Stagnation or Growth -- Trump v Biden

Stagnation or Growth -- Trump versus Biden -- More of the Same, But Better (Trump) or A Plan, Possibly Flawed, Forward Looking, Problem Solving, & Optimistic for the Post Covad Recovery

The election coming in a month offers a clear economic choice between growth and recovery versus stagnation. The Republican (Trump) approach to economic growth is to let the market decide by getting out of the way of companies and reducing taxes on companies and individuals, assume that the science must be wrong about climate change or man’s responsibility, or that infrastructure isn’t really on its last legs and needs a massive make-over, or that cutting taxes always leads to growth, or even that deficits don’t matter unless they are deficits that may come from Democratic programs.   The Democratic (Biden) approach is to face up to the issues – climate change, collapsing infrastructure, wasteful tax cuts that have a smaller social and economic multiplier, social inequality, educational disparities that limit human potential (economically inefficient)—in short seeing opportunity in choosing goals that can lead to transformation of stagnant economies.  

The Trump approach is more of the same, but better. The Trump tax cuts went largely to companies and individuals of high net worth. Cutting taxes across the board will do this so on the surface they are fair, but are they efficient. Complementing the tax cuts was the massive deregulation of the economy, thus allowing the private sector to ignore the problems they might have faced if regulations on pollutants into the atmosphere and water were regulated more not less.  Not adding cuts to low income or middle class in a higher proportion limited the growth in new demand or allowed more saving for education of their children. Wealthy could use the extra cash to buy stocks and bonds as their needs were already fully or mostly satisfied. Companies need not expand factories or hire more workers because they didn’t have to retrofit furnaces or add more costly pollution control equipment.  Not surprisingly the recipient of the tax cuts for companies and individuals was the stock market with companies paying dividends, buying back stock, and the wealthy higher income families buying into rising stock markets. 

Even if there had not been a forced shutdown and pandemic in February, 2020, the future Republican, status quo economy would have been weak – 2.3% in 2020 and 2021, then down to the 1.5-1.6% range and even less in later years.   The post-Covad world starts at a negative position, -3.3% in 2020 and just 1.1% in 2021, then in the 1 to 1.5% range for the next years. A statistical model, even one as complex in its linked relationships as the QuERI model, processes the information it can see, so it can’t integrate a forward looking plan for supporting rapid change-over of existing capital stock to solve problems like climate change or infrastructure or targeted tax changes. Thus it is a perfect extension of the Republican plan for the economy.   The problem is that there is nothing in the Republican’s approach that mildly is positive to growth-- no new environmental programs, no new regulations, fewer old ones, no tax cuts but changes in the code favoring corporations and the wealthy through Executive Orders – simply , status quo Republican dogma a la Trump’s whim, and then combined with zero or negative population growth through limits on immigration and aggressive deportation of undocumented immigrants, including the xenophobic efforts to reduce imports and penalize technology transfers and the resulting damage to US exports and technological leadership, everything in continuing with Trump and Republican policies suggests stagnation. Built into the current industry specific employment pattern and investment in capital stock combined with a slower growth in key industries employment will continue to be flat or negative.  The positive growth in employment observed came primarily the result of the ACA allowing more people to have health care (under attack by Trump), gig work stimulated by technologies like smart phones (but not good for the long term health of an aging population in need of stable income), and the tax cuts that helped the upper range of workers who had more income to spend on restaurants, vacations, and investments (now damaged by the post-Covad bankruptcies and closures).

Where the Republicans tend to favor zero government intervention except to get out of the way of private initiative that is in their mind organized around human self interest (to put the most positive spin on greed and corrupt intent of some), the Democrats fixate on some unattainable goal and then set out setting up government programs to help to meet these goals. Economic growth from the first period of industrialization to today has depended upon the recapture of the productivity of human activity by another group. As economies shift from rural to urban, then the productivity of agriculture is captured by manufacturing. As manufacturing productivity increased, then services offered the next new product class to capture the embedded productivity of agriculture and manufacturing. The final growth motivator is regulation and government stimulus. The Biden plan is positive to growth where the Trump non-plan is at best neutral to growth. Biden wants to use the power of the government to do big things – rebuild infrastructure, replace aging power with carbon neutral power, use government purchasing power to promote domestic industries (questionable if possible or totally desirable), but the stimulus is in the right direction, stop deportations and open the country to legal immigrants with the right skills keeping population growth positive, again stimulus, revising the corporate tax to encourage investments and penalize stock purchases and shifting work overseas, regulations to limit damage to the environment, believing in science, setting big goals to inspire the next generation, and taxing the excess wealth that the Trump tax cuts gave to people who will not spend it on new things. There is nothing status quo in the plan, it may add to the deficit, but it does so in ways that multiply growth, not suppress it or have no impact on it. A stronger growth in the economy will be healthy for government revenues as well as our post-Covad psyche turning negatives into positives, climate change from on coming storm to new opportunity for a new world, a better world. The Republican view of the world is a pessimistic one about human nature (bad) and government efforts to right wrongs or change directions (bad); the Democratic view is optimistic, positive, human beings are good, leadership from government is necessary to solve problems, regulations force growth by capturing productivity wasted on stock buy backs or rising share values to grow new industries. 

The choice is clear on November 3rd, choose the future you want –the status quo and hope for the best, or change and make the future you want for yourself, your children and your Grandchildren.