Up until now, economic policy has scarcely played a role in the U.S. presidential campaign. Yet what is at stake are basic decisions about the economy’s future direction.
Three questions are especially important:
How will the future president deal with massive government debt, which is as high as at the end of World War II?
What are the candidates’ positions on globalization and on existing and planned trade agreements, such as the Transatlantic Trade and Investment Partnership (TTIP)?
What strategies will be implemented against increasing inequality and self-destructive polarization within society?
The American patient has a choice between a bad cold and pneumonia.
These are the existential challenges that face Hillary Clinton and Donald Trump. Disappointingly, we are hearing little of substance on such matters from either candidate.
Yet here is an attempted prediction: With Ms. Clinton as president, a “mild” consolidation course could be expected.
She wants to increase taxation on top earners and the rich. Slight tax increases and moderate budget reductions – with real economic growth of just over 2 percent – would lead to a slow decline of the debt-to-GDP ratio to around 90 percent in 2030.
From the perspective of Prognos AG, a controlled emergence from the U.S.’ mountain of debt is an essential precondition to long-term stabilization of the global economy. This would require a dependable and realistic plan.
Considering a debt-to-GDP ratio of 105 percent, Mr. Trump advocating a significant reduction in taxes would only bring about the opposite of what is necessary. In the most positive scenario, this is electoral noise. In the worse case, economic harikari.
Ms. Clinton has called for slight adjustments in future trade agreements, but also supports existing ones. She is skeptical about TTIP. She wants to more vigorously protect the domestic economy. Pragmatism is her economic formula, but it isn’t clear whether she could hold this course.
Mr. Trump repeatedly makes loud promises to partition off domestic markets. He wants to introduce tariffs on Mexican and Chinese products. His proposed economic policies resemble a rollercoaster ride. U.S. industry must subject itself to competition in order to remain innovative. Protectionism makes the U.S. economy weaker, not stronger. It would lead to an overall shrinkage in the volume of global trade.
The German economy is worried – and rightly so. If economic policy is aimed at increasing prosperity in one’s own country, then there is no need for protectionism. If Americans fear that globalization costs jobs, the truth is it’s the exact opposite. With involvement in some 10 percent of global trade, the United States is an important exporter, especially in the information and high tech sectors. Whoever puts up barriers cuts right into their own skin.
And then there is the divide between rich and poor. The employment structure is continuing to evolve: Jobs in industry are disappearing while new employment opportunities arise in the service sector.
This transformation is one reason U.S. wages have grown much more slowly than capital income in the last 20 years. It’s led to faults in income and asset structures that are a palpable danger to social cohesion.
The Organisation for Economic Cooperation and Development (OECD) calls for political countermeasures, such as raising the minimum wage, expanding “Obamacare” and supplementing wages for low earners to combat this long-term trend.
The dilemma for Ms. Clinton is that she would have limited opportunities for countering this trend as president, because tenacious resistance is to be expected from Republicans. So a turnaround is unlikely, especially considering the country’s desolate budgetary situation.
But it is senseless to oppose the changing employment structure. So there are only two approaches that promise success in restoring some balance to this dysfunctional distribution of income. Education opportunities and qualifications must be significantly raised for the general public. Redistribution policies could help these efforts.
Our conclusion is that even with a Clinton presidency, no big upturn and pivotal improvements in the existing framework should be expected. Ms. Clinton’s economic approach – pragmatism – simply isn’t enough. But at least it is better than the dramatic deterioration that could be expected with Mr. Trump.
The American patient has a choice between a bad cold and pneumonia. But that’s not enough. The world, Europe Germans and above all the United States needs a genuine cure. A New Deal 4.0 is what is required – no more and no less.
Christian Böllhoff is managing partner of Prognos AG, an economic consultancy and research firm. To contact him: firstname.lastname@example.org.