As we enter the final days before the 2020 US presidential elections, the global economy is still reeling from the coronavirus pandemic, and the topic of stewarding the economy has taken center stage for the two candidates, Republican incumbent Donald Trump and Democrat challenger Joe Biden.
Trump and Biden offer different economic visions for the US, but whoever wins will be constrained by the US political system’s checks and balances.
A key factor is control of the House of Representatives, where the Democrats are almost certain to retain their majority. The Democrats’ control of the House has forced Trump to take a laissez-faire approach to the economy, hoping that a vaccine will restore confidence and allow the economy to fix itself. In contrast, Biden has a highly ambitious economic agenda based on redistributing wealth and power from the rich to the poor.
Like all incumbents, Trump’s campaign has focused on extolling his economic successes. Prior to the pandemic, the economy was indeed performing extremely well, with historically low levels of unemployment and robust levels of economic growth. Moreover, wages grew during Trump’s first term, including for minorities and other disadvantaged elements of society.
An important cause of the economy’s good health under Trump were the wide-ranging tax cuts he implemented in 2017, boosting corporate profits and stock markets, making households richer, and causing them to spend with confidence. However, during the 2018 midterm elections, the Republicans lost control of the House, and with it the ability to initiate and control fiscal policy.
Historically, a House controlled by the opposing party does not represent a decisive blow to a sitting president’s fiscal plans, as long as they are willing to negotiate. However, in the case of Trump, Democrat-Republican relations are at an all-time low, and should Trump secure a second term, House Speaker Nancy Pelosi is more likely to try to impeach him (for a second time!) than approve his spending plans. This is why attempts at passing a second coronavirus stimulus failed, and why Trump is clinging to the hope that a vaccine will literally and figuratively give the economy a shot in the arm.
This is reflected on Trump’s election website, which is almost exclusively about the past rather than the future. His economic policies will be restricted to those the White House controls directly, such as foreign policy, most notably the trade war with China; and those he can control with executive orders, such as restrictions on labor immigration.
As the challenger, Biden faces the uphill task of convincing voters that he can do better than the incumbent. The political veteran’s plan has three distinctive pillars. The first is interventionism. The US has a more pro-market history than other advanced economies, most notably those in Western Europe, and this aversion to socialism is even evident in the policies of celebrated Democrat presidents Bill Clinton and Barrack Obama.
Biden has decided to be more aggressive in his plans for the economy: the Federal government will be increase spending considerably, as well as taking a lead role in managing the pandemic (Trump left the matter mostly to the state governors). A large infrastructure bill is on the horizon, covering everything from highways to electricity to broadband, drawing inspiration from Franklin Roosevelt’s 1930s New Deal.
The second pillar is redistribution: Biden is explicitly seeking to empower the poor at the expense of the rich using taxes and spending, and workers and unions at the expense of corporations using legislation and strategic investments. For a challenger, Biden is unusually transparent in his desire to fund his additional expenditure by reversing the Trump tax cuts, as historically, threatening the rich so brazenly is a recipe for political failure. However, this is 2020, and much of what was no longer is.
Biden’s third pillar is environmentalism. He wants to boost the green economy, including reversing Trump’s withdrawal from the Paris Agreement on climate change. Electric cars, renewable energy and energy conservation all feature high on Biden’s agenda, through subsidies and favorable regulations.
Unfortunately for Biden, the US political system is often characterized as a “vetocracy” – meaning that anyone with bold plans has their hopes dashed by the ability of many actors to veto, either through Congress, or via the courts. Thus, Biden’s ability to implement his agenda depends critically on whether or not the Democrats secure control of the Senate (polls are currently tight), and on the judicial intelligence of the team he assembles.
In this regard, even if the Democrats secure a comprehensive victory, Republicans have already succeeded in installing conservative judges in the judiciary at all levels, including the Supreme Court, over the last decade. Thus, ironically, and not for the first time, efforts by the winning president, be they a Democrat or Republican, to impose their economic vision could be thwarted by the courts, leaving the economy to nurture itself. In the pre-coronavirus world, this still worked; in the post-coronavirus world, only time will tell.
Omar Al-Ubaydli (@omareconomics) is a researcher at Derasat, Bahrain