Harry Holzer, Georgetown Professor and Blerina Uruci, Barclays Senior U.S. Economist join Yahoo Finance to discuss what the election outcome will mean for the U.S. economy and labor markets.
MYLES UDLAND: Let's talk a bit about the state of the economy, how the election could swing the economy's fate over the coming years, and just kind of take stock of where we stand in this recovery right now as we get into the month of November. For more on all of that, we are joined now by Harry Holzer. He is a professor at Georgetown of Public Policy. We're also joined by Blerina Uruci. She is a senior US economist over at Barclays.
So, Blerina, let's start with kind of how you guys at Barclays are seeing the base case, I guess you would say, for this evening. Some scenarios that you've kind of thought through. And how, I guess, investors in your conversations seem to be positioning ahead of the election.
BLERINA URUCI: Hi, everyone, and thanks for having me today. So we're going into this election with a very robust growth rate for Q3 GDP growth, and a lot is on the balance when it comes to the sustainability of this recovery. It seems like what the markets are looking at right now is a high probability of us finding out the election outcome by the end of this month.
I think this would be great because it would reduce market volatility and uncertainty, and support the sustainability of the recovery. And I think for the recovery going forward, what matters to us is the kind of policies that both candidates would bring in. And I think another wave of fiscal stimulus is what would really help with growth and improvements in labor markets given that the unemployment rate in the US is still at 7.9%.
JULIE HYMAN: Harry, I want to bring you into this discussion. Thank you for joining us, because I know you focus more on the labor side of the equation. So I am curious, as you look at this election and the prospects, do we have sort of two divergent outcomes when it comes to the jobs market based on the size of a presumptive stimulus once we get past the election?
HARRY HOLZER: Well, thank you for having me. I'm happy to be here. I think the answer to that to some extent is yes. We have had a quite robust recovery so far, and we've recovered a little over 1/2 of the jobs we lost back in March and April, but the recovery has been flattening. The sort of the really large growth in GDP that was recorded a few days ago mostly came early in the summer, and things have been flattening since then partly because the virus is resurging, partly because Congress hasn't been able to agree on the stimulus that most economists think is necessary, partly because some businesses, airlines, restaurants, just feel like they can't hold on anymore.
So, yes, depending on the outcome of the election, I believe that-- I do believe if President Trump is reelected, and especially with a Republican Senate, there won't be any change in policy. And especially with a Republican Senate, I don't feel that there will be a new stimulus bill. On the other-- so we will proceed, and I do fear that the flattening will continue, and the recovery will not recover from that.
I do feel that if Joe Biden is elected and with a Democratic Senate, you're much more likely to get two things. Number one, much more robust efforts to rein the virus in, which will be good for the economy. And number two, the chances of a major stimulus deal go way up in that scenario.
BRIAN SOZZI: Blerina, I'm sure you have modeled this at Barclays. What is the Joe Biden economy look like if he is elected president? What does it look like in '21, 2021, how fast is it growing?
BLERINA URUCI: So we spend a lot of time thinking about this, and more importantly, looking at what markets are expecting and what they're pricing in. So when we look at a Biden administration, one thing that stands out is the fiscal stimulus that we just discussed. That this will be much, much stronger, and it will be a larger package.
So how are financial markets telling us that they're also expecting something like this? They're expecting a higher probability of a Democratic win and 10-year yields are increasing, meaning that they expect the fiscal deficit and borrowing to increase over the coming year under a Democratic government. And I think if we get a Democratic sweep, those 10-year yields will increase further.
From an economic perspective, what will matter a lot is what kind of help we get for the unemployed? Those numbers are still high, as we discussed. What help we get for small businesses? This will help a lot in the next two to three quarters, and may push growth a little bit higher than our scenario right now. We have growth around 3% next year. And I think over the medium [INAUDIBLE], that infrastructure spending that will increase the supply side of the economy is very important.
MYLES UDLAND: And you know, Harry, thinking about the state of the labor market right now, and really the gains that were undone in about three weeks back in March and April, when we think about the next decade, I mean, for many workers, the 2010s were something of a lost decade. We eventually got to 3% unemployment, but prime age and participation was down, all these sorts of things. As you look out at the 2020s, what are the steps that policymakers need to avoid to prevent a repeat of that kind of dynamic playing out in the wake of this recovery?
HARRY HOLZER: Well, I think in the short term, as-- Blerina, I agree, the economy needs fiscal stimulus. Jay Powell has said the economy needs fiscal stimulus. And one of the mistakes we made during the Great Recession is that the fiscal stimulus ended too early. And I care as much about the public debt as the next guy, and I think it is a very important long run issue, but that should not be an excuse in the short-term to not stimulate the economy and try to get us back on the road to recovery.
Now there's some things we can't control. We don't-- can't really fully control the virus. I think we can try much harder. And once there is a viable vaccine, with time, that will help, but that would be the big mistake.
I think if-- if a president and a Congress decides we can't do any more, it's the time to slam on the fiscal brakes again, that will really interfere with the recovery, and yes, some people will stop. We saw in the last jobs report, by the way, a drop in labor force participation like what happened in the early stages of recovery from the Great Recession, and that would be a big mistake if we didn't stimulate the economy and try to push back against that.