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Which Candidate Is a Bigger Risk to the Economy?

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Which Candidate Is a Bigger Risk to the Economy?

Foreign Policy November 3, 2020
EconomicsOther

In the short term, progress on vaccines may matter more than any particular president. In the long term, though, it’s the government’s relationship with the economy that will be key.

It is Election Day, and the markets are up. Given Democratic candidate Joe Biden’s lead in the polls, it seems like investors like the idea of him moving into the White House soon. It is easy to see why. If he’s elected, odds are that he will quickly launch a big fiscal stimulus program to help the unemployed, struggling businesses, and state and local governments. All need support for the foreseeable future.

But after the virus, when the economy enters a recovery phase, there would be some economic risks inherent in the Biden agenda as well. He plans to increase the federal minimum wage to $15 an hour—a very large increase for many states and, for some, just a few dollars off from their median wage. While small increases to the minimum wage during economic booms have negligible impacts on employment, a very large increase during a recession, especially a recession that has hit the food and retail sectors very hard, is a much bigger risk. Add on other labor costs from more paid sick leave and health care, and the outlook for a vigorous jobs recovery, especially low-wage jobs, is more uncertain.

Biden also plans to increase corporate tax rates to levels above the international average. This will make U.S. companies less competitive and encourage them to keep more of their profits abroad. Biden likewise plans to give the government a larger role in the economy, especially when it comes to promoting the building of new infrastructure and development of green technology. Whether such moves will actually help the economy depends on if the projects fulfill an economic need or are driven by political interests. If history is any guide, political interests often win out, and there is a dearth of good shovel-ready projects for the administration to start with. Still, some might counter, such spending could at least create good government jobs, as the Works Progress Administration (WPA) did during the Great Depression. But research from economic historian Price Fishback estimates that WPA jobs may have actually slowed the United States’ recovery in the 1930s and 1940s by making workers reluctant to take private-sector jobs.

Continue reading the entire piece here at Foreign Policy

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Allison Schrager is a senior fellow at the Manhattan Institute, author of An Economist Walks Into a Brothel (Random House), and a co-founder of LifeCycle Finance Partners, LLC, a risk advisory firm. Follow her on Twitter here.

Photo by Jonathan Daniel/Getty Images

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