hadn’t been below December 2025’s 4.6% mark since March 1970.

Reagan’s initial framing is best seen in his nationally televised address of February 5, 1981. He documented how government spending, taxes, and the annual deficit had risen for years. He argued that the government had failed to stop unemployment or inflation because of its deficits and money printing. He presented a clear program that would cut spending and taxes, noting also that he would “work closely with the Federal Reserve System toward the objective of a stable monetary policy.”

Reagan then followed through on all of his promises. His landmark tax and budget cuts were debated and passed, albeit with some negotiated changes, by mid-August 1981. His administration removed price controls on domestically produced oil and gas within days of taking office, and his officials worked feverishly to deregulate other parts of the economy.

Federal Reserve Chair Paul Volcker, meanwhile, jacked up interest rates to control the money supply. Short-term interest rates, which had been as low as 9% in summer 1980, rose to over 19% by March 1981. They remained above 14% for most of the next 15 months.

The immediate economic impact of these drastic policies was to throw the economy into a deep recession. Unemployment stood at 7.2% in July 1981 but immediately started to rise throughout the next year and a half. The inflation rate remained high throughout 1981 and only started to decline below double digits in the second half of 1982. Volcker thus kept interest rates high until that happened, cutting them below 10% only in October 1982.

This meant that Reagan went into his first midterm presiding over the worst economic downturn since the Great Depression, with little evidence his program was working. His approval rating dropped throughout 1982, hitting a mere 43% on the eve of the election. Democrats thundered, demanding that some of Reagan’s signature tax cuts be delayed and for Volcker to cut interest rates. Even some Republicans followed suit, worried that Americans would punish them with an historic drubbing in November to match the historic recession.

Reagan could have reversed course in response to the pressure and the polls. That’s what most politicians would have done in the admittedly dire circumstances. He instead embarked on a clear campaign to persuade Americans to give him more time.

“Stay the course” was Reagan’s mantra. He made clear, in public and in private, that he would not abandon his plan just because the initial news was not rosy. He took to the campaign trail, telling audiences that his program was making headway and that staying the course would ultimately result in better times for all. Reagan even made a nationally televised address in October 1982 to make his appeal, ending his remarks by saying, “we can do it, my fellow Americans, by staying the course.”

That’s not to say that Reagan imprudently dug in his heels on everything. The master communicator knew that he had to meet public opinion where it was, and that meant some adjustments were in order. With deficits rising, he decided to bend a little on some elements of his plan rather than risk being broken on the wheel of public opinion.

He therefore negotiated a tax hike with congressional leaders of both parties. His headline rate cuts would remain in place; there was no moving the Gipper on those. But he was willing to increase some excise taxes and close tax loopholes to raise revenue.

Reagan’s address to the nation on the eve of the congressional vote put the tax rise in the context of his entire economic plan. He noted that interest rates and inflation were coming down and that economic growth was returning. Reagan also explained how his core tax plan reduced income taxes for all and that those gains far outweighed the excise tax hikes he proposed.

Purist supply-siders and conservatives howled and revolted, but Reagan’s deal passed. He knew that his base would stick with Republicans in the midterm. His eye was firmly planted on swing voters, and he knew that bending but not breaking could keep him from being politically swept aside.

Reagan’s strategy worked. Republicans lost 26 House seats, a large number but far fewer than the 55-60 seat loss many had predicted. The GOP held its own in the Senate, too, maintaining a 54-46 majority. The Senate triumph was especially sweet as it marked the first time since 1930 that Republicans would control the upper house after two consecutive elections.

Trump should study and follow Reagan’s template if he wants to maximize his party’s chances of holding the House and keeping the Senate this year. Doing that will require some significant changes to the modus operandi we saw him use in 2024.

The first change is rhetorical. Trump has never articulated his comprehensive economic strategy, preferring to treat each element in isolation. This serves his preference for deal making, but it means the swing voter does not know where he is trying to steer the ship of state. Without a road map to guide them, they can only judge Trump by his short-term results.

Trump should use the upcoming State of the Union address to fix that problem. The SOTU is almost the only time that he is known to largely follow his script, and it is also certain to be televised live by all networks and news channels. It’s the only time, then, that he can define the economic problems he faced upon inauguration and what his comprehensive solutions are.

His signature tariffs should be at the heart of this speech. Trump fundamentally believes that American economic greatness can only return if heavy industry comes back. That means the short-term pain tariffs bring—higher prices and a slower economy as firms adjust—will be worth it as investment brings high-paying jobs and national wealth back. He can then use the same “stay the course” message that Reagan used, contrasting his plan with President Biden’s failure.

Illegal immigration, Trump’s political strong suit, also is an important element of this plan. He can cast his deportation efforts as what they are; an attempt to ensure that American jobs are filled by legal, and largely American, workers. He can argue that when Democrats fight ICE, they are really fighting the American worker.

The fact that Democrats will angrily resent that charge makes it even better for Trump. Their rejoinder will ensure that the 2026 battleground will be fought substantially on his terrain. And as every political consultant is taught early in their career, defining the terrain is more than half the battle.

Trump also needs to adapt his game plan as necessary. Removing or reducing tariffs that cause unnecessary political pain, like he has done on furniture imports, is a swerve that doesn’t undermine his plan. Making ICE sweeps less chaotic, especially after the tragic shooting in Minnesota, means the worst excesses are kept out of the news while the steady drumbeat of deportations continues.

That can also mean making some swerves on health care policy. A temporary extension of the pandemic-era Obamacare subsidies coupled with some reforms, as has been mooted, could help blunt the edge of Democratic campaign ads. Conservatives might not like that, but, like Reagan, Trump needs to keep his eye on the swing voters whose choice will determine which party controls the House.

He should also reduce the time and public emphasis he is placing on foreign policy. Republicans are not going to hold the House if he succeeds in getting Greenland. They could control the House if he can persuade those swing voters that he’s paying attention to jobs and the cost of living and making progress on their priorities.

Trump needs to remind people how their taxes were cut in the One Big Beautiful Bill. These extend far beyond the better-known cuts for people who earn overtime or tips. Every parent, for example, will get an extra $200 per child from an increased Child Tax Credit. The standard deduction for everyone was increased by $750 ($1,500 if married filing jointly), with most senior citizens getting an extra $6,000 tax deduction. Combined with slightly higher income levels for the 10% and 12% tax brackets, virtually everyone will pay lower income taxes than they did last year.

These strategies need to be embedded in Republican campaign ads, too. Reagan did that in 1982, ensuring that his paid media supported the earned media efforts. Trump’s Super PAC, MAGA Inc., has an incredible $300 million on hand already to support such a blitz. Senate and House campaigns should be coordinated to the full extent of the law so that they all sing from the same hymnal.

There’s no guarantee that this will work. Past is not always prologue. But we know from polling and registration data that Americans are not sold on the Democrats. They may not understand or love the course Trump is taking them on so far, but they voted to change course in 2024 for a reason. If they know more about why things haven’t improved as quickly as they had hoped, perhaps they will do what their grandparents did 44 years ago and choose to stay the course a little longer.