The US economy has a new problem: Democracy is under siege

By Matt Egan, CNN

New York (CNN) — The nation’s top economic statistician was fired. Central bank independence is being undermined. The federal government is buying chunks of private companies and demanding cuts of revenue streams. Presidential power to lob tariffs has been wielded in unprecedented fashion. And federal regulators are threatening media companies over late-night comics.

These events all took place this year, and not in a third-world country, but in the world’s preeminent democracy under President Donald Trump.

Some political scientists see a pattern that suggests American democracy is being undermined in real time. The stakes are massive for the US economy and the business world.

“I have never been this concerned about democracy in the United States,” Vanessa Williamson, a senior fellow of governance studies at the nonpartisan Brookings Institution, told CNN in a phone interview.

CEOs are growing alarmed — even if they’re publicly staying quiet to avoid the wrath of the White House.

Business leaders are “quite alarmed” in private about the state of democracy in the United States, according to Jeffrey Sonnenfeld, the Yale professor known as the “CEO Whisperer” due to his extensive rolodex in the business community.

“We’ve had a serious erosion of the foundations of democracy,” Sonnenfeld, founder and president of the Yale Chief Executive Leadership Institute, told CNN.

Research shows that democracies tend to thrive financially.

“Democracy is just good for the economy. And autocracy is bad for the economy,” Williamson said. “Autocrats are just not good at managing economies. Policymaking tends to be erratic as democratic institutions decline.”

Democratizations increase GDP per capita by about 20% in the long run, according to a 2019 study titled “Democracy does cause growth” that was published in the Journal of Political Economy, a University of Chicago peer-reviewed journal.

Researchers said the positive effects of democracy “appear to be driven by greater investment in capital, schooling and health.”

‘Rapidly’ eroding democracy

On the other hand, scholars have found countries governed by populists are worse off.

“Populist leaders leave a long-lasting negative imprint on the economic and political pathways of countries,” researchers concluded in a 2023 study published by the American Economic Review.

They studied 51 populist presidents and prime ministers who were in power between 1900 and 2020 and found that after 15 years, GDP per capita was 10% lower when compared with a plausible nonpopulist counterfactual.

“Populists typically assume office as antiestablishment politicians who claim to represent ‘the common people’ and to improve their economic fortunes,” the authors wrote. “However, they typically do not deliver.”

Williamson, the Brookings fellow, argued the United States “experienced democratic erosion slowly” in recent years and “rapidly this year.”

“What’s troubling is we’re trending in the direction of the worst-case scenarios I’ve envisioned,” she said.

The White House did not respond to a request for comment. Trump has in the past pointed to a promised influx of investment into the United States and skyrocketing tariff revenue as evidence of success during his second term.

“We’re the hottest country anywhere in the world,” Trump said in July.

‘Horrifying’ pressure on media

The latest flashpoint: Brendan Carr, the Trump-nominated chairman of the Federal Communications Commission, suggested the regulator would make life difficult for Disney and ABC if they didn’t take action to address on-air remarks comedian Jimmy Kimmel made about the murder of conservative activist Charlie Kirk.

Kimmel’s show was later suspended indefinitely by ABC in a move that was hailed by Trump.

“That’s what you would expect to see in an unfree country. It’s straight from the autocratic playbook,” Williamson said.

Sonnenfeld said Trump’s threats to pull broadcast licenses over critical coverage of the administration is “horrifying.”

“The erosion of free expression in the media is really alarming,” Sonnenfeld said.

Trump has surprised some by the intensity of his attacks on the Federal Reserve, which is designed to be independent from political interference.

Last month, Trump fired Fed Governor Lisa Cook, who has fought back in court.

After a brutal jobs report on August 1, Trump fired the leader of the agency that compiles the report and accused her, without evidence, of cooking the books.

Erika McEntarfer, the fired commissioner of the Bureau of Labor Statistics, said last week the firing “made no sense.”

“Firing your chief statistician is a dangerous step,” she said. “That’s an attack on the independence of an institution arguably as important as the Federal Reserve for economic stability. It has serious economic consequences.”

State ownership of private business

Trump has also surprised some by taking a heavy-handed approach with private businesses.

For instance, Trump demanded the resignation of Intel CEO Lip-Bu Tan over his ties to China.

Trump later praised the Intel CEO and presided over a controversial decision to invest taxpayer money in the $8.9 billion in the beleaguered chipmaker.

Although the Intel investment won praise from Sen. Bernie Sanders, some Republicans are troubled.

“We’ve been teaching the world that state-owned enterprises are unfair. But now Intel is a state-owned enterprise,” Douglas Holtz-Eakin, a former economic adviser to President George W. Bush, told CNN in a phone interview.

Holtz-Eakin, the president of center-right think tank American Action Forum, told CNN the government is “overstepping boundaries” by taking stakes in private companies.

“Now Intel has deeper pockets than anyone else. And politically, we’re never going to let Intel fail. We can’t admit it was a bad idea,” he said. “The government should stay out.”

The Intel investment came months after the Trump administration approved Nippon Steel’s takeover of US Steel in a deal that granted the federal government a “golden share” that could give US officials a say in how the private enterprise is run.

In July, the Department of Defense became the largest shareholder in MP Materials, a publicly traded company and the nation’s largest rare earths miner.

‘MAGA has gone Maoist’

Mike Pence, Trump’s former vice president, noted on CNBC last week that “state ownership of business is very common in China and Russia” — two nations that are far from democracies.

Such moves have “taken our country to a very perilous place and I think we need to resist that very strongly,” Pence said.

Sonnenfeld, the Yale professor, went a step further by describing the federal government’s “intrusion” into the private sector.

“It’s as if MAGA has gone Maoist, if not Marxist,” Sonnenfeld said.

Publicly, most business leaders have been relatively quiet about these issues.

CEOs know that if they speak up, they risk drawing the ire of the president.

In May, Trump threatened to slap a 100% tariff on all of Mattel’s imports after the toymaker’s CEO acknowledged it would have to consider price hikes due to tariffs.

But in private, Sonnenfeld says, CEOs have expressed major concern about pressure on democracy in the United States.

“We’re not seeing those forceful voices come together,” Sonnenfeld said. “But they need to. They are very much alarmed.”

The Yale professor said the business community is “splintering,” meeting with the president sector by sector instead of speaking with one voice.

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