Insights & Advice


The economic fallout of Trump vs. Biden

Dalton, Mass. — A lot of people are asking me: Who is better for the economy, Trump or Biden? I always reply with a policy discussion. That annoys people because what they really want is for me to affirm their ideology. My answer to this question is bound to make some people mad. But that’s OK, so long as I make other people money.

As I’ve said in these columns, I think we need much more fiscal stimulus. Without an emphasis on funding ailing cities and states, the U.S. economy risks dipping back into recession in 2021. However, that is not the consensus. Typically I would rejoice in being the contrarian, as money can be made in the stock market when you go against the crowd. In this instance, though, I feel alone and vulnerable. As I’ve shared in previous columns, although I have my concerns, I continue to invest as if we will not have a double-dip recession in 2021. I will, however, remain focused on assessing leading cautionary indicators.

While I acknowledge the risk, I’ve been telling people that it won’t matter much to the aggregate economy if one presidential candidate or the other wins. Sure, there will be differences — essential differences. Still, the chasm between what the economy would look like under Trump versus Biden isn’t radically different over the long run.

I hear two things when I say this. First, people say that’s “crazy” and demand that I answer, “How could it not matter?… that other guy is awful … my side has all the right ideas … blah, blah, blah.”

Second, and more intelligently, I am asked about what happens under different congressional scenarios. Now, that is a well-reasoned question. I’ve been answering this question as if the House would remain Democratic and the Senate would remain Republican. I do not predict a sweep by either party. If there is a sweep, then it would matter substantially more to the economy than my baseline assumption of a split Congress.

But I’m just a guy who spends too much time on Real Clear Politics. At best, I pretend to know something about political polling (and there is a lot of emphasis on “pretend” there). I don’t want to just give my assessment without an appropriate challenge, so I pulled in a less-odd source: Moody’s Analytics.

I won’t drill down into Moody’s Analytics’ methodology here because, in part, this column is about doing the homework for you. (Or, in this case, it’s about me cheating by having someone else do the homework for both of us.)

Full disclosure: The figurehead and head smarty pants of the organization, Mr. Mark Zandi, was the head economic adviser for Republican John McCain during his 2018 presidential bid. I think Sen. McCain did a good job picking the brightest, not the most partisan. Yet in today’s day and age, it seems fair to mention so that I’m not called out by some wackadoo for secretly parading around the findings of a Republican shill.

The point of this week’s column isn’t to pick one party over another. The point here isn’t even to come up with new investment allocations based on the expected policy. The point is that no matter who wins, it isn’t a good enough reason to sell all of your investments because of an election outcome.

There are four election scenarios considered, listed below from most likely to least likely:

  • Scenario 1: Biden wins – nothing else changes (Republican Senate and Democratic House);
  • Scenario 2: Trump wins – nothing else changes (Republican Senate and Democratic House);
  • Scenario 3: Biden wins – Democratic sweep of Senate and House; and
  • Scenario 4: Trump wins – Republican sweet of Senate and House;

Moody’s Analytics models outcomes for such economic statistics as employment, disposable income, homeownership rate, federal funds rate and the yield of the 10-year Treasury. We’ll keep it simple and focus on real gross domestic product (which is “nominal” GDP adjusted for inflation) and corporate profits.

Scenario 3: Biden wins – Democratic sweep of Senate and House

The best economic expectations occur under a Democratic sweep.

Biden proposes to spend $7.3 trillion over the next decade. It would be a challenge for the economy to not be stimulated by such an aggressive spending campaign. The estimate is for the creation of 18.6 million jobs in Biden’s first term, with the economy reaching full employment (just over 4 percent) by the second half of 2022                                                                                                                                                                                                                                                                                                                                                                                          (average annual growth)

                                               2020      2021      2022      2023      2024      2020-2024           2020-2030


Real GDP

percent change)                   -4.9         4.2           7.7           3.2           1.8           4.2                     4.2


Corporate Profits              -11.3      17.6        9.7           4.3           3.2           8.6                        8.6

(percent change)

Scenario 4: Trump wins – Republican sweep of Senate and House

The weakest economic expectations occur under Republican sweep.

Expectations would be to create 11.2 million jobs during Trump’s second term as president and reach full employment by the first half of 2024. The lower output of a Republican sweep relative to a Democratic sweep is, in part, due to President Trump proposing to cut $740 billion of spending during the next decade, compared to Bidens’s increase of $7.3 billion of spending during that same period. Additionally, calculations included a deleterious effect of a heated tariff war with China and a restrictive immigration policy.

(average annual growth)

                                            2020      2021      2022      2023      2024      2020-2024     2020-2030


Real GDP                                 -4.9         2.9           3.8           3.2           2.3           3.1                   2.4

(percent change)


Corporate Profits              -11.3      16            6               2.6           4.1           7.1                       5.1

(percent change)

While you get the best and the worst outcomes from sweeps, sweeps are also the least likely of the scenarios. It’s more probable that there will be some form of gridlock, blunting significant changes from the White House. Both Trump and Biden may be primarily relegated to exercising presidential orders to affect policy change.

Trump would continue with restrictive trade policies and immigration policies, and Biden would reverse those.

Scenario 1: Biden wins – nothing else changes (Republican Senate and Democratic House)

(average annual growth)

                                       2020      2021      2022      2023      2024    2020-2024       2020-2030


Real GDP                            -4.9         2.56        5.2           3.9           2.4           3.5                  2.6

(percent change)


Corporate Profits           -11.3      17.6        7.8           3.5           4.4           8.2                    5.7

(percent change)


Scenario 2: Trump wins – nothing else changes (Republican Senate and Democratic House)

(average annual growth)

                                             2020      2021      2022      2023      2024      2020-2024      2020-2030


Real GDP                                 -4.9         2.3           4.5           3.7           2.4           3.2                  2.4

(percent change)


Corporate Profits              -11.3         16.4         6.9           3.2           4.4           7.6                  5.5

(percent change)

There are some significant differences if there is a sweep by one party or the other. However, the most likely scenario is that whoever wins the White House, both Trump and Biden will be burdened with gridlock from a split Congress, in which case, economically speaking, there isn’t a vast difference expected throughout the next presidential term.

Biden gets the overall nod, mostly due to creating a couple million more jobs over the following four years (13.6 million jobs versus Trump’s expected 11.8 million jobs). Interestingly, while the overall outcome is somewhat similar, both take different paths to those outcomes: Biden’s spending is more targeted toward benefiting lower- and middle-income households; Trump’s policies would favor higher-income households and businesses.

In any scenario, you shouldn’t be that person who liquidates their portfolio before an election. Don’t go thinking that if the other guy wins, the economy will implode. Yes, yes: I keep saying I expect a double-dip recession in 2021 if we don’t get a big enough fiscal stimulus package. But as I’ve said, I continue to invest as if we’ll somehow be saved from that. I think you’re good to stay invested, and I’ll keep tracking the 2021 double-dip for you.


This article originally appeared in The Berkshire Edge on September 30, 2020.