US election 2020: Democrats’ radical Green New Deal spending likely to be torpedoed

Biden may have won the White House, but radical Democrat plans like the Green New Deal will be torpedoed. Here’s where he can make a bigger mark.

Joe Biden may have won the White House, but the Republicans will maintain their majority in the Senate, ensuring more radical elements of the Democratic ticket, such as the trillion-dollar ‘Green New Deal’ funded by significant tax increases, are torpedoed. Picture: Reuters

Political leaders are given far too much credit or blame for economic outcomes. The simplistic idea that if something comes after something else, the latter caused it, is rife but wrong. New presidents change the tone and personnel of governments, usher in a new law or two, but most households and businesses carry on as they were.

Donald Trump created the impression he was the spark that lit a US economic revival before the coronavirus pandemic wrought chaos early this year. Naturally it’s in the interest of the political class to stress their impact and importance to everyday life. But the facts differ. Trump won in November 2016 at the tail end of a boom since eviscerated by the pandemic.

For all the political rage the past four years has generated in the US, the basic trends since the global financial crisis have continued: steadily improving big-picture indicators papering over simmering and growing polarisation along socio-economic divides.

The US unemployment rate peaked in late 2009 at 10 per cent and has fallen steadily since, reaching 4.7 per cent at Trump’s inauguration in early 2017, ahead of bottoming out at 3.5 per cent late last year. The benchmark US stock index, the S&P 500, has increased in almost a straight line since the GFC from 730 in late 2008 to 2200 in November 2016, ahead of powering on to 3500.

Central banks’ determination to drag interest rates to zero and pump trillions of dollars into their financial systems has had more impact on the economy than all the G20 leaders put together.

Manufacturing employment did grow 500,000 during the term of Trump’s presidency — one of his best known “achievements” — but it also had increased by about 800,000 across his predecessor’s two terms.

A famous study by US economist Alan Blinder in 2014 concluded the US economy performed better when the president was a Democrat, based on evidence since 1947.

“The US economy not only grows faster, according to real GDP and other measures, during Democratic versus Republican presidencies, it also produces more jobs, lowers the unemployment rate, generates higher corporate profits and investment, and turns in higher stock market returns,” he said. But Blinder concluded it was all coincidence really.

“The Democratic edge stems mainly from more benign oil shocks, superior productivity performance, a more favourable international environment, and perhaps more optimistic consumer expectations,” he said.

President Biden won’t have these advantages. There has been a benign oil shock, but it’s a result of the sharpest economic collapse in a century. US productivity growth has stagnated and growing tension with China hardly makes for a favourable global environment. And consumer expectations in the US will be clouded by a sharply divided nation. Trump, if he loses, perhaps will act like a president in exile, having a personal brand that attracted almost 70 million votes. He is likely to share his thoughts regularly with his 88 million Twitter followers. Indeed, Trump’s legislative legacy will remain entrenched for at least two years, until the next congressional elections.

Former Australian ambassador to the US Michael Thawley expects a Biden presidency to maintain and possibly extend Trump’s restrictions on Chinese investment and trade. “There’s no question that capital flows into China will attract increasing scrutiny,” he said this week. “You can’t have a situation with major strategic competition and have financial links continue.”

Economists at Citi in the US expect the Republican establishment to “distance itself from Trumponomics and reconnect with its fiscally conservative roots”, meaning further stimulus will probably be more in line with Mitch McConnell’s suggestions of $US500bn ($688.6bn) to $US1 trillion rather than the $US2.5 trillion Democrats want, they said in a research note on Friday.

The US founders, fearful of demagogues, deliberately made it difficult to enact change. While Biden may have won the White House, the Republicans will maintain their majority in the Senate, ensuring more radical elements of the Democratic ticket, such as the trillion-dollar “Green New Deal” funded by significant tax increases, are torpedoed.

The average age of Supreme Court judges is now 63 following Trump’s appointment of three relatively youthful new ones. And Stephen Breyer, the oldest at 82, is seemingly healthy.

But history doesn’t guarantee the future. Where a Biden presidency could leave a bigger mark is in environmental regulation and climate change policy, where the capacity for executive orders is greater. Trump rescinded reams of regulations that stifled fossil fuel production and exploration, withdrawing the US from the 2015 Paris Agreement. A President Biden almost certainly will put the US back into Paris, signing the nation up to 100 per cent “clean electricity” by 2035 and a net-zero emissions target by 2050. That will put pressure on the Morrison government, which has resisted the promise, to do the same.

One blessing of the election was the fleeting absence of news about the coronavirus. It’s the virus, and the response to it, that will determine the US’s economic fortunes during the next few years.

The US economy had been recovering rapidly from earlier lockdowns at the start of the year. The number of unemployment benefit recipients has dropped from about 23 million in April to under 12 million last month. But more than 100,000 Americans tested positive for coronavirus on a single day this week, a record. A Democratic White House will embolden US states to follow European nations back into lockdown, wreaking havoc on employment and public and private balance sheets.

As for Australia, it’s the states more than the federal government that hold the key to economic revival, and the mainstream media.

Cynics say US media determined to oust Trump will cover the coronavirus with less sense of foreboding and panic under a Biden presidency.

Whatever their motivation, let’s hope that’s true, for so long as the daily drumbeat of “cases” and “COVID-19 deaths” continues, economic growth and confidence cannot recover, however many billions of dollars the US Fed creates from US Treasury borrowing.