There is no debate about who is better for the US economy Expert views

Evaluating a president’s economic management is always a tricky business, as many developments have been driven by one’s predecessors.

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Joseph E Stiglitz

Something was missing in the flood of commentary following the debate between US President Joe Biden and Donald Trump. While voters’ judgments about a candidate’s personality and personal strengths are important, everyone should remember the famous dictum, „It’s the economy, stupid.” Assessing a president’s economic management is always a tricky business because many developments are set in motion by one’s predecessors. Barack Obama had to deal with a deep recession as previous administrations continued fiscal restrictions and failed to avert the crisis that erupted in the fall of 2008. By the time the economy finally recovered, Obama was on his way out. Mr Trump was walking in.

While Mr Trump cannot be blamed for Covid-19, he is certainly responsible for the inadequate response that has left the US with a higher death toll than any other advanced economy. While the virus has disproportionately killed the elderly, it has also decimated the workforce, and those losses have contributed to the job shortages and inflation that Mr Biden inherited.

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Mr Biden’s own economic record is impressive. Soon after taking office, he enacted the American Recovery Plan, which made the country’s recovery from the pandemic stronger than any other developed country. Then came the bipartisan Infrastructure Act, which provided funds to begin repairing critical components of the U.S. economy after half a century of neglect.

The following year, Mr. Biden signed the CHIPS and SCIENCE Act of 2022, ushering in a new era of industrial policy that will ensure the economy’s future resilience and competitiveness. With the Inflation Reduction Act of 2022, the United States finally joined the international community in fighting climate change and investing in future technologies. In addition to providing economic insurance against the possibility of a stubborn and ever-evolving virus, the U.S. recovery plan nearly halved the rate of childhood poverty in the space of a year. But this is also said to be the cause of subsequent inflation.

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This charge simply does not hold water. There is no excess aggregate demand from the U.S. recovery program, at least not to a degree that accounts for inflation. Much of the blame is on supply disruptions and changes in demand induced by epidemics and war.

Even more relevant to this election is what lies ahead. Careful economic modeling shows that Trump’s proposals would lead to higher inflation — despite lower growth — and greater inequality.

For starters, Mr Trump will raise tariffs, and the costs will mostly be passed on to US consumers. Also, Mr Trump will cut immigration, which could tighten the labor market and increase the risk of labor shortages in some sectors. And he would increase the deficit, the consequences of which could prompt the U.S. Federal Reserve to raise interest rates, which would reduce investment in housing, further pushing up rents and housing costs. Of course, there is considerable difficulty in modeling these effects. It’s unclear how quickly or forcefully the central bank will respond to rate-induced inflation, but its economists clearly see trouble coming. Will they be tempted to kill it bluntly by raising interest rates early?
Will Mr Trump violate institutional rules by trying to remove the Fed’s chair? How will markets (here and abroad) respond to this new era of uncertainty and chaos?

The long-term prognosis is clear — and grim. America owes much of its economic success in recent years to its technological prowess, which rests on a solid scientific foundation. Yet Mr Trump will continue to attack our universities and demand massive cuts to research and development spending. The only reason these cuts weren’t made during his previous tenure is because he didn’t completely pull his party. Now, he does.

Similarly, even as the US population ages, Mr Trump will allow the workforce to shrink by reducing immigration. So the question of who is better for the economy — Mr. Trump or Mr. Biden (or whichever Democrat replaces him, if he leaves) — is simply not up for debate.

The author is a Nobel laureate in economics. ©Project Syndicate, 2024

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These are the personal views of the author. They don’t necessarily reflect opinion

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