Presidential Election 2016 and its Economic Consequences. Mark Partridge Presented at Economic Analysis of Key Presidential Election Issues October 3, 2016 Swank Chair in Rural-Urban Policy The Ohio State University; Jinan University; GSSI Italy Partridge.27@osu.edu
Introduction/Outline First Some Captain Obvious Comments: Presidential elections in the 2 nd term of one party s term favors the opposition party. Advantage Trump. U.S. Presidential elections greatly hinge on the strength of the economy. Current expansion is 4 th longest on record and soon to surpass the Reagan expansion of the 1980s. Advantage Clinton (I will show you more below). However, Presidents Humphrey (1968),Gore (2000), and to a lesser extent Romney (2012) beg to differ.
Review the current state of the national economy and benchmark it to past elections. Provide some guidance for key U.S. states. Assess candidates key economic proposals and discuss what I after Jan. 20, 2017. I won t focus on the steady rise of U.S. income inequality because it has not been a focus in the general election though it at least indirectly fuels some of the voters anger. Likewise, the U.S. unemployment rate is 5% and Ohio s is at 4.7%. I won t focus on this fairly useless statistic e.g., the correlation of state job growth in the last year and the Aug. 2016 state unemployment rate is -.19!
125 Change in Employment During Presidential Term 00 = Feb of first term in office 120 115 110 105 100 95 90 1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96 MONTHS Reagan H.W. Bush Clinton W. Bush Obama Source: Bureau of Labor Statistics, Current Employment Statistics
66.0 Employment-to-Population Ratio During Presidential Term 64.0 62.0 60.0 58.0 56.0 54.0 52.0 This is the current economy s weakest measure. 1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96 MONTHS Reagan H. W. Bush Clinton W. Bush Obama Source: Bureau of Labor Statistics, Current Population Survey
4.0 Deficit/Surplus to GDP Ratio 2.0 0.0-2.0-4.0 W.BUSH -6.0-8.0-10.0-12.0 REAGAN H. W. BUSH CLINTON OBAMA 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015 Source: Federal Reserve Bank of St. Louis, US. Office of Management and Budget
65,000 Real Median Household Income (2015 Dollars) 60,000 55,000 50,000 H. W. BUSH W. BUSH OBAMA 45,000 CLINTON 40,000 REAGAN Source: US Census Bureau
August 2015-16 Percent Change in Wage & Salary Job Growth and Rank Looks good except for energy states. 1 Oregon 3.31 2 Idaho 3.27 3 Florida 3.19 4 Utah 3.09 5 Nevada 2.94 6 Colorado 2.81 7 Washington 2.81 8 Delaware 2.78 9 South Carolina 2.51 10 Georgia 2.43 11 South Dakota 2.38 12 California 2.34 13 Tennessee 2.21 14 Vermont 2.09 15 Arizona 2.04 16 Iowa 2.00 17 New Hampshire 1.97 18 Massachusetts 1.94 19 Virginia 1.88 UNITED STATES 1.85 20 Michigan 1.78 21 North Carolina 1.76 22 Maryland 1.76 23 District of Columbia 1.72 24 Hawaii 1.69 25 Texas 1.61 26 Ohio 1.44 27 Wisconsin 1.42 28 Arkansas 1.38 29 Minnesota 1.35 30 New Jersey 1.30 31 Rhode Island 1.20 32 Connecticut 1.11 33 New York 1.10 34 Mississippi 1.06 35 Indiana 1.04 36 Kentucky 1.03 37 Missouri 0.97 38 Pennsylvania 0.95 39 Alabama 0.95 40 Nebraska 0.82 41 Maine 0.77 42 Illinois 0.67 43 Alaska 0.30 44 West Virginia 0.20 45 New Mexico 0.19 46 Montana -0.37 47 Oklahoma -0.45 48 Kansas -0.59 49 Louisiana -0.95 50 North Dakota -1.67 51 Wyoming -3.25
Presidential Policies. I don t think their specific proposed policies matter too much (not that their values and philosophy do not matter). Both sides would face the gridlock that has marked American democracy since it ratcheted up in 1993. I doubt the filibuster is going away for instance.
Presidential Policies. Key Clinton s policies are quite detailed (good) even as campaign has almost exclusively focused on personality. https://www.hillaryclinton.com/issues/ Besides the usual political pandering and nonsense like, America s rural communities are the backbone of this country She ll also expand the New Markets Tax Credit that will encourage investments to prevent communities from spiraling downward after a major economic shift or plant closing. No evidence that the New Markets Tax Credit works.
Presidential Policies. Key Clinton s policies.cont. Promote clean energy. Follows from the 2008 Obama campaign promise to create 2 million green jobs in rural America. Energy is an extremely capital-intensive industry that is governed by world-wide commodity markets an extremely poor choice as a job creation strategy (to me it suggests a lack of creativity or poor understanding of the rural economy). Recent experience is illustrative. Help Manufacturing: (with policies with poor track records in terms of serious evaluation) Revitalize the hardest-hit manufacturing communities by creating tax incentives to encourage investment in communities that have faced or are about to face significant manufacturing job losses.
Presidential Policies. Key Clinton s policies.cont. States a commitment to addressing climate change but w/o cap and trade or carbon taxes, I think this is more pandering than a real effort. Trump denies that climate change is real. However, Clinton s has many pragmatic (incremental) ideas that would improve the workings of the U.S. economy. While she proposes increases in expenditures, it appears to be generally paid for by moderate increases in taxes aimed at the very top. This would also slightly reducing income inequality.
Presidential Policies. Key Clinton s policies.cont. Infrastructure banks and other ideas to fund infrastructure (which is sensible given incredibly low interest rates). Improve access to the workplace for disadvantaged families through helping those with disabilities, helping those with childcare needs, improving access to early childhood education (has really high returns), improve access to universities, and help for addiction and mental health initiatives.
Presidential Policies. Key Trumps policies. Really weak in detail, which means I will have less to say and I have less clue as to his values. https://www.donaldjtrump.com/policies/economy. Being a good politician, he can pander with the best of them: Make a America Great Again. Bring Jobs Back to America Promises to Create a dynamic booming economy that will create 25 million new jobs over the next decade. This is actually fairly realistic but the logic is a little kooky. Boost growth to 3.5 percent per year on average, with the potential to reach a 4 percent growth rate. Good luck! Maybe Santa Klaus and the Tooth Fairy will pitch in.
Presidential Policies. Key Trumps policies. Promises to crack down on trade partners and bring manufacturing jobs back (Red Herring). Several misconceptions about trade policy. Since U.S. tariffs traditionally low, they benefit U.S. exporters. Trade has small structural effects in general and medium term trade effects are near zero. Most of the negative manufacturing effects are really due to productivity growth. Statements that China is undervaluing their currency do not reflect current reality.
WSJ, October 2, 2016
China s Official Foreign Reserves (Federal Reserve Bank of St. Louis). This in spite of strict capital controls that reduce $ leaving the country; controls in the exchange rate mkts; controls on the stock market, etc.
Presidential Policies. Key Trumps policies.cont. Trade has few net employment effects (Partridge et al., 2016) and losses would be offset by gains in export employment and Federal Reserve interest rate changes. Trade deals redistribute the economy away from manufacturing and towards services. Economists have overstressed the positive effects of trade and have placed far too little attention on the income distribution effects that favor the well off and on property rights.
Presidential Policies. Department of Agricultural, Environmental, Key Trumps policies.cont. He wants to greatly limit undocumented immigration by building a wall on the Mexican border and having Mexico pay for it. I have no comment on the feasibility of the wall or on the probability such a project would be paid for by Mexico. Immigration research is all over the map with the overall net effects being near zero on the labor market. But again, there are distributional effects that tend to favor the well off. The point is that Trump taps into this anxiety/anger among working-class whites that policy seems to be tilted away from them unions, min wage, immigration, tax policy, education, etc.
What about when they are in office? I worry that both candidates are such damaged goods that they will not be viewed as credible and may even lack legitimacy. Clearly both candidates have a remarkable amount of baggage (compare this to the last two elections where it was policy driven). This has the negative effect that the most powerful country in the world is rudderless. The positive is that really bad ideas won t get enacted. I am a little pessimistic but the forward momentum of economy should be very helpful.
Conclusions The economy seems to greatly favor HRC s election. Both HRC and DJT have done their share of pandering. At least HRC has provided more details, has realistic expectations, though what she proposes is incremental at most. While DJT is not a policy wonk, his main thrust is that he has the personality to shake things up. I worry that he will not be taken seriously and at the very least, if elected, he needs on working at providing credible policy proposals or his days as President will be really rocky.
Mark Partridge Swank Chair in Rural-Urban Policy AEDE, The Ohio State University Google Partridge Swank and you will get my website (614) 688-4907 partridge.27@osu.edu