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Fantasy economics

14 July 2016 By Gina Chon

The 2016 U.S. election bash officially kicks off over the next few weeks at party conventions, where diehard supporters, activist celebrities and political elites assemble to choose their official candidates for the White House. In Cleveland, Republicans are expected to nominate businessman Donald Trump to lead their party next Thursday, while in Philadelphia the following week, Democrats will elevate former Secretary of State Hillary Clinton. Voters will also get a more detailed look at their vice-presidential running mates, while the parties will unveil platforms outlining their policy priorities.

Amid the celebrations, there is some cause for worry for the next president. The world’s largest economy isn’t in as bad a shape as when President Barack Obama first took office in January 2009. The United States remains the bright spot in the world, but the recovery has been a slog. The rate of job growth – though still decent, with an unemployment rate below 5 percent – has recently decelerated, after adding an average of 230,000 positions a month in 2015.

GDP growth, however, was at an anemic 0.8 percent in the first quarter of 2016, while inflation remains below the Federal Reserve’s 2 percent target. Deutsche Bank analysts predicted there is a 60 percent chance that the U.S. economy could move into a recession in the next 12 months, based on the yield curve between long-term and short-term rates. Record-low yields on Treasury bonds are forecasting the same.


It’s worse overseas. The British vote to leave the European Union in June roiled markets and injected more uncertainty into the laggard continent. The Chinese government’s target growth rate of at least 6.5 percent in 2016 reflects the slowest pace in 25 years, and there are increasing worries about a debt bubble. Other emerging markets from Brazil to Turkey to South Africa look shaky.

These are some of the challenges at home and abroad facing the next leader of the free world. Democrat Clinton wants to carry the Obama administration’s mantle on economic policy, albeit with some tweaks and new ideas. Her tax plan targets the rich including a 4 percent charge on those earning more than $5 million. She also backs a proposal, named after billionaire investor Warren Buffett, which would impose a 30 percent effective tax rate on incomes exceeding $1 million.

In a nod to young voters she is trying to court, particularly those who supported Vermont Senator Bernie Sanders, she wants to offer three months of student-loan debt relief and make tuition free for students from families who make less than $125,000 a year and attend in-state colleges.

Trump has presented vaguer ideas for now, though his tax plan details an across-the-board income tax cut that would reduce the highest rate to 25 percent, from about 40 percent. He also wants to slash corporate tax rates to 15 percent from 35 percent. Tax reform is also on Congress’s agenda for the next legislative session, after multiple failed attempts.

The real-estate mogul also wants to renegotiate or scrap various trade deals with Mexico, Japan, Australia and other countries, and impose higher tariffs on goods from China and Mexico. Clinton has blasted his policies but she also has reeled in her support of the Trans-Pacific Partnership trade deal with 12 Pacific Rim countries after Sanders, who is now endorsing Clinton, opposed the pact.

Whoever wins in November will need help from an army of experienced advisers from government, business, law and academia to turn their policies into plans that could be approved by a combative Congress, or pass muster with embattled foreign leaders. That requires an economic Delta Force.

The Reuters Breakingviews Economic Dream Team Machine allows you to pick from a talented group of potential candidates for key positions in either candidate’s administration, starting with the Treasury Department and Fed. There is also a “wildcard” position, which could be the chair of the Securities and Exchange Commission or head of the White House Office of Management and Budget.

As in real life, White House hopefuls needn’t rely solely on their party members. Given the acrimonious mood in Congress, some bipartisan picks are probably a good idea. A president can no longer count on support from lawmakers within his or her party, and the populist mood in the country has made that worse. The next American leader will need to bring people together, while trying to keep the U.S. economy from recession amid growing headwinds. May the best candidate prevail.


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