Home Election 2016 The 2016 Presidential Election and the US Economy

The 2016 Presidential Election and the US Economy

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By John Ubaldi
Contributor, In Homeland Security

Terrorism galvanized the public conscious since the Paris and San Bernardino terror attacks, but concern over the state of U.S. economy has also been the top issue among voters heading into the Iowa caucus.

Democrat and Republican candidates running to be the next president will have to address voter’s intense apprehension over the state of U.S. economy, with many believing their children will have a dismal economic future.

Who can blame the American public when on Tuesday, third quarter Gross Domestic Product grew only around 2 percent, down from the 3 percent growth in the previous quarter? This stagnate growth seems to be the new normal of economic activity.

Market Watch reported that the U.S. expanded at a 2.2 percent rate through the first nine months of the year, and the economy is projected to grow at a similar pace in the fourth quarter that ends on Dec. 31. If so, the economy will have failed to reach 3 percent growth for the 10th straight year, marking the slowest stretch since the end of World War II.

The tepid and sluggish growth of the U.S. economy belays other serious concerns that all candidates will have to address as they run for the White House in 2016.

Unemployment may be down from its peak high of 10 percent in 2009, but this is mainly due to the low labor participation rate, unseen since 1977. Those that do find employment are either low wage or part time.

The Bureau of Labor Statistics reported for the month of November the number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) increased by 319,000, to 6.1 million. Coinciding with this weak job growth is the anemic increase in wages, which has manifested itself into the political race for president, with many dissatisfied workers supporting Donald Trump for president.

This election will be a pivotal election, not just by who is running for president, but the philosophical direction the nation will take. Will the country embrace a larger expansion of the role of the federal government as articulated by the various Democratic candidates, or the smaller government model and free-market approach offered by Republican candidates?

Either way, candidates will have to persuade skeptical voters who are extremely apprehensive that both parties and candidates understand the concerns of average Americans, or have a strategy to jump-start the U.S. economy.

Many in the business community share this negative optimism on the economy across the nation, as the nation’s CEO’s are not planning any sizable spending in the year ahead.

Capital investment is the surest sign of a growing economy, as businesses invest in new equipment, increase employment, and expand research and development in new products, fueling growth in the future.

Business Roundtable (BRT), an association of chief executive officers of leading U.S. companies working to promote sound public policy and a thriving U.S. economy, commented that business investment for 2016 will be anemic, and is at the lowest level since 2009, when the U.S. was mired in the great recession.

“To see that sharp decline in capital investing is alarming,” says Randall Stephenson, CEO of AT&T (T, Tech30) and chair of the Business Roundtable. “Investment drives hiring. It drives productivity and wage growth.”

Many view the current situation as outlier of the polarization in Washington, which Stephenson lays much of the blame on, incidentally with its’ secondary effect, which coincides with the slowdown in the global economy.

The frustration that many CEO’s and many small businesses believe hamper growth is the failure of Washington to grapple with corporate tax reform.

Stephenson states, as reported by CNN, the U.S. tax code is “uncompetitive” and says more businesses are likely to flee the U.S. to cheaper tax locales in Europe or elsewhere if Congress doesn’t act. The big American drug company Pfizer (PFE) just announced a mammoth deal to buy Ireland-based Allergan, which was partly driven by plans to move the company’s headquarters overseas and take advantage of lower taxes.

“When you have companies moving headquarters to avoid the U.S. tax system, it tells you something is fundamentally wrong,” says Stephenson.

This concern by the business community has not translated into coherent economic policy pronouncements by Washington, or any of the candidates from both parties seeking the presidency.

The Brookings Institute, a progressive think tank, issued a report in 2014, which was focusing on how the U.S. economy has become less entrepreneurial over time. The study reported that dynamism has declined in all fifty states and in all but a handful of the more than three hundred and sixty U.S. metropolitan areas during the last three decades. Moreover, the performance of business dynamism across the states and metros has become increasingly similar over time. In other words, the national decline in business dynamism has been a widely shared experience.

This trend did not begin with the Obama administration, but begun over the last few decades, and has greatly accelerated since the 2009 recession.

Washington, and especially Democratic and Republican candidates, need to understand that small businesses account for well over 60 percent of jobs in America, and have an average of fewer than 50 employees. The unfortunate aspect is that small businesses have taken the brunt of the economic pain with the passage of the Dodd–Frank Wall Street Reform and Consumer Protection Act, and the Affordable Care Act, all passed with “good intent”, have had crippling effects on entrepreneurs across the country.

In all the debates to date from both political parties, nothing has been expressed as how to alleviate the challenges faced by small business owners across the country.

Small business equates to the middle class, a shrinking middle class means a shrinking entrepreneurial dynamism.

Again, the future in 2016 looks bleak with the continued compliance with Dodd-Frank and the Affordable Care Act, to include a host of other regulatory impositions by Washington, making it harder for small businesses to grow.

Large corporations have the ability under the U.S. tax system to move their corporate headquarters abroad, but small businesses do not have that luxury, as they primarily make their profits here at in the United States.

As the presidential election now moves into the voting stage, candidates of both parties need to address the economic uncertainty many Americans feel. Either way, whoever is elected president will face a troubled economic challenge ahead.

 

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