Supervisor Elham AbolFateh
Editor in Chief Mohamed Wadie

Can Biden's Blueprint Revive US Economy?


Tue 10 Nov 2020 | 10:12 AM
Taarek Refaat

Leading economists say Democrat Joe Biden's victory in the presidential race will boost the US economy hit by the COVID-19 pandemic as his valiant spending plans and his strong support for trade and immigration offset the shortcomings of Trump's recent tariffs.

Biden‘s plan would bring back around 11 million jobs and $670 billion in annual gross domestic product (GDP) that was wiped out in the crisis more quickly than President Donald Trump.

Mark Zandi, chief economist at Moody's Analytics said that Biden's policies are expected to be more ideal during the coronavirus crises, adding that high unemployment figures, low inflation, and zero interest rates, will push Biden's proposal forward to expand government investment and drive employment faster.

Spending

According to Moody's, under a Biden presidency and a Republican Senate, the economy would grow at a rate of 3.5% annually and generate 11.6 million jobs during his four-year term, which would be slightly better than the average growth of 3.2% and 9.8 million new jobs under a Trump's second term with the current pided Congress.

Biden has voiced support for a robust relief package that includes other federal incentives for weekly unemployment benefits, and more aid for struggling small businesses and financially distressed states, including another round of stimulus checks for most families.

Biden proposes $7.3 trillion in new spending over 10 years that will include developing roads, bridges and highways. The new president will also push for a clean energy economy through investments in research and development (R&D), which will support industrialization, and ensure that the government and its contractors buy US products.

He is also expected to provide a tuition-free community college, guarantee access to affordable childcare and comprehensive preschool education, as well as help Americans buy or rent homes.

Taxes

Biden plans to raise taxes by nearly $4 trillion over the next decade to help pay the country's huge expenditures. The new president suggests eliminating vulnerabilities for people earning more than $400,000, subjecting them to the Social Security payroll tax of 12.4% , while phasing out itemized deductions for the $400,000 wages category.

He also wants to increase the corporate tax rate from 21% to 28%, and tax capital gains and pidends at normal rates of incomes above $1 million.

Immigration

Biden does not need Congressional approval to reverse Trump's executive actions on travel bans, particularly from several Muslim countries as well as the sharp reduction in the number of refugees permitted in the country.

Biden also supports reform of the comprehensive immigration system, which will likely boost the number of immigrants entering and staying in the country, putting forward a looser policy on H-1B visas for highly skilled foreign workers.

Moreover, the average annual immigration to the United States is expected to slowly rise to about a million after dropping to around 750,000 during Trump's presidency.

Trade

Unlike Trump, Biden has said he wants to rally US allies to confront China, and while it is almost certain that Trump would have escalated the trade war, Biden will likely scrap some tariffs, and possibly the lastest wave, to totally remove all levies by 2023.

Biden has already taken a tough approach on trade with China and will not immediately lift the $360 billion tariff that Trump has imposed on Chinese imports, yet, an end to trade war is expected during his term.

During a Biden presidency, the tax on American shoppers who buy Chinese imports is expected to be abolished, which will boost US consumer spending, prompting China to eliminate retaliatory tariffs on US shipments, leading to the era of US industrial production and exports.

Income

The newly elected U.S. President supports a Democratic proposal in Congress to double the minimum wage from $7.25 per hour to $15, yet, with a narrow majority in the Senate, the Democrats will not be able to pass the bill.

It is possible that neither a minimum wage increase nor a slight rise will not have a measurable effect, as the Republican Senate is unlikely to approve a base salary increase.

However, an increase in the minimum wage will benefit around 30 million households, most of them low-income citizens, increasing the purchasing power.

Lessons from the Past

Looming on the horizon is the experience of the last six years of the Obama presidency. In that period, Republicans controlled at least one room in Congress and banned any broad fiscal policy and insisted on spending cuts in response to the rising deficit.

It was the Federal Reserve that played the leading role in trying to drive the economic recovery through applying quantitative easing measures and other unconventional policies.

During the 2008-2009 global financial crises, Congress passed a major fiscal stimulus bill that helped start the expansion in mid-2009, and as Republicans took over the House in early 2011, they insisted on deficit cuts, and the growth continued slowly in the years after.

The 2009 US Recovery and Reinvestment Act worth $787 billion, Obama's first legislative act, is an example of what can go wrong when the government spends money massively to fix an economic crisis. It involved more than 100,000 projects, 275 programs within 28 federal agencies.

Analysts argue that the legislation helped stabilize financial markets and kick-start a decade-long economic growth, yet, proven weak and long lasting bad consequences for Obama's presidency.

The act was not enough to generate a strong recovery; the unemployment rate for the 2010 mid-term elections was 9.8%, nearly as high as the previous year. The result was a combination of a weak recovery with a perception of wasted spending.

In mid-2009, it took more than six years for the unemployment rate to drop to 5%,  pre-recession estimates. The Federal Reserve has been effective in driving financial markets up, but with less pronounced benefits for ordinary Americans.

End of the Line

A successful public health policy enables economic activity to quickly return to pre-pandemic levels, especially after a COVID vaccine was announced.

''We need to manage the virus efficiently, and if we got a good federal response by the end of the first quarter combined with some stimulus, you could see decent momentum,'' Biden said.

Twelve years ago, the global financial crisis was caused by fundamental imbalances in the economy that took time to fix, while the coronavirus recession was caused by a sudden shock, which at least raises the possibility of a faster recovery.

Biden has cited his work on the 2009 stimulus bill, boasting of his work to prevent fraud and of the role the recovery act played in supporting state and local governments and clean energy. In discussing his 2021 agenda, he has promised “the kinds of investment that will stimulate the economy” and “to get back to full employment fast and help build back better than before.”

Biden cited his work on the 2009 stimulus bill, bragging about his work to prevent fraud and the role the recovery law has played in supporting state. The President knows that no economic strategy will succeed if the virus was not stopped.

For Biden, It would be disastrous to reopen businesses and schools without a plan, then increase the number of cases and close them completely.

He led the implementation of the Payback Act in the the global financial crisis. He is expected to speed up assistance to companies committed to helping workers stay in business, as well as maintaining the strictest ban on CEO buybacks and raise.

He is also expected to provide additional checks for families, with a minimum of $ 10,000 per person in federal student loans, increase monthly Social Security checks by $ 200 per month, and provide emergency paid sick leave to everyone who needs it, leaving no one behind.

Meantime, both the U.S. and world economies are expected to recover as U.S. giant Pfizer announced that a COVID vaccine has passed phase 3 trials successfully. Following the news, Gold lost around $100 of its value to $1,884 an ounce and the Dow Jones rose 2.95% at 834.57.