This is not an ordinary time and this is not an ordinary election. Hillary Clinton’s words in the second televised debate against Donald Trump are a fair take on this presidential election. The whole campaign has been characterized by a clash of personalities rather than a real competition between two alternative visions for the future of the United States. Nonetheless, the two candidates have very different platforms, especially on economic issues. And this will influence voters.
It’s the economy, stupid!
James Carville’s slogan during Bill Clinton’s successful 1992 campaign is still relevant. Americans vote with their wallet. According to a recent CBS News/New York Times poll, a third of voters will vote based on the candidates’ positions on economic growth and employment.
Concerns about the state of the US economy may seem unfounded. After the 2008 financial crisis and subsequent recession, the United States returned to growth, with almost 10 million new jobs created and inflation stable at 1.5%. Nonetheless, the economic recovery is fragile. In the past eight years, the unemployment rate went from 10% to 4.9%, but 14 million US workers left the work force. And average productivity growth has significantly slowed down.
Once again, the economy will play an important role in the polling booths.
Increasing economic and social inequality
The most striking issue is the growth in inequality, both economic and social. Instead of being equally distributed, growth has benefited only certain sectors, geographical areas and income groups. While hi tech in Silicon Valley and biomedical in San Diego have enjoyed extraordinary successes in recent years, automotive in Detroit and manufacturing in the Rust Belt continue to suffer. The income gaps have widened, and with them so have tensions and a general feeling of uncertainty about the future. Especially for the middle class.
Despite the remarkable success stories, the economic conditions of many Americans have worsened in the past decades. The median income for full-time male employees is lower than it was in the past and those with limited education are having a hard time getting full-time jobs that pay decent wages.
Will the economic agendas prevail on the scandals?
The many personal scandals and weaknesses of the two candidates, coupled with the action of the SuperPACs – that can raise and spend enormous sums of money – and the growing weight of social networks, contributed to shifting the focus from the issues to emotions and have excessively personalized the race.
Despite this trend, Donald Trump and Hillary Clinton put forward very different solutions on issues like jobs, taxes, public spending, immigration and trade. To create jobs, the Democratic Party candidate has proposed more public spending for investments in infrastructure, training and clean energy. Clinton is also in favor of raising the federal minimum wage (now set at 7,25 dollars an hour), of modifying legislation on immigration and promoting women’s workforce participation by improving the conditions of parental leave (Trump is instead proposing only maternal leave), the offer of child care services and a reduction of the cost of education, in particular college education. Trump’s plan on the other hand is less detailed on certain aspects, but envisions massive infrastructure and defense investments, promising a growth rate increase of 3.5% and the creation of 25 million new jobs in the next ten years.
Taxes, spending and public debt
On taxes and federal spending, the difference between the two candidates is for the most part in line with the traditions of their respective parties. The Democrats plan public investments and improvements in Social security and Medicare to be financed through a tax increase, while Republicans, hardline critics of big government, promise to cut taxes. In addition, while promising budget cuts, Trump – departing from the party line – vowed not to cut federal programs like Social Security and Medicare. The Tax Foundation estimates that under Trump’s policies taxpayers would save an average of 1.818 dollars per year, while they would pay 176 dollars more than they do now, under Clinton policies. It is worth noting how both candidates are reluctant to underline the risks of the enormous public debt.
Trump’s tax plan is probably the most detailed part of his platform. He envisions cutting the corporate tax rate from 35% to 15%. To individuals he promises a strong simplification of income tax brackets, reducing them from 7 to three: 12%, 25% and 33%. This would mean tax cuts for all income groups but also a reduction of tax revenue estimated between 4.4 and 5.9 trillion dollars in ten years. With very negative consequences on public debt. Clinton envisions tax hikes for incomes above 250.000 dollars and tax cuts for very poor families. On the corporate side, deductions for firms that share their profits with their employees, an increase capital gains rates on assets held between one and six years to encourage longer-term investing and fiscal sanctions for firms that delocalize production.
From Nafta to Ttip, different views on international trade
Trump has had a lot of success among his supporters with his rhetoric that portrays the United States as the victim of unfair competition by its trade partners. For this reason, he promises to introduce import duties and tariffs to protect US industries, to renegotiate the North American Free Trade Agreement (NAFTA) and to backtrack on the progress of TPP and TTIP. His stance is a clear break from the positions of the Republican Party on globalization and trade.
Clinton’s view on trade issues is less clear and has successfully been used by her opponent to her discredit during the televised debates. As First Lady the Democratic candidate supported NAFTA, as Secretary of State she promoted TPP calling it the new gold standard, only to say later that she was not satisfied with the terms of the agreement. Clinton has also grown more critical of TTIP compared to the past. Her balance act is an attempt to secure the support of centrist voters while expanding her supporters to the liberals that voted for Bernie Sanders during the primaries and supported his critical stance on trade deals.
Fed and monetary policy
The candidates’ position on monetary issues and their relationship with the Federal Reserve is less clear and has changed during the course of the campaign. In recent years, the Fed has been criticized by both parties for its role in bailing out banks after the 2008 financial crisis, for its alleged ties with Wall Street and for the adoption of non conventional measures to foster growth, mainly the quantitative easing that injected over 4.5 trillion dollars in liquidity in the US economy in the last six years.
The Republican Party warns that the prolonged low interest rate policy raises the risk of future inflation. After having attacked Janet Yellen insinuating that she’s keeping interest rates low for political reasons, Trump later became more cautious in his remarks. Clinton hasn’t commented the Fed’s monetary policy during the campaign but has said she will put an end to the revolving door between Wall Street and the Fed, which creates conflicts of interest between the banking sector and its regulators.
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Regardless of which candidate will win the election, two considerations should be made.
First of all, we must not forget that in the US government system, the Congress is just as important as the President in determining policies for the nation. The articulate system of checks and balances of the US democracy is designed so that national policies are the result of a complex mediation between the legislative and the executive, rather than the direct reflection of the visions put forward by the candidates during the campaign. On November 8th Americans will also elect a third of the Senate and the whole House of Representatives. The economic agenda of the next four years will depend strongly on the margin of victory for the presidency and on the composition of the future Congress.
Secondly, the winner will have to face certain positions of his or her opponents who, albeit losing, successfully voiced the concerns of important parts of the population. Bernie Sanders’ surprising success during the Democratic primary and Elizabeth Warren’s support during the campaign might result in a leftward shift of a Clinton presidency. This is especially true for issues like public spending for infrastructure investment and facilitating access to affordable college education. Similarly, if Trump were to win the presidency he would also be influenced by the ultra-liberal senator of Vermont, with whom he shares the critical view on the current trade policy of the US, seen as damaging for US firms and workers. On the other hand, Trump won the Republican primary because he was able to give voice – although not always providing solutions – to the needs and fears of many Americans. Those needs and fears which will not be wiped away after the election.
To face the growing polarization of the country, the new President of the United States will need to work closely with Congress and take into serious account some of the economic proposals brought forward by other candidates in this election.
(This article, in a condensed version, was published in Italian by AffarInternazionali on November 3, 2016 – http://www.affarinternazionali.it/articolo.asp?ID=3679 )
Marco Magnani has lived for over 30 years between Italy and the US. He currently teaches Monetary and Financial Economics at LUISS Political Science in Rome. Fellow with IAI-Institute for International Affairs and Senior Fellow at the Harvard Kennedy School. He has published Sette Anni di Vacche Sobrie (UTET), Creating Economic Growth (PalgraveMacmillan), Terra e Buoi dei Paesi Tuoi (UTET). He is a columnist of IlSole24Ore.
Fosco Riani is a graduate student of International Relations at the Department of Political Science of LUISS University in Rome and he works with the magazine Internazionale.