The u.s federal election will be held in two days from when this video is published. The process of electing who will go on to be the most powerful man in the world always makes for big news, but perhaps never more so than in 2020.
The united states is currently in the grips of a major health crisis that has caused untold suffering to people directly and indirectly, to people impacted by the economic consequences that came with it.
This is all coming in combination with a mountain of other issues: wealth, inequality, trade tensions, nationwide protests, a wildly unstable financial market record, high levels of debt and a host of other issues that are certainly getting less air time than 2020, but are no less important.
This election is a chance, at least in theory, for citizens of america to have their say about how they would like these issues dealt with, and while there are more issues than ever, the right solutions are desperately needed.
Now. This is, of course, going to be a political video, so it comes with the same standard disclaimers that our previous videos on donald trump did as well as all of the videos we have done about political candidates, thus far so big disclaimer time.
I am not an american citizen, so my opinion on these issues does not actually matter what we are going to do in this. Video is look exclusively at the economic policies put forward by donald trump and his respective cabinet, and assess that in opposition to joe biden's, policies on the same issues to further clarify joe biden's.
Plans for office could include the passing of the sleepy joe nationally mandated 3 pm nap time, and if he had good economic policies, he would still get. The economics explained tick of approval. Likewise, if donald trump's, plan for office included sharing the nuclear football with mr putin.
That would be none of our concern in this video so long as he has good economic policies, we good economic policies in a vacuum be nice to each other. In the comments, okay, we good let's, get into it and look at a few key areas: the breakdown of both candidates, internal economic policies and the breakdown of their external economic policies, the impacts either election outcome will have on various markets around the World and how each of their plans for an economic recovery stack up against one another.
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com. Economics explained now when it comes to dictating internal economic policies for the united states, people are almost always talking about fiscal policy. Fiscal policy is simply the breakdown of government, taxation and government spending in an economy, something that must be recognized before we get into the election.
Showdown is that fiscal policy is not solely the domain of the president. The process is actually extremely complicated. The president will basically write a wish list with his or maybe one day, her secretary of the treasury.
A quick side note is that trump's. Secretary of the treasury is steve. Mnuchin who has a background in investment, banking and high finance and biden will almost definitely replace him if elected. Although cabinet appointments are normally announced after an election, so we don't yet know who, with anyway, that wish list will then be scrutinized by the office of management and budget.
They will take that rough wish list and turn it into something which can actually be presented to congress as a bill. Drafting bills is no small feat, especially budgetary bills, which can be thousands of pages long and filled with all manner of legal clauses, all of which will not only be pulled apart by bloodthirsty congressmen, but also scrutinized by the supreme court.
The supreme court kind of hovers enigmatically over this whole process to make sure that nobody is trying anything unconstitutional like say giving stimulus checks specifically for people that voted one way or another.
Once a budget wish list is turned into a budget bill which fits all of the requirements to be turned into a fair income law, it gets passed to the congressional budget office, which is an office that serves the house of representatives and the senate.
They operate as a completely partisan body. That is simply there to make projections about what the proposed budgets will look like into the future. They will take this wish list that has been turned into a bill and give it to some eggheads which will plug it into matlab and try to predict the outcomes of this policy and what it would look like over the next 10 years.
Now, of course, this is extraordinarily difficult, because so much can change in 10 years. If 2020 is any indication, a lot can change in a few weeks, so they make the assumption that no other laws are passed.
There are no external shocks and that things like population growth and trade stay relatively consistent as optimistic as this might be. These modeled outcomes will be made available with the draft legislation and then be given to both the house and senate budget committees.
These committees are extra special groups of regular senators and congressmen who sit in a room and look over the budget proposal and the modeled outcomes. At this point, the wide out and sharpies make an appearance and they start making amendments to the bill.
They might decide. They love the idea of increasing senators pensions, but don't love the idea of a 90 top tax rate. These two committees will hack and slash at this bill for a few weeks, making all manner of changes before presenting it to the other committee.
From the other hall of congress, for example, if the party of the president has a majority in the senate, but the opposition has a majority in the house of representatives, then the senate might not have made any amendments to the bill at all.
But the house committee may present something totally different to reconcile these differences. The house and senate committee create a reconciliation committee and negotiate what is called a conference report.
This report is the finalized budget blueprint which can now be passed by both the house and the senate and signed by the president into law. Hooray. The hope is that, since both of these bodies have committees with representatives from both parties, the finalized report should be a nice little compromise for everyone.
But here is the thing at any point. Throughout this entire progress congress can just flip at a table and tell the president where to stick their budget proposal. One party might stonewall the bill and not let it through.
The supreme court might ascend and smite the bill as unconstitutional, and even if that goes perfectly, it doesn't mean that this budget is now gospel. The budget is more like a set of guidelines rather than actual rules.
Much like a regular household budget. Sometimes things come up that need to be solved by throwing money at them and just like that, regular household budget. This money is normally given out slowly, but surely by whoever controls the piggy bank, which, in the case of the united states, is congress and they administer this money through what is known as reconciliation bills.
So long as all the little government departments have been good. At sticking to their budgets, this shouldn't, be an issue, but just like a cranky dad throwing a tantrum, they deserve the right to withhold, pocket money or stop spending on credit cards at a moment's notice.
By refusing to pass budget reconciliation bills now, if the president is in the same party that controls the house and the senate, this whole process of budgetary reform can be passed faster than an indian curry through a german tourist.
It gets the relevant ticks of approval. It gets passed by the majority held houses and all budget spending is approved, but if there is a mix of majorities between the house, the senate and the president, this whole process can be made much more difficult and involve a lot more compromises.
Remember all of those government shutdowns they were caused by congress, refusing to pass the aforementioned budget reconciliation bills, which meant that government departments had no money and therefore no will to do pretty much anything.
But now i know what you're about to say. We are not here for a lesson in extremely bureaucratic government processes. If we wanted that we would go. Watch cgp, grey, just tell us who you are voting for.
Well again, i am not voting for anyone. I am an australian. I can't. Voting. Is only done by a slight majority of americans and russian citizens, but all of this is to show everyone that what the presidential candidate promises could be very different from what they deliver.
They don't have much direct authority over what money goes where, beyond making nice suggestions for congress to consider. This is also ignoring regular laws that will impact the economy, which are not strictly part of the government budget.
Things like a change in the federal minimum wage, which is a major issue surrounding the u.s election, would be decided in congress. It would be a regular law and follow a regular process of legislation, so with all of the mechanics out of the way, let's, look at what this would all mean within the united states.
So, of course, president trump is a free market guy who believes in lowering taxes on individuals and businesses and offsetting this reduced revenue with reduced government spending. Joe biden is the mirror image of this, with a plan to increase government revenue through higher taxes and then use that money to fund more government spending on things like infrastructure, schools, social welfare and, of course, healthcare.
This divide is pretty typical of modern economic ideologies of republicans and democrats respectively. Of course, since president trump is the current incumbent president, a good portion of his policies are centered around maintaining the status quo.
Nowhere was this more visible than in his sweeping tax reform. Passing the tax cuts and jobs act of 2017 was arguably the biggest success of president trump in his first term. This was a tax policy that passed sweeping tax cuts to higher income earners and specifically to corporations and other pass-through entities like s corpse now.
The reason this was considered such a success was because the president and the republican party argued that this money would be reintroduced into the hands of business owners, investors and regular workers, who could allocate it and put it to good use in the economy in ways that Are far more efficient than government spending now this is actually true.
Lowering taxation will have an expansionary effect on the economy, but it might not necessarily be as large as the pundits of the bill would have. You believe. The congressional budget office remember the office with the eggheads that make all those financial models predicted that this policy would increase growth by 330 billion dollars over 10 years now, 330 billion dollars is a lot of cheese, but when it is considered that this policy was modeled To cost around 2.
3 trillion dollars in that same 10 years, it wasn't, necessarily the greatest return on investment, where this did do wonders was in financial markets. Since corporations were particularly well treated by these tax cuts, investors flooded into markets because corporations were paying less tax, so they could pay more dividends or maybe even do a few stock buybacks.
Now booming financial markets are great, even though yes, of course, the people screaming at their computers are right. The stock market does not equal the economy. A strong, healthy collection of corporations is still a great thing to have in a nation, although this was potentially also the start of some other issues.
You see foreign individuals in corporations own around 35 percent of u.s equities and in the interest of full disclosure. I am one of those foreigners who has some holdings in american companies. These corporate tax cuts went to benefit this group just as much as it benefited domestic investors and corporations.
The stock market has been at all-time highs due largely in part to this bill, and foreign investors got a win out of this, but any dividends or buybacks paid to these people are not going to be respent in the american economy.
So, even in financial markets, the us paid 100 of the budget burden, but only received 65 percent of the rewards and that wasn't. The only thing a strong financial market attracts more foreign capital.
People will want to change their japanese yen, french euro or australian dollar dues into us dollars to buy into these booming financial markets. This increases the value of the american dollar, which artificially hurts domestic exporters, causing a larger current account deficit, go and watch our video on.
Why china manipulates its own currency? If you want to learn more about that, but all in all it sounds like this. Tax bill was a bit of a failure right or at the very least, a bit of a self-serving giveaway to millionaires and billionaires like the people that pass the bill and well yeah.
Maybe that's, part of it, but most good economists have to remind themselves of this. Nobody actually sits down in their office, twirling their moustache and thinking up new ways to be evil. Almost every public servant is acting in a way that they think will help their people.
It might not be the way that everyone agrees with, but it is there to help this tax bill was pushed through at a time when the republican party had the opportunity to do so. They controlled both the executive branch as well as the house and the senate.
It just so happens that this political timing, probably wasn't the best economic timing. The economy in 2017 was very strong. It didn't need fiscal stimulus in the form of a tax cut 2020, though well that's.
A different story, which is where we have to look at biden's. Big plans for change biden, wants to repeal a lot of the changes from trump's tax policy and push the tax needle back in the other direction.
These tax increases are specifically targeted at some groups that benefited most from the tax changes in 2017, high income earners and corporations on top of fixing up these supposed economic failings of trump's.
Tax cuts biden, along with a large group of economists, have argued that these cuts drastically accelerated income and wealth inequality. More tax is paid by higher income earners, so naturally, tax cuts benefit them the most, but through a range of tax increases, not least of which is a 100 increase in the corporate tax rate.
From 20 percent to 39.6 biden hopes to be able to substantially fund more government spending which should supposedly benefit everyone. This would go towards things like increased social security infrastructure spending and funding to expand on the affordable care act.
By doing this, biden will give money back to lower income households which will work to alleviate a lot of social issues. But it also means that this is going to people with the highest propensity to go out and spend that money, boosting the economy rather than wealthier.
Households who are more likely to spend it on inert assets now this is all well and good, but here is the thing: just like 2017 was not the right time to roll out tax cuts. 2021 is not the right time to be passing these kinds of tax increases.
Businesses are struggling with the fallout of the coronavirus, and while they are guilty of squandering the benefits of the 2017 tax cuts, it could do a lot of harm to hit them while they are down. Tax increases are contractionary, fiscal policies, which is what you want to be doing during times of economic prosperity, not during times of uncertainty.
This timing might also be wrong for another big reason, wealthy households that will fill the majority of this impact are now more than ever. Working from home, which could be done just about anywhere, the proposed income tax increases could see high income earners paying more than 60 combined state and federal income taxes.
Now, in an age where these people needed to be in an office in silicon valley or new york, to earn this incredible income, it would have been a case of suck it up and pay your taxes, but people are becoming more and more globally mobile.
The argument of capital flight is normally a pretty weak one at best, but with all of the changes in the world, it could be something that sees a lot of high-end professionals. Take the leap in fact: it's already happening on a small scale.
In california, go and watch our video on that. If you want to learn more all of that being said, if the stars align and the democrats claim the senate, the house and the presidency in this election, they might have no choice but to go for it before the midterm elections.
Make this wish list impossible. Good political timing, bad economic timing, but of course, taxation is only one side of the budget, and perhaps more than ever it's, important to look at where this money will go.
Government spending is important in any modern economy, but perhaps never more so than during times of crisis. Government stimulus can be used as a backstop to prevent individuals and institutions from economic downturns.
This has the benefit of ensuring that they can continue to produce and consume goods and services in the short term to make for a richer, wealthier economy. In the long term. Counter-Cyclical fiscal policy, especially when it comes to government spending, has been pretty universal between both democrats and republicans since the great depression, but that doesn't mean that there aren't differences in how they would administer this trump'S economic stimulus was the largest in american history, and so it should have been, the economy was larger than ever and so was the threat.
However, a good portion of this stimulus was directed towards large and small corporations, which caused a lot of the same issues as the administration's. Tax cuts did in 2017. either way. The hope here was that, by keeping these corporations open, they could maintain workers bolstering employment and household incomes.
The problem was that a lot of this funding got misdirected and ended up going towards people that absolutely did not need it to weather the storm. Now it's, easy to give criticism from the sidelines, but biden has proposed an alternative with a few key benefits over trump's plans in his build back better campaign biden's approach is that this would be a Great opportunity to not only fix the mess caused by the coronavirus, but also put stimulus money to work in ways that will continue to pay dividends after this crisis is over targeted spending in three main areas: manufacturing renewable energy as well as caregiving and education.
Now the trump administration should still get credit where credit is due in a time of crisis, getting money out quickly was probably more important than rolling out a fine-tuned stimulus package with lots of ancillary benefits that comes out months too late, which segues us nicely into the Final big policy topic: the usa needs another stimulus top-up wherever it goes, be it directly to companies and individuals or onto projects and infrastructure.
America needs support. Unfortunately, the passing of the next round of stimulus has been postponed by the senate. There really is no economic reason to postpone this funding, but there might be a few political ones.
The general consensus is that biden will win the election if he is president, when this second round of stimulus is approved, it is his presidency that would have been responsible for the increasing government debt to fund this, rather than the outgoing trump administration.
The national debt is a minor talking point now and from the perspective of an economist, it's, really not a big deal at all, but in 2024 it would be very easy for a political rival to point the finger at biden and say that He was responsible for the largest single term increase in the national debt ever which, for reference is a title that's currently held by trump, although the largest contributor ever was obama over his two terms, so make of that what you will if this Second round of funding is delayed until the new president is sworn into office.
It will also have very serious implications on the health of the economy. The nation needs a boost now, not in three months. What that means is, if trump is re-elected no problem, they will open the senate back up and pass the bill within a week.
If he's, not though they could be like that lazy co-worker on their last week of work, letting issues pile up for the next guy to take over whatever side, you're on make sure not to fall for tricky political maneuvers.
Like this, especially when it comes at the expense of good economic management during a crisis, the election will no doubt be an extremely divisive one. There are passionate supporters for both sides and a host of other issues beyond just the economy.
Sometimes those divides and differences make for much better tv, and so that's. Probably what you've, been hearing about. I'll, be the first to admit that economic policy is far from the most exciting aspect of this election, but it might very well be the most important in terms of what is going to have the most impact on americans day-to-day lives.
It might not matter which old man is sitting in the oval office, but it will matter when they get their stimulus checks and hopefully, if nothing else, this video gives you some insights into how this would happen.
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