How the economy will change in the 2020 election
RICK NEWMAN: From Yahoo Finance, this is "Electionomics." I'm Rick Newman.
ALEXIS CHRISTOFOROUS: And I'm Alexis Christoforous. Thanks for joining us for this week's "Electionomics." This week, we're going to take a closer look at the grim reality of what may be coming to our economy and how that might shape the presidential election.
Joining us this week is Isaac Boltansky. He is Director of Policy Research at Compass Point. It's great to have you on the podcast, Isaac. Thanks for being with us. I want to tick through some stats for both you and Rick, and then get your response to this.
We now have consumer confidence at a six year low for the month of August. Bankruptcies in the US are now on pace to hit their worst level in a decade, and you've got tens of millions of Americans at risk of being evicted in the coming months. Now, other data is more upbeat.
You've got new home sales jumping to the highest since 2006, and we also saw a regional measure of manufacturing, the strongest in about two years. So at best, Isaac, you're probably looking at a pretty uneven recovery, economic recovery, heading into November 3. What is the risk there for President Trump's re-election?
ISAAC BOLTANSKY: I think we have a tendency to get caught up in whatever the story of the day may be. Over the past few weeks, we've been talking a lot about the post office, and we've also had a great focus on the Democratic convention and in the Republican convention. But my sense is that the most important thing heading into November 3 is the arc of the virus and the economic fallout from the virus.
And so those two pillars, I think, are going to put up the overall tempo for where we are on November 3. And so I think that we really need to look at the economic damage that is slowly starting to make itself evident in certain corners of this economy as deeply concerning for President Trump.
Now, look, President Trump's numbers on the economy are still relatively better than Biden's, and that's important and definitely a thread that we should pull on. But if we start to see some of the dire warnings that economists and consumer groups have been outlining over the past week come true, then I think you'll see a reversal in that strength. And suddenly, the Biden plan and the Democratic position on Capitol Hill regarding phase four will start to look a whole lot better.
RICK NEWMAN: Isaac, here's a simple question, and I know it does not have a simple answer. Is the economy getting better or getting worse right now?
ISAAC BOLTANSKY: I think that there are corners where it's improving. I think that we should be thankful that housing is the rocket ship that it is. I think that there are clear areas where higher earners are showing signs of strength and have been steady throughout.
The reality, Rick, from where I sit, is that this virus has disproportionately hurt low income individuals and people of color. And so it's tough to paint with a broad stroke. But we've started to see data that shows, for example, on prepaid debit cards, which are typically used to load up unemployment benefits, we started to see actual data from those prepaid credit cards suggest that foot traffic at department stores and spending at restaurants and fast food are starting to decline.
And so I think it's difficult in such a complicated and expansive economy to paint with a broad brush. Some folks are doing well. This virus has disproportionately hurt the low income, and that's who I think we should worry about in terms of the overall economy and the political landscape heading into November.
ALEXIS CHRISTOFOROUS: But is that who President Trump needs to be worrying about? You know, we've got those moderate voters that may be on the fence. What about those swing voters? I mean, a lot of people say, well, maybe he should be focused on the Black vote, but should he be focused on the female college vote? You know, women who are college graduates. I mean, what's important for the re-election to Trump?
ISAAC BOLTANSKY: You know, I'll tell you this, Alexis, you ask 10 people in DC which subset of society will determine this election, and you'll get 13 different answers. So everyone in DC has an opinion on this, and I don't think any of them are right. So I'm not sure I can give you a good one.
What I can tell you, though, is that the area that the President has been most successful in maintaining his advantage over Biden is the economy. And when we start to see numbers like we did today with consumer confidence, I can tell you with unequivocal certainty that there is concern in the Trump campaign.
Look, the reality is consumer spending is 70% of GDP. And when you start to see consumer sentiment numbers like we're seeing, which suggest a pullback of consumer spending in certain corners, I think that's going to scare both the Trump campaign and the White House heading into November 3.
So we can split it up into all the different groups. Suburban women, African-Americans, Latinos. We can cut it and splice at 18 different ways. But the overarching economic progress between now and November 3, I think, is going to be vitally important for the Trump campaign.
RICK NEWMAN: Isaac, my new favorite way of describing this recovery is the K shaped recovery. You've heard this, right? So I'll try to do this. So is that working, guys?
ALEXIS CHRISTOFOROUS: Kind of. It's nice to have a visual, Rick. Thank you.
RICK NEWMAN: OK. Part of the economy's going up. Those are probably higher income people. But at the same time, part of the economy is going down, and those are probably the lower income people Isaac is talking about.
Do you feel like that's what's happening, that we're getting even more of a bifurcation in the economy than we had through income and wealth inequality beforehand, and that low higher income people are going to end up fine and lower income people are going to end up even worse off than before?
ISAAC BOLTANSKY: So Rick, the thing that's fascinated me from where I sit, and we are a financial services-focused shop, so we care about credit and we care about lending. And when you look at the stats, especially from the Federal Reserve, it's clear that basically 40% of Americans have been in what you can equate to a permanent recession, right?
They can't cover a $400 unexpected expense from their cash flow. And what we saw after the CARES Act was passed at the end of March is that that subset, who then was able to access unemployment benefits and get an additional $600 per week in those benefits, started to pay off their credit card debt.
Credit started to improve. They were able to buy more. They were able to participate in the economy more. And what scares me is, we have pulled the rug out from them by removing that $600 benefit, which I know we'll talk about in a bit.
It's a fascinating subject, because I think that this pandemic has exposed numerous areas of economic stratification, the haves versus the have nots. I get to work from home because of my job. Many people on the front line do not. That's one example.
Those who have help with their child care, which is becoming incredibly important not only as a pandemic issue, but also as an electoral issue, given the Biden campaign's tax plans on that subject. So yes, I think that this pandemic has really exposed numerous areas of economic stratification, which is going to be something that the Biden campaign hits on time and time again over the next 70 days.
RICK NEWMAN: So Trump in 2016, he appealed to what he called the forgotten men and women. And I think that's who you're referring to. Do you think it's possible that, on account of the coronavirus pandemic and the recession, that there will actually end up being more of the people who might fall into this category of the forgotten men and women of America around election day 2020 than in 2016?
ISAAC BOLTANSKY: Yeah. So when we look back at 2016, I am informed by what we saw in some of the voting patterns. And I believe that there is a point where the ideological spectrum, that far left and far right, actually bends and they meet. And it's the populist left and the populist right come together.
And there are certain issues sets where they agree. Big bank bashing, too much student loan debt, pharma charges too much for medicine, Washington is a swamp. So I think that that subset of individuals, a lot of them were Bernie voters, the data shows. And they just didn't show up in the same numbers as they needed to in certain states, right? I mean, look, when we look at Wisconsin and 30,000 votes, that's the difference there.
RICK NEWMAN: And some of them voted for Trump. There were some Sanders Trump voters in 2016.
ISAAC BOLTANSKY: Whether they stayed home or voted for Trump, that's still the subset that I think that the Biden campaign was intently focused on. And when-- I know we're going to talk about this later. But look, during that Democratic convention which, in a lot of ways, didn't have much of deep substance, I thought it was fascinating to see that on the same night, they had a democratic socialist, Bernie Sanders, and a former Republican candidate for the presidency, John Kasich, both endorse Joe Biden.
And so what's different between sort of that 2016 thinking and the 2020 thinking is the Biden campaign is intently focused on trying to keep as much of the progressive left together while just bringing in anyone from the moderate side who will. And I think that the Biden campaign did a great job bringing Sanders into the fray. They're not going to get all the Sanders voters. That is very clear to me. But they will get more than Hillary Clinton did in 2016.
ALEXIS CHRISTOFOROUS: Isaac, I want to go, but you touched on taxes briefly just a moment ago, and I want to go back to that point. Because could Trump actually have a potent argument that could work for the GOP when it comes to taxes? Because you have Biden wanting to raise taxes all over the place, on individuals, corporate taxes, estate taxes, capital gains taxes.
Is that just not going to sit well with most Americans who are already struggling? Because a lot of those taxes that I'm talking about are not just going to affect the rich and the 1% in this country. It's going to be spread out and we're going to feel a lot of tax pain across the board.
ISAAC BOLTANSKY: So let me tell you what I think the Biden campaign is going to do, and then I'll tell you what I think the reality of it is. The Biden campaign is going to tell you the following. That the tax increases that they plan will only impact those making $400,000 or more a year.
The reality is, the distributional effects have been shown to have slight impacts in other cohorts of taxpayers. And so that line I just don't think is going to work. And so instead, what I think you're going to see more of from the Biden campaign is focusing on this following idea. Our tax plan will increase the rate for high earners, for capital, and for corporations.
But we plan to broadly expand our fiscal support and the social safety net. So we are going to really hit on the tax credit for child care, on the tax credit for caregivers of the elderly and other really needy, on the expansion of the earned income tax credit. And so really try to tell a picture of, yes, taxes will go up. It's mostly going to be on the highest earners.
But for those of you who are in that low to moderate income bucket, there are a number of fiscal policies that we're going to push. One more example that I think is worth highlighting, a $15,000 tax credit for first time homebuyers.
These are the types of things that you're going to start to hear more from the Biden campaign, because that line of only going to impact $400,000 and above just isn't going to play, especially once we get into the debates. So I think they try to bolster that by saying, don't worry. We're also bringing more assistance for low to moderate income folks.
RICK NEWMAN: Well, if you ask me, if they're leading with tax hikes, they've already lost. I mean, if the narrative is, we are going to raise taxes so that we can do A, B, C, D, and E, you've already got it backwards. What you need to be doing is saying, we are going to expand college benefits to the first time homebuyer credit you just mentioned, Isaac.
We're going to shore up the ACA. We're going to expand Medicare and do all these other things. And, by the way, we're going to pay for it with a tax hike. I mean, that's how you need to do it, is you have to lead with the program rather than the tax hike, I think, right?
ISAAC BOLTANSKY: Well, this is why we have elections, right? This is why we have messaging. This is why we have spin doctors who are going to be framing every commercial that all of us see over the next 70 days. Which message is it?
Is it Biden is your classic tax and spend Democrat, or is Biden someone who will responsibly expand the social safety net while focusing any tax increases on the highest earners? If you can tell me how that plays 70 days from now, I can tell you who's going to be president.
RICK NEWMAN: Let me ask about the stock market. We've been talking about this every day for the last three or four months, the massive disconnect between the stock market, which has only been going up all summer, and what's happening in the real economy, which is still in shambles, as you described earlier, Isaac.
Trump has been bragging about the stock market lately. It's kind of the only thing he has to brag about, really. Is that a problem electorally that there is such a big gap? In other words, does this feed into the narrative that the rich are doing fine and everyone else is getting screwed in a way that might help Biden, or do you think there's no such effect as that?
ISAAC BOLTANSKY: So look, I think that the President is going to continue focusing on the stock market, just as he has every single minute since he got in office. Because in many ways, Rick, this is a mark to market administration, right? They know they've had a good day if the market's up.
Which is why whenever there was a China headline in the middle of the first term, we would have either Kudlow or Mnuchin come out and try to quell the concerns, right? They're watching the stock market more than those of us around this call are.
Now, here's my two cents on it. I think that the economic realities, the dollars that are in your pocket, the roof over your head, and the potential to provide more for the next generation, are things that are impossible to spend. And so my take from this is, we have people on unemployment who are getting less than they got a month ago.
The executive orders are simply not sufficient. They will run out in a short period of time. Not to mention all of the problems that we're seeing in standing it up. And so there will be fewer dollars in people's pockets. We will start to see evictions. We mentioned this earlier, but consumer groups estimate there are 30 to 40 million Americans who may be subject to evictions from their rental units.
And I am continually worried about things like food security in this time, given that some kids aren't going back to school. And so you put those things together, and yes, there's a clear juxtaposition of the market, which is moving, as you all know, based on a few stocks. It's not as broad as someone suggests, and the real economy. And I think that the real economy is the one that ultimately is going to matter for folks who are going to pull the lever or write in on their ballot for November.
ALEXIS CHRISTOFOROUS: So given all that about the real economy, shouldn't that be enough to get lawmakers back to the table to pass a fourth stimulus package? Isn't that really in everybody's benefit at this point, to get something on the table?
I mean, you have those executive orders that President Trump signed. Don't really know what happened to those. We sort of heard about them, there was a lot of hullabaloo, and then I don't really see them being enforced or these things actually taking place. So what about that fourth stimulus package? Do we get one before we head to the polls, do you think?
ISAAC BOLTANSKY: The simple answer is yes. Now, I also thought that we would get one before they left town in August. I thought that, at that point, we had enough of a combination of economic and political factors to get us another deal. But I was wrong.
And there are a number of reasons why DC failed. I think partly, DC has flirted with these fiscal cliffs for 10 straight years and they just finally were ready to topple over and see what happens. I think that both sides also thought that they had the negotiating leverage, that there was no real pressure.
I also think that DC has been catalyzed towards a deal whenever the stock market is sold off. And the stock market didn't sell off, A, because they still expect a deal, and B, because of the strength of a handful of tech stocks. So to answer your question on will there be a phase four, I believe so, because I think that we're going to start to see real economic pain over the next few weeks.
I think that it's not going to be as broad based, but I think it's going to be localized on low income folks. And I think that once we start to see evictions, once we start to see sheriffs going to people's apartments to push them out, once we start to see some indication of this consumer spending run that we've seen slow down because of lower benefits, I think they come back to a deal.
And look, Alexis, I think we're going to end up where everyone expected us to end up back in August, somewhere around the $1.5 trillion number or so. Republicans will get business liability protections, which is vitally important to them. Democrats will get some state and local funding, just nowhere near as much as they wanted.
And we can get some additional money going to the consumer, some additional money going to businesses, and build on the CARES Act from late March, which was incredibly successful. It saved millions of jobs. I think it actually saved lives on top of it, and I hope that lawmakers will come back in September and quickly pass something as part of the funding bill that's due at the end of September.
RICK NEWMAN: A lot of people, Isaac, wonder why this negotiating process is just so difficult. I mean, if you look at-- like you just said, if you look at where the Democrats are and you look at where the Republicans are, you could just say, cut it right down the middle, give half of what you want and half of what you want, and call it a day.
And, of course, they haven't done that yet. They may do that eventually. But a lot of people are, like, why can't you guys get this done? And one of the ways I think about this is that neither side here, neither the Democrats nor the Republicans, felt like they were in a losing position by holding their ground. Can you just explain what it takes to get one party to cave to the other?
ISAAC BOLTANSKY: So in my 10 years of being in this seat, I've seen most of the big fiscal cliff showoffs. And generally, it's been a stock market sell off that's at least brought them to the table. And it's been clear, undeniable polling saying that one side needed to give in.
This time was different, because Democrats passed a bill in May called the HEROES Act that provided $3 trillion. That, to me, was a symbolic bill. It would have never seen the light of day in the Republican Senate, let alone gotten President Trump's signature. But that symbolic act gave them a standing point.
Then we had President Trump's executive orders. They were signed on August 8, and he was able to say broadly, I'm still sending out $400 in extra unemployment insurance benefits, and I'm doing a foreclosure moratorium, and that payroll tax cut, here it is. I did it, even though Congress wouldn't.
But then when you actually read the details, you see number one, the states are slow in their uptake of this new administrative supplementary unemployment insurance payment. Thus far, only Arizona is actually dispersing money. Oh, and they were taking it from a pool of FEMA funds that is limited. It's only $44 billion.
So if every state were to take it up immediately, it would be done in five weeks. On the foreclosure moratorium, it doesn't exist. There is no foreclosure or eviction moratorium. Evictions will and have already started to proceed. And on the payroll tax cut, Rick, you had the Chamber of Commerce come out and say that most of their members would not actually institute the deferral of the payroll tax.
Because it really wasn't a cut. It was just a punt to the other side of the year, which would create a tax burden. And so both sides had these largely symbolic acts that gave them some degree of political cover from their own bases. But again, I can't say this emphatically enough, political cover will erode and disappear when people aren't getting as much money in their checks and when people are getting thrown out of their homes.
RICK NEWMAN: Can you foresee, Isaac, whose political cover is going to evaporate first?
ISAAC BOLTANSKY: I actually think-- so if we just roll back the clock and we look at where the negotiations left off, Democrats moved their number lower. They took their $3 trillion number down to $2 trillion or so, reportedly. The Republican negotiators, Mnuchin and Meadows, actually gave on the unemployment insurance side. They were willing to go from $600 a week down to $400 a week.
So there were actual signs of movement on this. And so I think that, Rick, we'll get back there. I think that we will get back to that point. They're just going to have to cut a deal on what is, ultimately, the thorniest issue, which is state and local funding. And my sense is, Republicans will come around to the idea that, yes, there are states that were mismanaged.
There are states who have budget trouble outside of coronavirus. But it is indisputable that the coronavirus and the economic fallout has also hurt these states. And so there's a middle ground there. I don't know who's going to blink first.
I just think that when we come back from this, there's going to be a renewed sense of urgency. And I think that, ultimately, we'll have a deal that is part of the spending package, which is always helpful when we have a deadline. We need to have a federal spending package done by October 1 or, stop me if you've heard this before, the government would shut down.
RICK NEWMAN: Just what we need.
ALEXIS CHRISTOFOROUS: Yeah. Yeah, right, on top of everything else. But it's probably too early to count Trump out, right? I mean, even though Biden is still the favorite and leading in most of the polls, he's hardly a sure bet if Trump makes a persuasive argument on certain fronts, including on those higher taxes.
ISAAC BOLTANSKY: Yeah. Alexis, we've gotten to talk about this a bit in terms of the conventions. And the conventions have been intriguing to me because, for the past 50 years, conventions have been this TV event, but this is the first time we've actually made it for TV.
And so they've been intriguing to see that shift. But from a real insight perspective, I don't think that they give us any clarity whatsoever on how this race is going to play out. These are well manicured, heavily produced infomercials. And so really, all that we know is that we know a few talking points. We know a few of the surrogates who will be more successful than others.
But every one of my clients, which are institutional investors, are saying that this race is far closer in reality than the polls would suggest. And every one has that first debate, which is on September 29, circled on their calendar. Because they think that that is going to provide more insight into who these two men are than the week long infomercial each one of them gets.
RICK NEWMAN: I can't wait. I cannot wait for the debates.
ALEXIS CHRISTOFOROUS: I know. Me too. I want to thank Isaac Boltansky, Director of Policy Research at Compass Point for joining us. It was a pleasure. And be sure to rate and review what you just heard, and follow me @AlexisTVNews.
RICK NEWMAN: And me @rickjnewman. It is a love fest, my Twitter feed.
ALEXIS CHRISTOFOROUS: Yes, that it is, Rick. All right, you just keep believing that. Thanks, everybody, for joining us, and we'll see you next time. Bye bye.
RICK NEWMAN: Bye.