My view on what's going on in the financial markets and the global economy, and a few other things that might interest me from time to time.

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  • tim@emorningcoffee.com

My Thoughts: Joe Biden, President Trump and Amy Coney Barrett

Updated: Nov 1, 2020

This is a brief article that “shows my hand” with respect to three people in the news at the moment: Joe Biden, Democratic nominee for President; current President Donald Trump; and Supreme Court nominee Amy Coney Barrett. I suspect many of my readers will not agree with some of my commentary, so feel free to comment below this post, assuming of course that you subscribe to emorningcoffee.com. (And if not, sign up – it’s free!) For the record, this has been written prior to the final Presidential debate on Thursday evening.

Joe Biden, Democratic nominee for President – A Socialist he is not

President Trump and the Republican party is portraying the ticket of Joe Biden and Kamala Harris (VP) as socialists. I don’t agree at all with this. The fact that President Trump and his party is spinning this narrative so aggressively causes me to conclude that few of his die-hard followers really understand what socialism is. Therefore, it is best to begin this article by explaining exactly what socialism is and how it differs from capitalism.

The defining features of these two economic models – capitalism and socialism – revolve around i) who controls the factors of production in an economy, and ii) the economic motivation for producing goods & services. The four factors of production in an economy are land, labour, capital and organisation / entrepreneurship. In capitalism, the factors of production are generally privately-owned rather than state-owned. There is minimal government intervention as the free markets determine the price of goods & services through supply and demand. In capitalistic economies, people are motivated to work to maximise their own profits. As a result, there is no guarantee that the basic needs of the overall population will be met. In socialism, the factors of production are controlled much more by the state, with the purpose being to ensure that the population in its entirely achieves a basic standard of living. Often services like healthcare and higher education are heavily subsidised or provided for free by the state. A frequent criticism of socialism is that the government is not able to allocate resources as efficiently as the private sector. As you might suspect, wealth inequality tends to be less severe in more socialist economies. To briefly summarise, capitalism leaves nearly everything in the hands of the private sector (i.e. small government), and socialism leaves nearly everything in the hands of the government (i.e. big government).

The US is a capitalist economy and has been so since the country was founded. Many presidents and Congresses have come and gone over the nation’s nearly 250 year history, during which there have been tilts here and there towards more conservative or more liberal forms of capitalism, largely depending on the state of the economy. However, attempts to move the economy more aggressively and permanently to the left, i.e. more into a socialist sphere, have been uniformly rejected time and time again by the electorate.

To provide more context, let’s digress a moment and talk about what is going on outside of the US. Many countries have multi-party political systems and therefore often have democratic socialist parties including the likes of Finland, Germany, France, Brazil, Sweden, the UK and Turkey, amongst others. However, these socialist parties are generally small minorities in coalition governments in which the economies overall are decisively capitalistic. The fact is that very few countries actually have socialists in power (i.e. running the country), and the ones that do – Venezuela, Bolivia, Serbia, Portugal and Armenia, for example – are not exactly models of success. Because the US is a “protected” two-party system, there is no credible possibility for any party aside from the entrenched Republican and Democratic parties to realistically exist and influence policy. As a result, the more extreme end of a socialist philosophy manifests itself in a sliver of the Democratic Party, and this has been the case forever for the Democrats. This sliver of the party – the so-called “socialist Democrats” ­– are the ones that tend to be most vocal about things like much higher taxes on the wealthy, greater government regulation, free healthcare for all, free public education, and so on. However, the extreme left sliver of the Democratic party is perhaps influential in its party but no more so than the extreme right slivers of the Republican party, including for example the Tea party, Neoconservatives and the Christian right.

The reality is that most people around the world favour capitalism in some form or another albeit with features that, in some cases, might be considered more socialist, e.g. the provision of healthcare for all. In these cases, the electorate and the countries’ leaders generally believe that this hybrid form of economic system maximises the personal welfare of the population, providing ample incentive for economic growth without leaving anyone behind.

So what do the results over time prove as far as the best economic model, ignoring for a moment non-economic welfare or overall personal happiness in a country, an important “intangible” that it nevertheless difficult to measure? There’s nowhere better to start than by looking at the performance of the economies of the US and the EU (or many of its member states). The US has a more flexible labour market, less regulation, less worker protection, lower taxes and a more robust business climate, which has led to significantly lower unemployment and better economic growth over many years compared to the EU. However, the EU would argue that its citizens are better off because they are provided with a myriad of basic state services, including free health care and free (or highly subsidised) higher education. As a result, income disparity and wealth inequality are not nearly as extreme in the EU as in the US. Of course, this more socialist tilt comes with the shackles of greater bureaucracy, higher taxes, less efficiency and greater (and more costly) regulation. Turning

back to the more difficult-to-measure attribute of happiness, the Sustainable Development Solutions Network publishes a report each year entitled “The World Happiness Report” and you can find the latest report dated March 20th 2020 here, including the underlying attributes that are measured in the analysis and survey. Below is a list of the top 20 countries as measured in this survey, and it clearly supports that happiness is greater in those economies that have some socialist features. You can also find a summary of the survey in a Forbes article here.

Now let’s get back to why President Trump is trying to label the Biden / Harris tick “socialist”. Mr Biden is proposing: i) raising income taxes on people making over $400,000/annum, from 37% to 39.6%, returning to the top marginal rate prior to the Trump tax cuts; ii) taxing dividends and capital gains at ordinary income tax rates once income reaches $1 million; iii) increasing the basic federal corporate income tax rate to 28% from 21%, which was cut from 35% under Trump’s tax reforms; and iv) leaving in place the Affordable Healthcare Act, which provides access for all Americans to healthcare (albeit not free), important since 8.5% of the US population does not have health insurance. Ignoring servicing of the significant increase in federal debt run up during the Trump Administration (even before the spending associated with the pandemic), the incremental tax revenues raised under the Biden plan would be used to fund badly-needed infrastructure expenditures in the US and to continue the Affordable Healthcare Act, amongst other initiatives. Mr Biden will most certainly undertake more environmentally-friendly policies and related investments than has President Trump. Mr Biden is not promising free university education, free healthcare for all or breaking-up banks or tech companies, like further-left Democrats Bernie Sanders and Elizabeth Warren. He is proposing slightly higher taxes on more wealthy people and companies to fund (rather than run up further fiscal debt) investment in things like infrastructure, which in itself creates jobs in the US. One final point is that the US has the lowest top marginal federal tax rate of all but one G7 country, and the highest marginal threshold of all G7 countries at which this top marginal rate becomes applicable.

In conclusion, nothing about Mr Biden’s platform causes me to think he is socialist in spite of President Trump’s ongoing narrative in this respect, certainly no more than past Democratic candidates. My fellow-Americans should rest easy – the US will not become a socialist country under Mr Biden!

President Trump – Let’s Look on the Bright Side

President Trump has handled the esteemed position as “leader of the free world” differently, or to be more accurate – far differently – than any of his predecessors. He clearly likes to stoke controversy and is willing to take unusual positions to appeal to his far right base. Often, President Trump’s assertions are not fact-based, and even those that might be based on some truth are often laced with hyperbole. Sadly, some of President Trump’s assertions have no factual basis at all and are therefore blatant mistruths, based more on unsubstantiated conspiracy theories or media reports.

Having said this, let me be the first to acknowledge that President Trump has taken some positions and has done some things for the US, in line with his “America First” theme, that no other president has been willing to do. For example, people might argue about the success of his “get tough with China” trade policies because the trade deficit with China has not changed much at all under his administration ($347 billion in 2016 vs $345 billion in 2019). However, there is little doubt that China needed to be confronted on a number of issues that have given it an unfair advantage in global trade, and who can argue against the fact that the trade deficit might have been significantly worse without this Administration’s aggressive approach. Mr. Trump also is the first President to stand up to NATO, insisting quite rightly that NATO members should be spending the required 2% of their budgets on defence. According to data I have seen, this has resulted in an additional $130 billion of defence spending by NATO, with the target being $400 billion by 2024. It has been expensive for the US to provide cover for other NATO members over the years when these members have not been pulling their own weight, so I think President Trump was right to have a heavy hand with NATO members that have not contributed their fair share to this important defence alliance. The world also came closer to peace in the Middle East under the Trump Administration than ever before, an elusive goal of too many past administrations to count. First the UAE and then Bahrain normalised relations with Israel in September, and others might follow, reducing tensions in the region and eventually improving the economies of all Middle Eastern countries as trade opens up.

To shift into the final topic, it is worth noting that President Trump has been criticised since he was elected for shifting the US justice system to the right, selecting 218 conservative judges (through September 29th 2020) at the District, Appellate and Supreme courts. This is entirely President Trump’s right to choose and the Republican-controlled Senate’s right to approve judges in the US judicial system. As distasteful as it might be to some, President Trump had benefited from luck as far as timing. His many nominations will undoubtedly shift the US judicial system to the right for many years to come, well past his time as President whether he wins a second term or not.

Let me end this section by saying there might be plenty not to like about this Administration. However, as with every President, he has delivered on some of his promises and has failed on others, but one must acknowledge that some of his successes have been achieved because of his “off-the-run” aggressive approach.

Amy Coney Barrett – She is Certainly Qualified

I have listened to and read some of the testimony of Amy Coney Barrett in front of the Senate Judiciary Committee. As is well covered by the media, her judicial history suggests that she is indeed a conservative judge, a pro-lifer for example (vs pro-choice), and she seems potentially willing to strike down the Affordable Healthcare Act as unconstitutional. She was fairly coy during the Senate hearings on these sorts of contentious issues, but these conservative leanings are clear because of her judicial record and her staunch Catholic (religious) beliefs. The fact that the Trump Administration and the Republican-led Senate is pushing through this nomination at the end of President Trump’s (first) term in office does not sit well with Democrats, because it is bad form as far as precedents. The Republican-led Senate did not offer President Obama the same courtesy at the end of his second term in 2016 when there was a Supreme Court opening. Moreover, several Senate Republicans, some in fact on the current Judiciary Committee, said – on the record prior to the nomination and consideration of Ms Barrett – that they would never support choosing a Supreme Court justice in the final year of a President’s administration. Nonetheless, the reality is that President Trump has the right to replace the late Ms Ginsberg and is doing so in order to push forward the agenda of his Republican party, even though it violates some unspoken partisan “courtesies” between Democrats and Republicans.

Based on what I have read about the proceedings, I believe Ms Barrett has shown herself to be enormously professional and seems very personable, not to mention most importantly the fact that she is very qualified to become a Supreme Court justice. It is hard to argue against her qualifications based on what I have heard, seen and read, whether you approve of her conservative philosophy or not. I for one am greatly relieved we are not having to relive the painful drama of the confirmation hearings of the last Trump-nominated Supreme Court justice, Judge Brett Kavanaugh, which stretched from July to October 2018.

Conclusion

Mr Biden is not a socialist in spite of President Trump trying to position him as so, Mr Trump has done some good things during his time in office, and Amy Coney Barrett is an extremely well-qualified judge to join the Supreme Court in spite of her conservative leanings.

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