Government gridlock would be the worst-case economic scenario
Economically, the outcome of the election could not be worse than where we seem to be headed: A Biden presidency with a Republican Senate.
Why it matters: "Gridlock" — where the president's party doesn't control both houses of Congress — is being cheered by financial markets wary of political overreach. Stocks are not the economy, however. In the depths of a global pandemic, fiscal boldness is exactly what's needed for the economy as a whole. The problem is that political obstructionism is all but certain.
The big picture: Republicans are always fiscal conservatives when there's a Democrat in the White House, while Senate Majority Leader Mitch McConnell has been described by The Atlantic's Joshua Green as a "strict obstructionist."
- On his list of things to obstruct, per Axios' Mike Allen: The appointment of big-spending left-wingers to a potential Biden Cabinet.
Where it stands: McConnell will control the Senate unless Democrats win both open seats in Georgia — an outcome that seems highly unlikely, given the results of the first round of voting on Tuesday. So long as McConnell keeps his position, he will prevent any major Biden-sponsored spending bill from even reaching a vote.
- Maybe Trump can help. He has some ability to push new spending bills through Congress, and in any scenario he's still president through Jan. 20.
- The problem, as Trump's former Council of Economic Advisers chief economist Casey Mulligan told the Washington Post, is that Trump "doesn't like to give anything for free," and has little interest in stimulus just for the sake of stimulus.
How it works: The first wave of coronavirus in the U.S. was met with massive fiscal stimulus; the current wave won't be. Layoffs at state and local governments are just beginning, and many service industries will convert furloughs to layoffs if the pandemic continues to rage. That's enough to create a so-called "double-dip" recession.
- "A second dip is very likely in the absence of some major stimulus from Washington," Center for Economic Policy Research chief economist Dean Baker tells Axios.
- Adds Stony Brook economist Stephanie Kelton: "Without another substantial fiscal package, I believe the leg will definitely get kicked out from under the K-shaped recovery. The upper leg will come tumbling down, potentially with significant distress selling as a wave of defaults and bankruptcies takes hold."
By the numbers: Expect 5.3 million workers to lose their jobs by the end of 2021 if state and local governments don't get a bailout, per the Economic Policy Institute.
- Those jobs are in dense urban centers — the engine of the national economy. If that engines start to sputter, the whole country is likely to fall into a recession.
- McConnell and the Republicans are convinced that state and local governments are simply using the coronavirus as an excuse to get bailed out of their overspending ways. There's no way McConnell will finance a local-government rescue via a Biden-backed spending bill.
The bottom line: States like Maine, Texas, Kentucky, Michigan, Georgia, and North Carolina saw large numbers of ticket-splitters: Voters who voted Democratic for president but Republican for Senate. They might not like what they voted for, but they may get it anyway.