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As we near the 2020 Presidential election, rhetoric from both sides is ramping up. Depending on your personal “echo chamber” of social media, you are likely confident why your candidate is the best choice, and the opposition is the worst. However, when it comes to economic prosperity and the financial markets, who is the best choice? To answer that question, we will focus on the “policies,” not the “politics.”

 

The Great Divide

 

One of the great tragedies of the modern age is that we have stopped “listening” to each other. There was a time when individuals could have a conversation about political issues. While neither person would change their position, they could politely agree to disagree. Today, the media has locked individuals into “information silos” where they disregard any “facts” which conflict with personal bias. If an intruder infiltrates the space, the “mob” levies a torrent of hate-filled expletives and threats.

 

More than ever, such is the case in 2020.

 

“For the second election in a row, voters will cast ballots for the candidate they dislike less, not whose policies they like more.” – Lance Roberts, Real Investment Show

 

Today, the division between parties is greater than at any other single point in history. (2017 was the latest data from a 2019 report. That gap is even larger currently as Social Media fuels the divide.) The divide between parties has many dire long-term outcomes, from transitioning to a socialistic economy to the lack of real positive changes.

 

Policies Politics, #MacroView: Policies Over Politics. Whoever Wins, We All Lose

 

How can progress occur when no one is willing to listen, much compromise, with anyone else?

The Cynic​​ in Me

 

In 2020, both parties are proposing fairly disastrous policies.

 

Biden’s proposed tax changes, green energy plans, and Government takeover of “healthcare” would indeed be bad for the markets. Such policies would weaken corporate profitability, specific sectors (energy and healthcare) would come under stress, and the surge in debt will make the Fed’s programs less effective.

 

On the other hand, Trump’s plans are not much better economically. More bailouts, poorly chosen infrastructure projects, and proposed tax policy lead to further indebtedness, larger deficits, and slower economic growth.

 

However, the reality is that while Presidential candidates make lots of claims on the campaign trail, it is Wall Street and Corporations that ultimately dictate policy. Such is why many suggest that our Congressmen wear racing jackets to see who is sponsoring them for office.

 

Policies Politics, #MacroView: Policies Over Politics. Whoever Wins, We All Lose

 

If you think for a moment that Congress comes up with, and writes, bills on their own, you are sadly mistaken. They are not that smart. Such is why whenever bills come to the floor for a vote, they always favor the group or industry whose lobby wrote and promoted the bill in the beginning.

 

I am not cynical. It is just how the Government works.

 

Okay,​​ let us​​ dig into the policies with some help from our friends at the Committee​​ for​​ a​​ Responsible Federal Budget (CFRB)

 

The Proposed Policies

 

“President Donald Trump has issued a 54 bullet point agenda. It calls for lowering taxes, strengthening the military, increasing infrastructure spending, expanding spending on veterans and space travel. It also calls for lowering drug prices, expanding school and health care choice, ending wars abroad, and reducing spending on immigrants. He also has proposed a “Platinum Plan” for black Americans, which increases spending on education and small businesses.

 

Meanwhile, Vice President Joe Biden has proposed a detailed agenda. From increasing spending on child care and education, health care, and retirement, to disability benefits, infrastructure, research, and climate change. It also aims to lower the costs of prescription drugs, ending wars abroad, and increasing taxes on high-income households and corporations.

 

Under our central estimate, both plans would add substantially to the debt. Specifically, we find the Trump plan would add $4.95 trillion to the debt over the 2021 to 2030 budget window. The Biden plan would add $5.60 trillion.” – CFRB

 

Policies Politics, #MacroView: Policies Over Politics. Whoever Wins, We All Lose

 

The table below breaks down the spending by candidates in different areas of the economy.

 

Policies Politics, #MacroView: Policies Over Politics. Whoever Wins, We All Lose

 

Assuming that both candidates were able to get their respective policies passed, which is highly doubtful, the impact on economic growth will be negative as the Federal debt surges higher.

 

The Cost

 

“Under the candidates’ plans, debt will continue to grow over the next decade and beyond.​​ Debt has already grown from 39 percent of the economy in 2008 to 76 percent in 2016. It is estimated to reach 98 percent by the end of FY2020. Under current law. The Congressional Budget Office (CBO) projects debt will continue to rise to 109 percent of GDP by 2030.

 

Our central estimate of the Trump plan finds debt would rise to 125 percent of the economy by 2030, excluding the effects of further COVID relief. Under our central estimate of the Biden plan, debt would rise to 128 percent of the economy by 2030, again excluding COVID proposals. For context, the standing historical record for debt is 106 percent of GDP, set just after World War II.” – CFRB.

 

Policies Politics, #MacroView: Policies Over Politics. Whoever Wins, We All Lose

 

As discussed in CBO & The One-Way Trip Of American Debt,” instead of running on a policy platform to reduce spending and the debt, both candidates have decided that more deficit spending is the only solution.

 

Debt continues to increase in most years thereafter, reaching 195 percent of GDP by 2050. That amount of debt will be the highest in the nation’s history, and will increase further. High and rising federal debt makes the economy more vulnerable to rising interest rates and, depending on financing of the debt, rising inflation. The growing debt burden also raises borrowing costs and​​ slows the growth of the economy and national income. There is an increased risk of a fiscal crisis or a gradual decline in the value of Treasury securities.” – CBO

 

Policies Politics, #MacroView: Policies Over Politics. Whoever Wins, We All Lose

 

The Debt

 

The policies put forth by both President Trump and Joe Biden require substantial debt issuance to meet those objectives. Given that mandatory spending already consumes more than 100% of Federal revenues, the debt increases will be massive.

 

Unfortunately, what continues to elude policy-makers in Washington is that the continuing expansion of debt erodes economic growth.

 

It is a myth that the economy has grown by roughly 5% since 1980. In reality, economic growth rates have been steadily declining over the past 40 years, supported by a massive push into deficit spending by both the Government and consumers.

 

Policies Politics, #MacroView: Policies Over Politics. Whoever Wins, We All Lose

 

Up until 1980, economic growth was trending higher from roughly 5% to a peak of nearly 15%. There were a couple of reasons for this.

 

  • Lower levels of debt allowed for personal savings to remain robust, fueling productive investment in the economy.

  • The focus of the economy was primarily on production and manufacturing, which has a high multiplier effect on the economy. 

 

Unlike the steadily growing economic environment before 1980, the post-1980 economy has experienced a steady decline. Therefore, a statement the economy has been growing at 5% since 1980 is grossly misleading. The trend of economic growth, wages, and productivity (five-year averages) show the real problem.