US Presidential Elections 2020

The much-anticipated election is the one set to take place this November. Will Trump be able to extend to a second-term? Or will the polls play out as they are predicting and Biden comes out as the victor? Well, the polling and predictions fall more into political science, but what does this have to do with economics? Due to the subject's extensive field, there could be a variety of links; however, in this article, I will mainly focus on how these presidential elections affect the economy. There are really two macroeconomic policies which are relevant to political economics: fiscal policy and monetary policy (more prominently, the former). As all macroeconomic students know, the fiscal policy is textbook-defined as government manipulations in its expenditure levels and taxation levels in order to influence aggregate demand. An expansionary fiscal policy (with the aim of increasing aggregate demand) has high government expenditure and low tax levels; whereas, a contractionary fiscal policy (with the aim of decreasing aggregate demand) has low government expenditure and high tax levels. Fiscal policies are usually counter-cyclical: when economic growth increases, contractionary policies are usually implemented, and when economic growth decreases, expansionary policies are implemented. Here is a graph that I made relating unemployment rate (high when economic growth is low and low when economic growth is high) and fiscal balance, which is government revenue minus expenditure (high during a contractionary policy and low during an expansionary policy). ​ ​

​ The red line represents the unemployment rate and the blue line represents the fiscal balance. If you can see, I mentioned "Trump's front load of the fiscal policy" and before I delve into this, I shall first explain how the fiscal policies are related to the US Elections. ​ Each president gets a four-year term, and in their last year they tend to expend a fiscal stimulus (if necessary - and by necessary I mean, following the countercyclical principal aforementioned) in order to generate more votes and seats for them to win (and get their second-term); this is because, with greater government expenditure, there will be more welfare services and firms will be provided grants and subsidies and people will be provided with transfer payments, Based on this, one can note that the people like expansionary policies and dislike contractionary policies, so politicians actually use this to take into account their establishment of this. However, Trump enacted fiscal stimuli in 2018, 2019 and 2020 for the COVID-19 pandemic. As a result, the fiscal cycle stopped its countercyclical path and even though economic growth went to a very high point, Trump still increased the government expenditure levels. The second policy is the monetary policy, and this is very interesting because it does not have any direct relationship with the US elections but sometimes other situations tend to prevail. The Federal Reserve as such does, on the surface, like to be on an election-pause wherein they do not establish a policy at all - to show that they are not inclined to any side. In the example of the 2020 elections, due to the potential giant economic contraction, the Fed has decreased interest rates through quantitative easing policies (central bank buys government bonds or other financial assets in order to inject money into the economy, the money supply is inversely related to interest rate, so interest rate decreases when money supply increases). As a result, political economics foresight people to desire to stay with Trump's rule due to the expansionary policies. In conclusion, how do we answer the question asked at the beginning? How do these presidential elections affect the economy? Well, the simple answer is that presidential elections tend to result in economic expansions; however, the 2020 one is interesting, because there is a potential giant contraction (that cannot be offset by these expansionary policies) and the Fed has not been able to be on an election-pause, unlike previous times. Therefore, even though elections do expand the economy, there could be major differences due to Trump and COVID-19!