The Battle of the Isms

When presidential wannabe Joe Biden dragged himself out of bed on February 29, exhausted after campaigning for the Democratic presidential nomination late into the previous night, his campaign was deemed dead, finished, buried under a series of gaffes. When he crawled back into bed that night, exhausted from celebrating his victory in the South Carolina primary, he was a week away from sweeping so many of the fourteen states up for grabs on Super Tuesday that he was leading in the race for delegates.

That comeback forced candidates who were competing for the votes of what passes for moderate Democrats these days to withdraw. Out go Pete Buttigieg, Amy Klobuchar, Mike Bloomberg, among others. Mayor Mike spent over half-billion dollars and won…..Samoa. He has always said his main goal is to get Trump out of the Oval Office, He now can do that solving the fund-raising problems that have bedeviled the Biden campaign.

Now, a fundamental battle of the isms. Democrats will decide whether they prefer Biden’s reformed version of capitalism, or the variant of socialism that Sanders has been advocating for decades. The economic policy differences between those isms are clear.

  • Biden would improve Obamacare to make health-care insurance available to all; Sanders would eliminate the private insurance sector completely. Which is why health-care stocks soared after Biden’s win on Super Tuesday, and the consolidation of anti-Sanders’ efforts into one more unified and powerful effort under the Biden banner.
  • Biden would raise taxes on the rich, somehow defined, but not go so far as to eliminate billionaires, which is Sanders’ goal.
  • Biden would strengthen the trade unions that in his view created the middle class; those institutions have no place under socialism, since their functions devolve to the government.
  • Biden favours a tougher policy towards Cuba, a dictatorship that has impoverished the island and filled its jails with political prisoners; to the horror of Florida Democrats seeking the votes of Cuban expatriates, Sanders continues to tout virtues in Cuba’s system, especially in educational and health-care.
  • Biden voted for NAFTA and other “terrible trade agreements”, to use Sanders’ characterization; Sanders has never met a trade deal he likes.

In short, Sanders is offering what his campaign calls a “stark” choice – revolution, not reform. In 1964, Barry Goldwater, icon of hard-line conservatives, offered a similar “choice not an echo” – and won a mere 38% of votes cast and carried only six states. Americans tend to reject extremes, right and left.

As the campaign enters its mano a mano phase between two old white guys fighting to take on another old white guy — so much for diversity — Sanders has a hold on younger voters, although they are not turning out for him as they did in 2016; Biden scores with African-American, suburban, and older voters. Biden has a lock on the Democratic establishment and the party’s apparatus. Sanders, who has always refused to join the Democratic Party, has the chutzpah to accuse its apparatus of favoring his opponents, which it quite naturally does.

Whether Biden, Sanders, or some dark horse emerges at the Democratic convention in July, Trump is the odds-on favorite to renew his lease on the White House. The economy is strong, or at least was before the coronavirus gave it more than a head cold, sending share prices swooping wildly up and down. It added a whopping 273,000 jobs in February, bringing the recent three-month average to 243,000. The good news is that the virus is attacking a healthy rather than a weak economy.

The coronavirus will obviously take a toll on jobs. The restaurant sector added 53,000 jobs in February; it is now laying off thousands of workers. The Fed’s decision to cut interest rates by 50 basis points, to 1%-1.25%, can only marginally, if at all, reduce the impact of the virus. In fact, its emergency decision added to the panic. Share prices took a 3% dive, investors guessing the Fed must know something really bad is about to happen. My guess is the Fed decided too much too soon is a lesser error than too little too late. Predictably, Trump wants still lower rates, in part to lower the value of the dollar and spur exports. Investors believe he will soon get his wish.

The President professes complete confidence in his ability to best whichever Democrat enters the lists, relying on the strong economy to persuade voters they risk prosperity if they send him packing. Even after the recent plunge, share prices remain about one-third higher than when Trump was elected.

But it is a long, long way from March to November.

It is quite possible that consumer demand will plunge as business meetings, sporting events and cruise bookings are cancelled, at-home-with-Netflix replaces restaurant dining, and layoffs cut into incomes. That could be exacerbated by shortages as supply chains develop missing links.

Goldman Sachs predicts the world economy will shrink for a quarter or so but stop just short of a recession, and that U.S. companies will have zero earnings growth this year. Some economists contend that a $1 trillion government stimulus programme is needed to avoid a recession, perhaps accompanied by sales of 100-year U.S. government bonds at current historically low interest rates. The emerging policy debate includes suggestions for the use of the money: infrastructure, targeted loans to workers and patients who do not have health insurance, and to small businesses, and to firms producing medical supplies, and to … everyone has his or her own list.

Should the economy stumble, the tweeter barrage will blame the Fed, the virus, the Democrats, some poor bureaucrat. Voters, especially those looking beyond their enlarged 401(k)s for a reason to rid themselves of this vulgar President, might blame the man who claimed credit for the economy’s success. With reason: the President’s management of the coronavirus outbreak has so far been a study in ineptitude: he did not replace security officials handling pandemics after many left the government in 2018; there is a shortage of testing kits; and he shot from the lip, irresponsibly claiming that a vaccine is about to be developed.

In the end, Trump’s chances of a victory in November, already quite good, will increase if the virus epidemic is on the wane, allowing him to take credit for that easing of the national anxiety, and if the economy’s woes are confined to the first quarter, followed by a sharp recovery as producers, consumers and investors make up for lost time – a so called V-shaped recovery. Most observers say neither a tape-off in the spread of the virus nor a quick economic snap-back will be necessary for a Trump victory if a gaffe-prone Biden combines with a feeble Democratic establishment to hand the nomination to Sanders.