On Monday, Goldman Sachs, the one of the world’s premier investment banking institutions, issued a note suggesting that a Democratic sweep of the presidency and both houses of Congress could significantly boost a U.S. financial recovery. Goldman Sachs’s commentary comes after several polls show Democratic challenger Joe Biden expanding his lead over President Trump.
But beyond the polls, what’s really behind Goldman’s bullish, blue-ish optimism?
In the note issued Monday, Goldman Sachs’s chief economist Jan Hatzius acknowledged that recent polls “suggest a ‘blue wave’ in which Democrats gain unified control of Washington is becoming more likely.” While some believe Democratic control of government will result in tax increases and increased regulation, Hatzius notes that, given Biden’s plans for increased spending on infrastructure, education, healthcare, and the climate, government spending “would at least match the likely longer-term tax increases on corporations and upper-income earnings.” The note also suggests Democratic control would “likely result in substantially easier US fiscal policy, a reduced risk of renewed trade escalation, and a firmer global growth outlook.”
But the key reason Hatzius seems to believe a Democratic sweep would offer a substantial boost to the economy is because it would “sharply raise the probability” of an agreement on a federal stimulus package in excess of $2 trillion shortly after a Biden inauguration. Such a substantial stimulus package is seen by many as a key to an faster economic recovery.
Beyond the economics of Biden’s plans and Democratic congressional action, the Goldman Sachs note is really about one thing that is sorely lacking among leaders in Washington D.C. right now….
On Tuesday, in a tweet that deflated expectations of a stimulus package before the election, President Trump tweeted that he was calling off any further discussion until after the election.
“I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business,” Trump tweeted.
In some ways, Trump’s tweet is just further evidence of what most Americans have known for months (if not years): Republicans and Democrats are unable to find real common ground on how to solve America’s biggest challenges. Trump’s tweet also demonstrated the biggest struggle in the stimulus debate of the last several months – partisanship exceeds common cause around how to rebuild America’s economy.
While there are different perspectives within the Democratic congressional caucus on the components of a stimulus bill, the fact remains that it would be far easier to deliver a stimulus package to the President’s desk if both the House and the Senate were controlled by the same party. And it would be even easier to get a bill signed if the President was also of the same party. Since, given the trends in the polls, it is exceptionally difficult to imagine a Republican sweep, a Democratic sweep of Washington might be the only alternative to a more optimistic scenario of a comprehensive stimulus bill soon.
The truth of the matter is that compromise is the core element of the kind of leadership that has been desperately lacking in Washington, not only during the Trump administration, but during the Obama administration as well. As the nation has sunk to even deeper levels of partisanship over the last several years, the level of compromise to support the nation’s best interest has sunk too. Which is what is most telling about Goldman Sachs’s note – it suggests that by avoiding the need for compromise by Republicans and Democrats, the economy might be better off.
So is Goldman Sachs right?
Both the election results and their impact on the economy remain to be seen. But one thing is certain: if the election does result in a so-called “blue wave,” then Democrats will have the chance to not only push their legislative agenda, but perhaps to also start to model a type of compromise-based politics that advances the passage of bills that boost the nation’s interests instead of crippling it. Such an approach to leadership might not only lift the prospects of the economy…
But the prospects of American politics too.