Those doing economic outlook conferences at the time of a national presidential election can always expect to get the big question: What will the voters’ decision in November do to next year’s GDP growth? It’s perfectly valid – I got it several times this year – yet most of the time, it lends itself to a pretty standard response.
This year, will Joe Biden’s victory make for a different 2021 economy than another Trump term would have led to?
Usually, the answer is easy. Except in rare circumstances – perhaps when the nation is at war, literally or with a pandemic – it makes no difference at all. If we hold the coronavirus at bay, GDP growth for 2021 will be the same, more or less, no matter who had won the White House. Of course, there’s a lot more that needs to be said. So hang on.
In explaining the answer, I must remind the reader that 2021 GDP growth, again assuming that a pending coronavirus remedy is delivered, will be determined by just two variables: growth in the number of people who work each day and improvements in their productivity. Add those two numbers together and you have GDP growth. And remember, there’s not a lot that a newly elected president can do to alter the 12-month path of those two variables. Those cookies are already in the oven, so to speak.
It seems we are stuck with the 2121 economy, no matter who finally occupies the White House. But what about 2122 or 2123? Now the question gets more interesting.
Those cookies are definitely not in the oven. In fact, the policy choices that determine recipes and ingredients for GDP growth are just now being eyed. To add some recent relevance to the discussion, let’s compare President Trump’s proposals with those of President-elect Biden and see how they stack up. Which of the two leaders would have generated the largest growth rate for 2022 or 2023?
Let’s focus on their uttered intentions, making the heroic assumption that what they claimed they would do can make it through Congress. To answer the question, I oversimplified and assembled plus and minus signs for the two individuals’ policies on taxes, immigration, trade, regulation and deficits.
I gave Trump a plus sign for taxes; he promised to extend the current tax cuts and add even more reductions. That tends to nudge GDP in a positive direction. Biden got a negative sign on taxes, for reverse reasons.
Opening the door on immigration would expand the number of people going to work each day. I gave Biden a positive sign on this one; Trump got a negative sign.
Trump’s love for tariffs and trade wars earned him a negative sign on trade. Early indications that Biden will be more conciliatory and open more doors to goods from other countries gave him a positive sign.
On regulation, Trump’s strong deregulation effort and promise of more gave him a plus sign. Biden’s bold promise to regulate more, especially as related to labor and environmental concerns, earned him a negative sign.
Finally, on our yawning deficit, which, if not attended, will eventually crowd out private investment, I gave Biden a positive sign; he at least is willing to raise taxes to fund some of his preferred programs. Trump’s preference for debt and deficits earned him a negative sign.
After running the pluses and minuses, I found that the two politicians came out with an even number of positive and negative signs. In other words, on this back-of-envelope basis, and assuming their preferred actions could be made law, GDP growth for 2022 and 2023 would have been about the same with either individual.
But it should be noted that, putting recessions and depressions aside, not many individuals and families are really interested in GDP growth. Most voters are concerned about their niche in the larger economy — what might be thought of as their personal GDP growth. What one or the other politician delivers in specialized GDP baskets can vary a lot across different industries, income groups and regions.
In any case, don’t look for the 2020 election to bring meaningful change in 2021 GDP growth. As for 2022 and 2023, we’ll have to see what Biden and Congress can come up with — and, of course, how they address the pandemic.
Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University and dean emeritus of the Clemson College of Business and Behavioral Sciences.