In a new study co-authored by Moody's chief economist Mark Zandi, the global ratings agency found that the best possible case for economic progress in America is to elect Joe Biden as president and a Democratic majority in both chambers of Congress.
Moodys' does not necessarily believe that's the most likely scenario which they believe is a Biden presidency with a divided Congress, but giving Democrats total control of the government would lead to significantly more growth, jobs, and overall progress than giving Trump another four years to do mostly bad things. And it's not even close.
Here's what they see happening under a Biden presidency and Democratic Congress that passes most of his policy proposals:
In this scenario, the economy is expected to create 18.6 million jobs during Biden’s term as president, and the economy returns to full employment, with unemployment of just over 4%, by the second half of 2022. During Biden’s presidency, the average American household’s real after-tax income increases by approximately $4,800, and the homeownership rate and house prices increase modestly. Stock prices also rise, but the gains are limited. This is because of high current market valuations that limit prospects for near-term gains and the pedestrian growth in corporate profits under Biden’s policies, as more of the benefits from the stronger economy under his policies go to workers.
Near-term economic growth is lifted by Biden’s aggressive government spending plans, which are deficit-financed in significant part. Stronger anticipated global trade and foreign immigration also contribute. His proposal calls for additional spending of $7.3 trillion over the next decade on a static basis on infrastructure, education, and the social safety net including everything from Social Security to housing and healthcare. The bulk of the spending is slated to happen during his term as president in an effort to generate more jobs to return the economy to full employment as quickly as possible.
While Biden’s spending plans are financed in part by higher taxes on corporations and the well-to-do that come to $4.1 trillion over the decade on a static basis, the net of these crosscurrents is to boost economic activity.
Moodys' analysis of Trump's plans is not as detailed because Trump and Republicans in general do not actually have any plans.
The study's authors write that calculating the impact of Trump's policies is complicated because of their "lack of transparency and specificity" which is a nice way of saying Trump either has no discernable plans or never follows through on any of them.
In any case, Moodys' assumes that Republicans would cut spending through austerity, not increase it, and they also assume as I do that Trump will dramatically escalate his trade war during a second term in office.
The economy suffers in Trump’s second term, as we expect he will double down on the foreign trade and immigration policies he pursued in his first term. This means a resumption of the tariff war with China that was put on hold late last year with the so called Phase One trade deal with that nation. While the pandemic would have complicated the implementation of even the best designed trade deal, there is little evidence that the Chinese had any intention to abide by the Phase One deal, other than where it was in China’s economic interest, such as by importing more U.S. agricultural products. When the dust settles after the pandemic, and it becomes clearer that Chinese behavior has not changed appreciably, the tariff wars are likely to heat up again. The significant increase in tariffs during Trump’s first term—from an effective tariff rate of 1.5% when he took office to a peak of more than 6% just prior to the Phase One deal—acted like a tax increase on the U.S. economy, hurting U.S. manufacturers, transportation companies, and farmers in particular. More of the same is expected in Trump’s second term.
The study also found that the labor force participation rate would literally never recover to pre-pandemic levels during a second Trump term.
Just over 11 million jobs would be created during Trump's second term; 7 million fewer than under Biden.
I don't think it could be any more clear just how much our future will diverge depending on what happens in November.