Will Economic Factors Break the Bank for Candidates

October 18, 2024

Authored by:

John DiConsiglio

What role will economic factors from the price of eggs to the cost of college play at the ballot box in November?

How much do voters really hate inflation?

And when it comes to issues that most determine the outcome of presidential elections, was political consultant James Carville right when he coined his famous Clinton-era phrase: "It's the economy, stupid"?

Those were some of the questions raised at a George Washington University roundtable on how the economy will shape the upcoming election dynamics, part of the Dean's Election Conversation Series hosted by the Columbian College of Arts and Sciences (CCAS) on Oct. 15.

Moderated by CCAS Dean Paul Wahlbeck, a panel of CCAS faculty experts-Professor of Political Science Sarah Binder, Professor of Economics and International Affairs Tara Sinclair and Associate Professor of Public Policy and Public Administration Kate Yang-put Vice President Kamala Harris and former President Donald Trump's fiscal proposals under a microscope.

Before an audience that included students and faculty, the panel touched on issues from college loan forgiveness to the housing crisis and dispelled myths about just how much a president can chart the nation's economic trajectory.

"People in government both take too much credit for the good things in the economy and cast-off too much blame for the bad things," said Sinclair, director of the GW Center for Economic Research. "The economy is an incredibly complex system [without] simple, easy answers."

Setting the tone for the discussion, Sinclair noted that, despite voters' inflation anxieties, most economic indicators have shown an upward trend for the American economy, largely driven by a robust bounce back from the pandemic. Outpacing other advanced nations, "the U.S. economy has had a remarkable recovery from all the economic shocks from the pandemic," she said.

Still, voters' perceptions of a stilted economy have been set by their reactions to inflation-and sticker shock at high grocery store prices. "A key thing that we have learned in this economic environment is that people really hate inflation," Sinclair said.

The conversation turned to the role of the Federal Reserve in influencing monetary policy as the panel forecasted whether each candidate would respect the agency's historic independence.

Wahlbeck (left) moderated the panel of CCAS faculty experts on the economy and politics including Binder, Tara Sinclair and Kate Yang.

Binder, whose research focuses on the politics of legislative institutions, suggested Harris would follow recent "norms" and refrain from pressuring the Fed to lower interest rates for political gains. "She seems to abide by the notion that presidents [should] keep their hands off the Fed," Binder said.

Trump, on the other hand, revels in his role as a "norm-breaker," Binder continued. He has already aimed "relentless" attacks on the agency, comparing Fed Chairman Jerome Powell to Chinese President Xi Jinping and hinting he would appoint a "shadow Fed chair" to dictate economic policy from the White House.

"Trump has certainly suggested that he wants…a say in what interest rates should be," she said. "We should totally expect Trump, if elected and returned to the White House, to be even more aggressive."

Rising debts, falling housing

The panel broached the potential effects of the rising federal deficit and debt. Yang, whose research centers on state and local government finances, pointed out that the debt is approaching $36 trillion-larger than the entire U.S. gross domestic product. Annual interest payments alone now top $600 billion, on a par with Medicare spending.

Still, Yang said economists and policymakers have often supported a "monetary theory" that downplays the significance of ballooning debts. Not only is there "no political willingness to really tackle the debt" in Washington, Wang said both candidates have advanced policy proposals-like expanding aspects of the 2017 tax cuts-that will actually add to the debt.

"Not many people are paying attention to the deficit and debt," she said. "I personally believe it's a big issue…that the country has to tackle in both the short term and the long term."

In a discussion on the housing crisis, the panel agreed that both candidates have signaled a willingness to encourage new building by lowering regulatory burdens like environmental reviews and permitting reforms. Harris has pledged to add 3 million new housing units and create a first-time homebuyer tax credit. Trump has suggested that he would clear hurdles to building on federal lands.

Wang said she was skeptical about whether any of their proposals would actually lead to lower housing prices, but Sinclair applauded the bipartisan consensus toward "finding ways to reduce red tape around building."

But the panelists also warned that some popular policy proposals-like student loan forgiveness and so-called "No Tax on Tips" plans-may have unforeseen economic consequences.

Loan forgiveness programs "sound nice and shiny on the surface," Sinclair said, "but there have been few concrete details on how they would be implemented and even who they would benefit." While potentially addressing economic inequality, Sinclair cautioned that they may also add pressure to the federal budget.

Likewise, Sinclair said that while No Tax on Tips proposals from both Harris and Trump sound like solutions for reducing tax burdens on lower income workers, economists envision them as rife for abuse. "You can imagine Wall Street people who get a lot of their compensation in bonuses saying, 'Well, what's a bonus, really? It's a tip,'" she said.

In the long run, the panel agreed, the Carville political maxim that the state of the economy drives voting decisions has been supplanted by the deeply entrenched partisanship overshadowing the political landscape.

Rather than viewing the economy as a referendum on incumbents, Binder noted that "most voters have already chosen a team," which determines their outlook on economic conditions and dictates their voting decisions.

"With due respect to Mr. Carville, it's not 'the economy, stupid' anymore. It's people's perceptions-and those happen to be [based on] partisan loyalty," she said.

The first Dean's Election Conversation Series event in September addressed immigration and migration issues. The third and final installment-a preview of campaign strategies and election night expectations-is scheduled for Oct. 29.

"When I think of the Columbian College, I think of the engaged liberal arts and one way that the engaged liberal arts is made manifest is in a session like this," Wahlbeck said, "where we take faculty expertise and apply them to the grand challenges and the big issues facing the nation and the world."