Analysis: Biden victory, Democratic sweep would bring biggest boost to economy

A victory for Democratic presidential nominee Joe Biden, a Democratic takeover of the Senate and defense of the party’s House majority in the November elections would be the best outcome for the U.S. economy, according to an analysis released Wednesday by Moody’s Analytics.

In an analysis of potential Election Day outcomes based on the economic proposals of President Trump and Biden, Moody’s found that a Democratic sweep would bring the quickest return to full employment, highest number of jobs added and best rebound in economic growth.

“The economic outlook is strongest under the scenario in which Biden and the Democrats sweep Congress and fully adopt their economic agenda,” wrote Moody’s Analytics chief economist Mark Zandi, who provided economic analysis for the late Sen. John McCain’s (R-Ariz.) 2008 presidential campaign, and economist Bernard Yaros.

Zandi and Yaros modeled four potential outcomes of the November election: a total Democratic sweep; Democrats holding the House and taking the White House but not the Senate; a total Republican sweep; and a extension of the status quo with Trump in the White House, Democrats in control of the House and Republicans in control of the Senate.

They gave Biden winning but contending with a GOP-controlled Senate a 40 percent probability, two more years of the status quo a 35 percent chance, a Democratic sweep a 20 percent chance and a GOP sweep a 5 percent chance.

Zandi and Yaros argued that a total Democratic sweep would bring the biggest boost to the economy because of Biden’s plans to spend trillions on infrastructure, education and the social safety net while boosting trade and immigration. They also argued that the higher taxes proposed to fund part of these plans would not slow the economy in a meaningful way.

“Greater government spending adds directly to [gross domestic product] and jobs, while the higher tax burden has an indirect impact through business investment and the spending and saving behavior of high-income households,” they wrote. 

“Longer-term growth under Biden’s policies is also stronger because on net they expand the supply side of the economy—the quantity and quality of labor and capital needed to produce goods and services,” they added. 

Zandi and Yaros projected the U.S. to gain 18.6 million jobs during Biden’s first term if his agenda is enacted by a Democratic legislature, with the unemployment rate dropping to just above 4 percent by the second half of 2022. Those gains fall to 13.6 million jobs with a return to full employment by summer 2023 if the GOP holds the Senate.

Zandi and Yaros argued that a total GOP sweep would be the least beneficial to the U.S. economy because of Trump’s smaller proposed stimulus plans and the increased likelihood of deeper trade tensions and cuts to immigration.

“Trump has proposed much less expansive support to the economy from tax and spending policies, perhaps anticipating a strong so-called V-shape recovery from the downturn caused by the pandemic,” they wrote. 

They also called Trump’s proposed immigration cuts “a significant impediment to longer-term economic growth, as it slows growth in both the labor force, which is problematic given prospects for declines in the native working-age population, and labor productivity.”