If it really didn’t matter, all this electioneering drama would be good fun, wouldn’t it? Throw in some sex and a car chase and this would work on Netflix! Regrettably, in the real world, it is less than entirely amiable.
It is probably true that most of us are anxious as the election carries so many notes of apocalypse and radical change. End of democracy! End of capitalism! It appears so very Manichean…light versus darkness, evil versus good. (I will leave to you, my gentle reader, which side is which, but I might observe there is plenty of grist for this particular mill and plenty of reasons to come down on either side).
Given the background of an extraordinarily divided polity with less and less middle and more hard left and right, it’s perhaps inevitable. Played out against geopolitical tensions that seem more fraught than anything in recent memory and a macroeconomic environment that continues to confound experts and non-experts alike (if the experts were so wrong on “Transitory,” why do we think they’re right now?), it feels like there is considerable risk; considerable risk in this election. It feels like we might be confronting a convulsive denouncement.
Let’s be frank here. Neither major party has announced anything that could actually pass for a strategic plan for the economy and for the country. Mellifluous and orotund platitudes seem to be the order of the day (to be clear, that’s hardly shocking). Both candidates confound with randomness and with Cheshire Cat opacity. We do sort of know where they would like to go, don’t we? That may be the scary bit.
Is that what’s really afoot? Are we on the precipice of radical change? If you start to root around in search of underlying reality here, if you peel the onion away a bit, we might be forced to conclude that this apparently looming, convulsive election is more about noise, puffery, flubbery and tub thumping than a real tell that material change is afoot.
Peer through the fog of blather and here’s the reality:
- The tax burden on everyone, and I mean everyone, is either directly or indirectly going up. We might see a snap-back of some or all of the prior administration’s accounting shenanigans. We might see not immaterial increases to the marginal rates for high-income individuals and corporations. We might even see surficial tax reductions. We will see a bunch of hidden taxes masquerading as user fees and the like. No matter what happens, this is going to hurt the economy. If the cost of running our government goes up (and it will), we’ll see less dynamism period.
- Budget deficits will keep going up. I’m sorry, but that’s true. The deficit will continue to expand. Both parties will continue to embrace accounting gimmicks that are loved because of their capacity to occlude the realities of our politicians refusing to confront their personal responsibility for the abyss of fiscal disaster. That doesn’t make it go away. As Ernest Hemingway famously said when asked about bankruptcy, “I went bankrupt two ways. Gradually, then suddenly.” This disaster caused by uncontrollable fiscal and monetary excesses will continue to accrue gradually. We probably won’t do the sudden part for a while.
- The border will not be fully closed. Illegals are not going home. That means that we will continue to deal with the benefits and burdens of high immigration. Even if further illegal immigration is suppressed, millions already here aren’t going anywhere, so we’d better find something for them to do. Hey, unless we get wildly more fecund very quickly, a strong argument exists that the US economy needs new bodies.
- Crap trade policies will ensue. Free trade is in retreat. Another factor suppressing dynamism.
- The regulatory estate is not going away. The occupants of the governmental heights urge to tweak, to twiddle, to impose prescriptive rules will continue to govern their hearts and minds. (Hearts?) The broadly shared conviction across elected and non-elected cadres, from both the left and the right, that they know best, will continue to drive governmental action. Mandarins will be mandarins.
- Interest rates will come down a bit. The zero-bound will remain a dream, or a nightmare, that will not likely become our reality anytime soon but, interest rates won’t come down far or fast enough to cure the legacy problem in commercial real estate and the corporate private capital lending markets. That pain still awaits. (See my prior commentary on this point.)
- Notwithstanding recent good news on GDP, growth will be anemic. Two percent will sound like a homerun. Maybe we have a recession; maybe we don’t. Maybe it doesn’t matter.
- Inflation will continue to matter somewhat. The last mile from 3% to 2% measured by the Feds’ favorite index will be too hard and will be effectively given up. 3% will be the new black. Isn’t that easier than continuing to feel bad about that pesky old 2% measure?
- Unemployment will return to long-term trend lines, but AI could be a disruption and a disruption that traditional governmental action and fiscal tools will not be able to fix.
- We’ll continue to moan that we cannot get anything done because we can’t. Infrastructure investment will continue to be weak and ineffective and that failure to invest will, like the growing deficit, ultimately come back to haunt us, but probably not yet.
- Inequality will remain a problem. More talked about than acted upon. It’s probably not solvable within the confines of our macroeconomic reality and political system. We will not yet embrace France. Wokeness will remain an organizational principal of dialogue but less so of action. The retreat of DEI will continue.
- Green investments will continue. Socialized risk and private gain will continue to be terrific for lots and lots of folks. More under the Democrats, perhaps less under the Republicans, but true in both cases. Both parties increasingly believe in the efficacy of industrial policy (that’s a shame). (See mandarin bashing above.)
- Support for the Pax Americana will continue to retreat. Geopolitical risks will regrettably not retreat; will not abate. That retreat may have different coloration, depending upon which party captures the administrative heights, but the bottom line will be the same in either case: More risk.
- Our political class will continue to pander, to speak untruths with alacrity and without any sense of shame. The political debate won’t get more intelligent. The political divide won’t go away and anxiety that the center will not hold will be a continuing reality (and it might not). But the Supremes will not be packed. We’ll still have 50 states. Free everything for everyone won’t happen. Most of the more radical ideas banging around the Republican and Democratic campaigns will not be implemented (and probably that’s just fine with the actual candidates).
Well, that’s it, folks. I can almost guarantee that much of this is going to happen. Hey, it’s not great, but is it awful? As an industry, I suspect we will continue to thrive. The inefficiencies of our regulatory estate, the unnecessary burdens and costs imposed by our government at work, our bumbling and consensus-driven politics that we have grown to tolerate these past years, will be annoying, but just that; annoying not existential. Continuity will out. Manichean fans will have to wait for next time. You can take this to the bank.