The Economy Under President Biden

The economy under President Biden will look a lot like under President Trump, surprisingly enough. Presidents often don’t fulfill campaign promises. Even when they do, things take time. Eventually a Biden administration will impact the economy—but those impacts will mostly be felt after his term of office.

Covid-19 will have the greatest impact on the course of the economy in 2021 and 2022. Public policy can do little to change the course of the disease, aside from approving treatments and vaccines. A Biden administration can take a less political approach and hasten approvals—maybe.

On Joe Biden’s campaign promises, campaigners craft statements with three possible goals. First, they motivate the base of supporters, so that they send money, volunteer and actually go out and vote. Second, campaign statements may try to win over the undecided. Third, a candidate might express deeply felt convictions regardless of how they advance or detract from election odds.

The Biden campaign seems to have crafted a platform to motivate the base and include Bernie Sanders supporters. Appeals to the middle have primarily emphasized that Joe Biden is not Donald Trump. And as for the third possibility, Joe Biden is no idealogue, but rather a flexible politician adapting his message to current situations. So the economic forecaster cannot take campaign pronouncements as a roadmap to the economy’s future.

The next impediment to enacting a candidate’s promises is time. Every presidential candidate expresses opinions on all manner of topics, but implementing a single initiative takes time and attention. Time and attention are a limiting factors on presidential actions, all the more so with geriatric presidents. (And the same would have been true of Donald Trump had he been elected.)

When the president does tackle an issue, most changes must be enacted by Congress, survive legal challenges which could rise to the Supreme Court, and be administered by a bureaucracy that will outlast the presidential term. Some change can be made by executive order, but they tend to be more limited in scope.

With continued Republican control of the Senate (based on preliminary election results), Biden will have little opportunity to enact sweeping legislative changes. Most of the platform can be tossed aside.

With all of those caveats, the Biden administration will certainly work to get another “stimulus” bill enacted. The quotation marks are used because, as explained in an earlier article, a stimulus bill will not stimulate the economy but just shift money from some pockets to others. The business impact will favor landlords of lower-cost apartments, banks with many consumer loans, and other companies that serve the people who have lost jobs in the pandemic.

Tax increases are the largest potential impact of a Biden presidency. The House of Representatives will certainly support the new president, but the Senate will be hard to convince. If the Senate does turn Democrat, either through late election returns this year or the next election in 2022, then tax increases are likely. The impact will be felt in years to come, not immediately, as explained in an earlier article. Over time, disincentives to investment and work will reduce the growth rate of the economy by a small but noticeable amount.

Next on the president’s agenda with large economic impacts is an infrastructure program. President Trump would probably have gotten around to this had he been reelected. There will be broad Congressional support given the large amount of pork involved. The details of candidate Biden’s proposals probably won’t last. His proposal entails $1.3 trillion of spending over 10 years, the largest component being $400 billion for “clean energy research and innovation.” Some stepped-down version of that idea is likely, but Congress will prefer more tangible projects that are ready to show results. Look for mass transit to blossom.

Labor policy will certainly be more union-friendly than under the Trump administration. Talk of repealing the Taft-Hartley Act’s permission for states to enact Right-to-Work laws is unlikely to pass Congress, but the National Labor Relations Board will certainly tilt the playing field toward unions. A higher minimum wage is also likely, though not the $15 an hour advocated by candidate Biden. Businesses will have to work harder to retain and recruit talented workers and to keep them performing at high productivity.

Immigration policy will probably relax a little in a Biden administration, but keep in mind that Democrats usually worry that foreign immigrants will compete with U.S. workers and thus lower wage rates. Anticipate a visa policy resembling a polite version of Trump-lite.

International trade policy will continue the country’s drift away from globalization, but with a much nicer tone of voice than President Trump used. Historically Democrats were more favorable to tariffs and other trade limitations. Only in the Trump administration did the GOP switch sides. A Biden administration, though moving in the same direction that Trump’s administration did, will likely move slower and more predictably. That will actually be good for business planning, even if the direction of change is unfavorable. Predictably bad is sometimes preferable to unpredictable.

Liberals should not expect an economic nirvana, nor should conservatives expect a disaster. Labor will be a greater challenge, regulatory burdens will be somewhat larger, and taxes on profits and earnings will increase. But well-run companies will still be able to earn profits by serving customers effectively.

The Economy Under Four More Years of President Trump

The economy with four more years of the Trump administration will look very like it does now. The Covid-19 pandemic will continue to be the major swing factor in the economy in 2021 and into 2022. Beyond that, a continued Democratic majority in the House of Representatives will stymie major new policy initiatives from President Trump, at least for two years.

One change from the election is the likely passage of a “stimulus bill.” (I wrote recently that a stimulus bill will not stimulate the economy, just shift dollars from some pockets into others, so don’t get too excited.) Democrats and Republicans, including Trump, want a stimulus bill. Both sides appeared nervous that a bill would benefit the other side’s electoral chances, thus the logjam. With the election over, passage of stimulus is likely. The most likely beneficiaries will be low-income workers who lost their jobs. Some specific industries, such as airlines, stand a good chance winning subsidies.

In the coming two years, a major infrastructure bill is also likely. Biden’s proposed stimulus differed in details from Trump’s preferred plan, but both sides agree on the concept. There will certainly be enough pork to keep most members of Congress happy. Look for more construction activity across the country. However, infrastructure construction will not prove stimulative to the overall economy for the same reason that a stimulus bill is not stimulative. Our problem is not lack of spending, but lack of services that people want to spend their income on, including open restaurants, hotels in fun locations and airline travel. Further limiting economic benefits from infrastructure is the current strong demand for labor and construction materials. There are not many skilled trades people looking for work these days.

The President also wants to extend the 2017 tax cuts, which are slated to sunset in 2025. That is unlikely with the Democrats running the House. If the GOP can regain the that chamber in 2022, then tax cut extension is likely.

The list of what won’t change is pretty long. International trade relations will continue to deteriorate in erratic fashion. Immigration will continue to be limited.

Deregulation will continue. This is more significant than most news reports suggest. In recent decades Congress has delegated much authority to the executive branch, but the rule-making process is long and prone to delay. With another four years, the Trump administration is likely to make further progress reducing environmental and labor regulations.

The federal budget will continue in deficit for the next four years, bringing the United States closer to the day when the bills come due. No one knows for sure when that might be, and I doubt that the day is near, but the bills must eventually be paid. Fiscal discipline is a lost art in Washington DC.

Campaigners on both sides claimed that this election would be critical for the economy. Neither side was right. No election outcome was going to stop the Covid-19 pandemic. No result was going to prevent most Americans from getting up in the morning and going to work. We’ll see minor changes, but generally the economy will look about the same. Business leaders who continue to focus on serving customers efficiently will outperform those preoccupied with politics.