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Mark down President Trump as unimpressed by the Democratic presidential candidates. “Our record Economy would CRASH, just like in 1929, if any of those clowns became President!,” the POTUS tweeted yesterday.
Now put aside the irony that a protectionist president is recalling an economic tumult probably made worse by protectionism. If Trump’s economic analysis is accurate, then it’s bad news for … the president. Markets are forward-looking. If they judge a Dem presidency to be super-risky, they might tank before Election Day — at least if it looks like Trump’s a loser. Sagging stocks, in turn, would make it more likely that Trump loses. Falling stocks and falling approval ratings all the way down.
See, bad economies are bad for incumbents. Bad markets, too. The Moody’s Analytics election model — currently forecasting a Trump win in 2020 — forecasts a weaker economy will cause a 9 percent decline in the S&P 500 between now and Election Day. This would hurt Trump, although not enough to cost him the election. But, the firm adds, “if the S&P 500 were to decline by closer to 12 percent by the third quarter of 2020, the model would instead predict a nail-biting win for Democrats with 279 electoral votes, compared with Republicans’ 259.”
The deeper question: Would Wall Street fear a Democratic president? And should it? Some policies being touted on the Democratic campaign trail might well unnerve investors, especially a) much higher taxes on wealthier individuals and corporations, b) antitrust and regulatory attacks on Big Tech and Wall Street, c) massive disruption to the healthcare industry. Policy uncertainty itself might be a depressant. And it’s unclear what Democrats want to do about China trade.
But some policy ideas are mere signaling. I would put Elizabeth Warren’s wealth tax in that category. And even the most ambitous president can only do so much in one term. Even during a crisis — and there isn’t one right now — there are political and financial constraints on action, as President Obama found out. Trade protectionism may seem to be an exception, but Wall Street’s reaction to tariff actions and threats has been front of mind for Trump. Markets sometimes have a vote on policy. A Democratic president would need to pay attention, like it or not.
Some policies being touted on the Democratic campaign trail might well unnerve investors, but the president also faces political and financial constraints.
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