Oliver Hartwich: Neither Donald Trump nor Joe Biden are good economic choices

US voters face an economic conundrum in choosing between Donald Trump and Joe Biden. Photo / Getty Images

OPINION:

When Odysseus sailed the treacherous waters between the monsters Scylla and Charybdis, he just had to survive.

Holding onto a fig tree, Odysseus eventually made it through. He escaped to the island of Ogygia where the nymph Calypso took care of him for seven years. Life could be worse than having a nude deity sing for you.

US voters face a much harder task choosing between presidential candidates.
But unlike Odysseus, there is no fig tree, no escape path and no nymph in sight.

Americans will end up with either Donald Trump or Joe Biden. And from an economic perspective, both choices are bad, just for different reasons.

After four years of President Trump, his policy platform is so clear the President did not even produce a manifesto for his re-election. On the Trump campaign website sits a "special message from Ivanka," but nothing about his plans for a second term. The best guess is it will be a continuation. And who needs to make plans when you are a very stable genius?

The only economic themes Trump had in common with past Republican Presidents were commitments to lower taxes and deregulation. However, that does not make Trump a free marketeer. He combined these measures with deficit spending, onerous tariffs and pressure on the Federal Reserve to drop interest rates.

During Trump's first term, the US economy performed solidly but not spectacularly. This middling performance was mainly driven by loose fiscal and monetary policy. Trump increased the annual federal deficit from 3.1 per cent to 4.8 per cent of GDP. And that was before Covid-19. For 2020, the US is now looking at a mind-boggling 17.9 per cent deficit.

According to the Congressional Budget Office, federal debt held by the public will reach $US20.3t by the end of 2020 – that is 98 per cent of GDP. Trump has turned the US into France, at least debt-wise.

The summary of Trump's approach to economic policy is a short-term sugar rush of cheap money and enormous deficits. Though consumer price inflation remained moderate for now, the resulting asset price inflation exacerbated social division, while the anti-trade stance caused uncertainty and may lead to economic harm.

Trump claims to be a great economic manager. However, with reckless deficit-spending and easy money, anyone could have created a half-decent jobs and growth performance in the short run. Even Trump.

Both Biden and Trump have been campaigning hard in the final days leading up to the election. Photo / Getty Images

Given his policies are quintessentially Keynesian, which Trump probably does not realise, it is amusing to note that some otherwise fiscal and economic conservatives support him. But that may have more to do with the alternative, so let's turn our focus from Trump's Scylla to Biden's Charybdis.

In contrast to The Donald, Joe Biden has spelt out precisely what he wants to do as President. On his website, he lists "The Biden Plan" on no fewer than 46 policy areas. These range from "The Biden Plan to beat Covid-19" to "The Biden Plan for the Catholic Community."

No need to read all 46 to get the picture. Where Donald Trump is a deficit-spending Keynesian, Joe Biden is a bigger deficit-spending Keynesian who also likes to tax and regulate.

On the spending side, the Biden team claims its programmes would cost a combined $US7.5t. Partly, these are Covid-related spending initiatives. A big chunk is the so-called Green New Deal, which would cost $US2t. And then there is other small fry on housing, education and healthcare which add up to another $US2.7t.

Biden has not hidden how he proposes to pay for this massive increase in government spending. Over the coming decade, $US5.5t in additional tax revenue would be collected. Income, capital gains, payroll, estate, corporate and business taxes would all go up, some significantly.

Former US President Barack Obama has been campaigning alongside Joe Biden. Photo / Getty Images

Where Trump is the fake version of a free-market Republican, Biden is the caricature of a socialist Democrat. Biden promises to do everything left-leaning parties usually like to do. But he pledges to do it even harder: bigger spending, tougher regulations, even higher deficits. On the plus side, he might be a little less keen on protectionism.

The results of Biden's policies might be another quick sugar rush, especially for those invested in green technology. But in general, the effects on business activity and economic dynamism would be disastrous.

Americans now have a choice between two economic evils. Neither Trump nor Biden offer economic policies conducive to long-term, sustainable economic growth and prosperity. Both would continue piling on public debt. And both depend on keeping ultra-low interest rates. Should interest rates ever go up (heaven forbid), a fiscal crisis would be inevitable.

In this Scylla and Charybdis scenario, no fig tree is in sight. But America might be spared the worst excesses of a Biden Presidency if his Democrats do not regain control of the Senate. Without it, Biden could not roll out his fiscal programmes. And, given the extreme nature of his fiscal plan, that can only be a good thing.

However, that would not render Biden impotent. Over the past decade, the office of the President has become more powerful through Executive Orders.

Immediately after taking office, President Trump made bypassing Congress an artform. Biden will likely do the same as a new way to push through his ambitious re-regulatory agenda, minus his big fiscal plans.

Either way, there is no good economic outcome from the US election. For anyone who believes in limited government, sound money, stable public finances, secure property rights, free trade and freedom of contract, both candidates stand for variations of the opposite.

But maybe that is not the Americans' main concern right now. Maybe it is simply about voting for a candidate who is not a childish narcissist? Perhaps it is also about having a President where voters do not have to worry about the continuation of the Republic, the peaceful transfer of power, or whether the military might be involved after the election?
In Homer's Odyssey, the hero is eventually saved and returns home. For the US, a return to long-term economic and political stability is a long way in the future.

- Dr Oliver Hartwich is the Executive Director of The New Zealand Initiative