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The effects on deficit – Trump vs Biden

By Michael Knox - posted Monday, 16 November 2020


The Cost of Populism

I have spoken before about the work of Kevin Hassett. Kevin Hassett was Chairman of the Council of Economic Advisors to President Trump in 2017 and 2018. This year he has been heading a team at the Hoover Institution at Stanford University. This team includes himself, Casey Mulligan, Timothy Fitzgerald and Cody Kallen. On 13 October, they published a detailed paper called "An Analysis of Vice-President Biden's Economic Agenda: The Long Run Impacts of its Regulation Taxes and Spending".

The report is detailed and damning. It concludes that in the long run, the Biden Agenda would reduce full time equivalent employment per person by around 3%, the capital stock per person by about 15%, real GDP per capita by more than 8%, and real consumption per household by about 7%. Relative to the Congressional Budget Office 2030 projection, this suggests there would be 4.9 million fewer employed individuals, $2.6 trillion less in GDP, and $1.5 trillion less consumption in 2030 alone. Medium household income in 2030 would be $6,500 less.

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They argue that the Biden Agenda damages the US economy in three ways. Firstly, the attempt to move US transportation from a petroleum base to an electric base would require a lot more inputs. This also produces a slump in output for the same inputs. This would also result in a 1% - 2% fall in total factor productivity.

Second, the additional cost through regulation and changes in healthcare, would create labour wedges, which in turn would reduce output per worker. Third, the increasing taxes on capital would reduce capital investment. This reduces output per worker by reducing the level of capital per worker.

Conclusion

Both the Trump and Biden programs have large deficits of around $US5 trillion over the period 2021 to 2030. Both produce a large stimulus to the US economy.

Unfortunately, the Biden program also has costs which damage its benefits. It includes large business taxes and business regulation. These reduce employment by 3%, GDP per capital by 8% and living standards by 7%. Beware of leftwing populists bearing gifts.

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This article was first published by Morgans.

Disclaimer

The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual’s relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so. Those acting upon such information without advice do so entirely at their own risk.

This report was prepared as private communication to clients of Morgans and is not intended for public circulation, publication or for use by any third party. The contents of this report may not be reproduced in whole or in part without the prior written consent of Morgans. While this report is based on information from sources which Morgans believes are reliable, its accuracy and completeness cannot be guaranteed. Any opinions expressed reflect Morgans judgement at this date and are subject to change. Morgans is under no obligation to provide revised assessments in the event of changed circumstances. This report does not constitute an offer or invitation to purchase any securities and should not be relied upon in connection with any contract or commitment whatsoever.



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About the Author

Michael Knox is Chief Economist and Director of Strategy at Morgans.

Other articles by this Author

All articles by Michael Knox

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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