US 2020 Election: The economic edge is for the taking
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UNLOCK OFFER- Until Covid the Trump administration had presided over some of the best economic growth and unemployment in two decades.
- Black and Hispanic employment set new record lows in the months before the pandemic.
- Wage gains rose above 3% annually for the first time since the financial crisis
- Markets may be forced to take sides when the Biden economic proposals are fully examined.
- Will voters compare Trump’s record to Biden’s promises and radical backers or will the election measure dissatisfaction with current lockdown produced economy?
The pandemic and the ensuing economic and urban chaos have moved what seemed to be a sure reelection for Donald Trump to a substantial polling edge for his presumed opponent Joe Biden.
Historically the reelection of an American President turns on his administration’s economic record. In 1992 Bill Clinton successfully portrayed President George H.W. Bush as out of touch on the economy and aided by the third party run of H. Ross Perot defeated his reelection bid.
Three years to 2020
Until the Covid pandemic and its closure of the US economy and the attendant soaring unemployment and social dislocation, the Trump administration’s policies had produced the best economy in two decades. Annualized GDP growth in 2019 was the fastest since the last Bush term.
The unemployment rate and jobless claims were at half century lows and wage increases broke above three percent annually for the first time since the financial crisis.
Employment expanded in poorer communities around the country. African-American and Hispanic unemployment reached their lowest points on record. Mr. Trump’s essentially private sector centered program of tax cuts, the vast majority of Americans received a reduction with the 2017 reform, and easing of business and environmental regulation encouraged the strongest growth in manufacturing jobs in a generation. Part of his attack on China’s trading and investment practices was intended to encourage American companies to return well-paying factory jobs to the United States.
The record is substantial and its impact was felt at the visceral level of politics, everyone who wanted a job had one. It is the type of economic reality that, absent the pandemic, would have heavily favored a second term. In most estimates from late last year Mr. Trump was cruising to 2020. The coronavirus pandemic cast a lifeline to the Biden campaign.
Biden economics
With their proposals for massive increases in spending and taxes Democrats and the Biden campaign are in essence reviving the progressive big government approach of the 1960s and Lyndon Johnson’s Great Society. Under those programs social spending that was designed to lift families and individuals from poverty focused on providing monetary assistance directly to recipients through Federal bureaucracies.
One measure of the failure of this approach is that more than a generation later, though in absolute terms minorities are far better off, there is still a large racial gap in overall economic well-being.
Biden’s budget proposals over the next decade promise about $7.8 trillion in new spending which he says will help balance racial inequality. Health care would receive $2.25 trillion, infrastructure $1.3 trillion, childhood and higher education $1.6 trillion, housing $0.64 trillion, expanded Social Security and family leave$ 0.88 trillion and various others programs $1.1 trillion.
Expenditures would be funded with higher taxes. Corporate levies would rise from 21% to 28% and individuals earning over $400,000 would pay 39.6% instead of 37% with claimed revenue of $2.262 trillion. Mr. Biden has also promised to repeal all Trump’s 2017 tax cuts on “day one.”
In the Biden campaign estimates these and various other rate increases and code changes would bring the total budget addition to $4.653 trillion. With no further specifics from the campaign presumably the balance would be funded by debt.
One caveat to all tax increase projections is that they rarely produce their estimated return as corporations and individuals respond to changes in the tax code with changes of their own which attempt to legally minimize their higher charges.
Biden environmental policies
Another aspect of the Biden outlook is his support of the Democrats so-called Green New Deal remake of the US economy. While many of its wilder goals such as eliminating fossil fuels in a decade are fantasies, the emphasis on environmental regulation and the mandated use of solar and other low-output electricity sources will cost industry and consumers billions in additional fees.
Mr. Biden has also promised to curb if not eliminate the oil-fracking industry which has made the US the world’s largest producer of energy and has been instrumental in lowering fuel and natural gas prices around the world.
It is notable that after the US withdrawal from the Paris Agreement on Climate Change, which Biden opposed, its greenhouse emissions fell by more than any other industrial nation due primarily to the increased use of natural gas in electricity generation.
Manufacturing agreement
One area of agreement between the two candidates is the return of manufacturing jobs to the US. Mr. Biden has advocated $700 billion in spending to revive the US economy, $400 billion of which would be in a “Buy American” program of government purchases for goods and services and $300 billion in research for clean energy.
President Trump has long favored a strong US manufacturing base and has criticized corporations for relocating production overseas and especially to China. He has encouraged companies to open plants in this country and his promotion of this re-industrialization in the rust-belt states of the Mid-West is the most proximate reason for his victory in 2016.
Biden's tenuous moderation
Mr. Biden is attempting to run as a moderate Democrat. The sole reason he will be the nominee after badly losing a string of early primaries is that the Democratic establishment was terrified that a Bernie Sander’s candidacy would produce a historic defeat similar to Richard Nixon’s trouncing of George McGovern in 1972, 520 to 17 in the Electoral College, 49 states to one and the District of Columbia and 60.7% to 37.5% in the popular vote.
The activist part of the Democratic Party, particularly its Black Lives Matter, Progressive House and environmental components, is much more radical in economic policy and in its desire to remake the US into a non-capitalist country than the American electorate. Because Mr. Biden needs his energized base, many of whom were Sanders supporters, he cannot stray far from their leftist politics with proposals that might appeal to a broader swath of Middle-America voters nor can he disavow their calls to defund the police, permit open immigration and raise taxes, all policies with profound economic consequences.
The US has not seen such widespread civic unrest and riots since the 1960s. Many of its cities have not experienced these soaring crime rates in a generation.
In many ways cities are the economic engines for experimentation and growth for the national economy. The crippling of these sources of innovation and concentrated financial expertise can, both fairly and unfairly, be laid at the feet of their Democratic municipal governance. Unfairly in that the largest amount of economic damage has been from the pandemic closures, but fairly because mayors ordered police to hold back and the ensuing riots caused not only bilions of dollars in property losses but will cripple private sector recovery. Why invest in a city that refuses to enforce the law?
Market views
To date markets have been agnostic and largely uninvolved with the election and the presidential choices. The stellar equity performance until the pandemic and the robust recovery since would normally tilt market opinion toward Trump. But these are not normal times.
Wall Street was by and large a Clinton supporter in 2016. Trump was too far from the establishment mainstream of both parties for comfort and the world of finance is nothing if not part of the political and corporate status quo.
Mr. Biden’s policies are the opposite of the pro-market, deregulatory approach of the Trump administration. But the Democrat is a charter member of the Washington, New York, East Coast political class and is the anti-populist choice of the Democratic Party establishment. He will reassure corporate presidents, financiers and hedge fund executives that he is a man of their character and can be counted on to provide the necessary accommodation. One of the lesser purposes of Mr. Biden’s candidacy was to maintain the campaign finance backing of this group.
The unstarted campaign
The presidential campaign has not really started and will not until the parties have nominated their candidates.
But the campaign is on hold in a more important sense than the official nomination. Trump has been in the harsh media spotlight for five years. Joe Biden and his policies, supporters and radical backers have had little or no media scrutiny.
That will change.
The American public may distrust its media but once the fall contest begins they will listen as reporters question and probe the Democratic platform and its economic potential. Mr. Biden will have to sit for interviews, answer questions and hold press conferences. Someone will ask about his support of the Green New Deal, his opposition to fracking and his intention to revoke the Republican tax cuts. These are all policies opposed by majorities of voters.
President Trump’s overwhelmingly negative press coverage has also given his campaign an edge on attack. There is little new that the Biden campaign or the media can add to their criticisms of the past except to raise the ‘racist’ and ‘failure’ volume even higher.
For the Trump campaign there are many avenues to attack. From Biden's stated intention to raise taxes, to promoting higher gas prices with a fracking ban, his support of the BLM Movement with its Marxist origins and policies, and the comparatively weak economic performance of the Obama administration it is, as the military says, a target rich environment.
All are game and the Trump campaign message will be one that the electorate has not heard. By refusing to criticize or even question Mr. Biden and by its sometimes unhinged take on Trump, news coverage has had the unexpected effect of making the Democrat more vulnerable to attack. The new charge is always more effective and Mr. Biden has not been inoculated against the negative. Mr. Trump is not known for his genteel approach to politics.
There is also the possibility, receding perhaps but still vital, that the economy will improve in the three months heading to November. It would only take one or two good payroll reports to give Mr. Trump plausible economic bragging rights on the past four years.
Conclusion
Donald Trump has lost the best advantage a US President running for reelection can have, a vibrant full employment economy.
In these highly unusual economic, political and social circumstances the chief question is whether the electorate will blame Mr. Trump for the economic collapse that has overtaken the labor market and the economy or refer to his previous successes when measuring a second term against the big-government promises and radical ideas of Joe Biden.
The old rules and certainties about the economy and political outcomes in American elections were upended in 2016. They will not be restored this year.
Please see our other 2020 US campaign pieces:
2020 Elections: Trump is losing his economic edge, for three robust reasons
2020 US Elections: See you in September
2020 US Elections: Be careful of judging the campaign before it starts
2020 US Elections: China is rooting for Trump, five reasons and market implications
2020 US Elections: Three reasons why Biden's lead over Trump is far greater than Clinton's in 2016
2020 US Elections: Trump loss, split Congress is what markets want, most likely scenario out of four
2020 US Presidential Elections: Timetable for trading the political event of the year
- Until Covid the Trump administration had presided over some of the best economic growth and unemployment in two decades.
- Black and Hispanic employment set new record lows in the months before the pandemic.
- Wage gains rose above 3% annually for the first time since the financial crisis
- Markets may be forced to take sides when the Biden economic proposals are fully examined.
- Will voters compare Trump’s record to Biden’s promises and radical backers or will the election measure dissatisfaction with current lockdown produced economy?
The pandemic and the ensuing economic and urban chaos have moved what seemed to be a sure reelection for Donald Trump to a substantial polling edge for his presumed opponent Joe Biden.
Historically the reelection of an American President turns on his administration’s economic record. In 1992 Bill Clinton successfully portrayed President George H.W. Bush as out of touch on the economy and aided by the third party run of H. Ross Perot defeated his reelection bid.
Three years to 2020
Until the Covid pandemic and its closure of the US economy and the attendant soaring unemployment and social dislocation, the Trump administration’s policies had produced the best economy in two decades. Annualized GDP growth in 2019 was the fastest since the last Bush term.
The unemployment rate and jobless claims were at half century lows and wage increases broke above three percent annually for the first time since the financial crisis.
Employment expanded in poorer communities around the country. African-American and Hispanic unemployment reached their lowest points on record. Mr. Trump’s essentially private sector centered program of tax cuts, the vast majority of Americans received a reduction with the 2017 reform, and easing of business and environmental regulation encouraged the strongest growth in manufacturing jobs in a generation. Part of his attack on China’s trading and investment practices was intended to encourage American companies to return well-paying factory jobs to the United States.
The record is substantial and its impact was felt at the visceral level of politics, everyone who wanted a job had one. It is the type of economic reality that, absent the pandemic, would have heavily favored a second term. In most estimates from late last year Mr. Trump was cruising to 2020. The coronavirus pandemic cast a lifeline to the Biden campaign.
Biden economics
With their proposals for massive increases in spending and taxes Democrats and the Biden campaign are in essence reviving the progressive big government approach of the 1960s and Lyndon Johnson’s Great Society. Under those programs social spending that was designed to lift families and individuals from poverty focused on providing monetary assistance directly to recipients through Federal bureaucracies.
One measure of the failure of this approach is that more than a generation later, though in absolute terms minorities are far better off, there is still a large racial gap in overall economic well-being.
Biden’s budget proposals over the next decade promise about $7.8 trillion in new spending which he says will help balance racial inequality. Health care would receive $2.25 trillion, infrastructure $1.3 trillion, childhood and higher education $1.6 trillion, housing $0.64 trillion, expanded Social Security and family leave$ 0.88 trillion and various others programs $1.1 trillion.
Expenditures would be funded with higher taxes. Corporate levies would rise from 21% to 28% and individuals earning over $400,000 would pay 39.6% instead of 37% with claimed revenue of $2.262 trillion. Mr. Biden has also promised to repeal all Trump’s 2017 tax cuts on “day one.”
In the Biden campaign estimates these and various other rate increases and code changes would bring the total budget addition to $4.653 trillion. With no further specifics from the campaign presumably the balance would be funded by debt.
One caveat to all tax increase projections is that they rarely produce their estimated return as corporations and individuals respond to changes in the tax code with changes of their own which attempt to legally minimize their higher charges.
Biden environmental policies
Another aspect of the Biden outlook is his support of the Democrats so-called Green New Deal remake of the US economy. While many of its wilder goals such as eliminating fossil fuels in a decade are fantasies, the emphasis on environmental regulation and the mandated use of solar and other low-output electricity sources will cost industry and consumers billions in additional fees.
Mr. Biden has also promised to curb if not eliminate the oil-fracking industry which has made the US the world’s largest producer of energy and has been instrumental in lowering fuel and natural gas prices around the world.
It is notable that after the US withdrawal from the Paris Agreement on Climate Change, which Biden opposed, its greenhouse emissions fell by more than any other industrial nation due primarily to the increased use of natural gas in electricity generation.
Manufacturing agreement
One area of agreement between the two candidates is the return of manufacturing jobs to the US. Mr. Biden has advocated $700 billion in spending to revive the US economy, $400 billion of which would be in a “Buy American” program of government purchases for goods and services and $300 billion in research for clean energy.
President Trump has long favored a strong US manufacturing base and has criticized corporations for relocating production overseas and especially to China. He has encouraged companies to open plants in this country and his promotion of this re-industrialization in the rust-belt states of the Mid-West is the most proximate reason for his victory in 2016.
Biden's tenuous moderation
Mr. Biden is attempting to run as a moderate Democrat. The sole reason he will be the nominee after badly losing a string of early primaries is that the Democratic establishment was terrified that a Bernie Sander’s candidacy would produce a historic defeat similar to Richard Nixon’s trouncing of George McGovern in 1972, 520 to 17 in the Electoral College, 49 states to one and the District of Columbia and 60.7% to 37.5% in the popular vote.
The activist part of the Democratic Party, particularly its Black Lives Matter, Progressive House and environmental components, is much more radical in economic policy and in its desire to remake the US into a non-capitalist country than the American electorate. Because Mr. Biden needs his energized base, many of whom were Sanders supporters, he cannot stray far from their leftist politics with proposals that might appeal to a broader swath of Middle-America voters nor can he disavow their calls to defund the police, permit open immigration and raise taxes, all policies with profound economic consequences.
The US has not seen such widespread civic unrest and riots since the 1960s. Many of its cities have not experienced these soaring crime rates in a generation.
In many ways cities are the economic engines for experimentation and growth for the national economy. The crippling of these sources of innovation and concentrated financial expertise can, both fairly and unfairly, be laid at the feet of their Democratic municipal governance. Unfairly in that the largest amount of economic damage has been from the pandemic closures, but fairly because mayors ordered police to hold back and the ensuing riots caused not only bilions of dollars in property losses but will cripple private sector recovery. Why invest in a city that refuses to enforce the law?
Market views
To date markets have been agnostic and largely uninvolved with the election and the presidential choices. The stellar equity performance until the pandemic and the robust recovery since would normally tilt market opinion toward Trump. But these are not normal times.
Wall Street was by and large a Clinton supporter in 2016. Trump was too far from the establishment mainstream of both parties for comfort and the world of finance is nothing if not part of the political and corporate status quo.
Mr. Biden’s policies are the opposite of the pro-market, deregulatory approach of the Trump administration. But the Democrat is a charter member of the Washington, New York, East Coast political class and is the anti-populist choice of the Democratic Party establishment. He will reassure corporate presidents, financiers and hedge fund executives that he is a man of their character and can be counted on to provide the necessary accommodation. One of the lesser purposes of Mr. Biden’s candidacy was to maintain the campaign finance backing of this group.
The unstarted campaign
The presidential campaign has not really started and will not until the parties have nominated their candidates.
But the campaign is on hold in a more important sense than the official nomination. Trump has been in the harsh media spotlight for five years. Joe Biden and his policies, supporters and radical backers have had little or no media scrutiny.
That will change.
The American public may distrust its media but once the fall contest begins they will listen as reporters question and probe the Democratic platform and its economic potential. Mr. Biden will have to sit for interviews, answer questions and hold press conferences. Someone will ask about his support of the Green New Deal, his opposition to fracking and his intention to revoke the Republican tax cuts. These are all policies opposed by majorities of voters.
President Trump’s overwhelmingly negative press coverage has also given his campaign an edge on attack. There is little new that the Biden campaign or the media can add to their criticisms of the past except to raise the ‘racist’ and ‘failure’ volume even higher.
For the Trump campaign there are many avenues to attack. From Biden's stated intention to raise taxes, to promoting higher gas prices with a fracking ban, his support of the BLM Movement with its Marxist origins and policies, and the comparatively weak economic performance of the Obama administration it is, as the military says, a target rich environment.
All are game and the Trump campaign message will be one that the electorate has not heard. By refusing to criticize or even question Mr. Biden and by its sometimes unhinged take on Trump, news coverage has had the unexpected effect of making the Democrat more vulnerable to attack. The new charge is always more effective and Mr. Biden has not been inoculated against the negative. Mr. Trump is not known for his genteel approach to politics.
There is also the possibility, receding perhaps but still vital, that the economy will improve in the three months heading to November. It would only take one or two good payroll reports to give Mr. Trump plausible economic bragging rights on the past four years.
Conclusion
Donald Trump has lost the best advantage a US President running for reelection can have, a vibrant full employment economy.
In these highly unusual economic, political and social circumstances the chief question is whether the electorate will blame Mr. Trump for the economic collapse that has overtaken the labor market and the economy or refer to his previous successes when measuring a second term against the big-government promises and radical ideas of Joe Biden.
The old rules and certainties about the economy and political outcomes in American elections were upended in 2016. They will not be restored this year.
Please see our other 2020 US campaign pieces:
2020 Elections: Trump is losing his economic edge, for three robust reasons
2020 US Elections: See you in September
2020 US Elections: Be careful of judging the campaign before it starts
2020 US Elections: China is rooting for Trump, five reasons and market implications
2020 US Elections: Three reasons why Biden's lead over Trump is far greater than Clinton's in 2016
2020 US Elections: Trump loss, split Congress is what markets want, most likely scenario out of four
2020 US Presidential Elections: Timetable for trading the political event of the year
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