economy Markets

For The World’s Largest Economy: Two Possible Futures

On Friday, Goldman suggested that Joe Biden's tax plan has the potential to accelerate any outperformance seen in cyclicals and value stocks as a result of good news on the vaccine front. "While focus has been on the increase in the statutory rate, Vice President Biden’s plan includes other provisions such as a minimum tax rate and an increased tax on global intangible low-tax income", the bank's David Kostin wrote, adding that "the potential earnings impact of tax reform appears largest for popular secular growth sectors Comm Services, Health Care, and Info Tech". Of course, that's not the only reason to believe a Democratic sweep in November would add to a pro-cyclical impulse that favors perennial laggards at the expense of secular growth favorites. As Kostin went on to say, "Biden has also proposed substantial fiscal expansion, which could lift economic activity and in turn support the relative performance of Value stocks and Cyclicals". Read more: Valuing A Vaccine While the Trump administration is generally in favor of more fiscal stimulus, the ramifications of spending another four years operating under supply-side economics thinly disguised as populism should be obvio
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15 comments on “For The World’s Largest Economy: Two Possible Futures

  1. runamok says:

    Another aspects of possible fiscal plans if the Democrats sweep is the use of industrial policy. Aside from the obvious investment in the electrical grid, policy could use MMT to invest in the future productivity of the economy while putting people to work now. Grid, plus roads and bridges are easy wins. We need new industries, we need to increase the productivity of our labor force. MMT for use toward AI, nanotechnology, biotechnology, robotics, and rebuilding a sinking Naval Station Norfolk, to name just five areas.

    I’ve been seeing just looting of America by oligarchs. We are living on the fumes of investment and infrastructure from two, three and four in some cities, generations ago. Even the most critical, Hudson River Tunnel, hasn’t gotten their attention. OECD countries organize their government help for companies in this way like we give tax breaks to ours. It’s an opportune time for us to adopt this type of economic-furthering policy in America. Supply side is failed as also is “public-private partnership.”

    Industrial policy is a secret weapon that could be deployed…I hope the Democrats just call it something else, like the “The Patriotic Jobs of Rebuilding Roads Getting America Working Act of 2021” or something, to throw supply-siders, neo-liberal “thinkers,” and the nativist-first blogosphere, off the scent.

  2. mfn says:

    I’m going to start passing the hat among Heisenberg fans/readers who want to see you debate this issue on Squawk Box with Kernan, Santelli, and Art Laughable.

  3. payshunt says:

    If you want to confiscate and stimulate then go UBI. Whatever the detractions, this President kept us out of wars on foreign soil and sees the USA as a union of 50 States. I object to confiscation that is doled out to 50 subordinate state governments. It simply entrenches Central Control.

    The greatest market problem may be the day after the first debate

  4. hookandgo says:

    H-Man, we find ourselves selecting a president who calls John McCain a “loser”.

  5. Techfomo says:

    To help raise the lower band, Walmart just upped their salary bands. i’m Surprised at the continuous easy pitches at the inequality target and promoting socialist redistribution solutions. What about education, business opportunity, and techs ability to support Person Inc (individual driven businesses with low upfront capital)? Let’s focus on stimulating vocational businesses, teaching entrepreneurship, and championing people capitalizing their God given talents and skills.

    • dayjob says:

      The challenge is that the same dynamics driving individual inequality are driving business inequality. It’s harder and harder to start a business because the biggest players eat up more and more of the pie. Walmart can afford to up their salary bands, but that just makes it harder for Joe Blow small business owner to compete.

      As for your point about vocational training and entrepreneurship, there is only so much personal consumption to be had, especially given the income dynamics frequently discussed here, before you need to look to government investment in things like infrastructure, education, and healthcare. If you push a bunch of people into vocational businesses, that doesn’t change the demand side of the equation and only pushes wages down.

      The last thing I’d note is that we’ve had redistributionist policy for the past 40 years and it’s all being redistributed to the wealthy under the guise of supply-side economics. These “socialist” policy proposals are just an attempt to rebalance those huge giveaways to the donor class.

      • Techfomo says:

        Send me your TPS report… You perspective has not been my personal experience. If you cut out the MAN, individuals can capture the corporate profit into their pocket. Over the last 40 years, many individuals with modest capital have pursued good ideas and scored big. We can go ahead and moan about the system, or make smart choices and build a bright future. This site is a perfect example of how mr H can make a living and carve a niche underneath the big media players.

        • dayjob says:

          Moaning about the system and making smart choices personally are not mutually exclusive and anecdotes are not sufficient when it comes to policy decisions. To the first point, I’ve been working in startups almost my entire career so I understand how people, including myself, can overcome challenges to be successful. The policies I advocate would be beneficial to me only in their secondary effects (stronger economy, happier society, etc.).

          Since you are seemingly a regular reader, you can’t have missed what’s happening out there in the real world, but to remind you, small businesses are closing down left and right (happy to dig up an endless number of anecdotes about small businesses struggling or you can just google the data Yelp produces on permanent business closures or small business formation from the past two decades) while the big companies are taking up a larger and larger share of economic profits. Apple recently surpassed the market cap of the Russell 2000 single-handedly (although it is down since) and the trend only gets worse as you go down the ladder to even smaller businesses. This has all happened as we’ve handed out trillions of dollars through Fed policy and tax cuts to people and corporations who were already awash in cash.

          If we really wanted to encourage small businesses, build a safety net. Remove health insurance from the employment equation as the two should have nothing to do with each other. Set up UBI so entrepreneurs have a small income they can rely on while they launch a new venture. And yes, we could do a better job of encouraging people to pursue vocational training instead of college, but we can’t all be independent plumbers.

          I’d print that all out in a TPS report, but my printer is broken…

  6. FuriousA says:

    Adding this to my Heisenberg quote book:

    “you cannot make an absurd idea plausible simply by scaling it up”

  7. Mr. Lucky says:

    H

    Thank you, sir, for this clarification I wish the loyal opposition had done a better job explaining over the last six months. What you are describing is actual policy for the country not the endless rhetoric promulgated by both sides of this debate. There was a great line from Jimmy Cagney in a fun movie entitled “Never Steal Anything Small.” He said: “The bigger thief always gets away.” Don’t they always?

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