January 24, 2021

What does Biden Mean for Business?

What does Biden Mean for Business?

“I see a lot of silver linings in the economy over the next three to four years. I think that there will be a more progressive tax structure. That will help ease the government spending problem and simultaneously take care of some of the inequality problems as well. I think another thing: the climate is going to take a much much larger role. We’re seeing that both from a business perspective, and now we will see it from a government perspective as well.”

Ron Anderson, dean of the Fox School of Business and School of Sport, Tourism and Hospitality Management

A new year is here and with it has come the inauguration of a new president: Joe Biden. A new administration brings with it new policies and new ambitions, but what does that mean for business and the economy? Do they have an ally in the White House?

Since the election, there has been talk of a “Biden boom.” The S&P 500 also rose significantly in the days that followed the Nov. 7 announcement of Biden’s win. Given the economic uncertainty that persisted in 2020 due to the global COVID-19 pandemic, the stock market’s strong performance was especially welcome. But what led to this boom, and is it sustainable moving forward?

Historically, Congress is invested with the “power of the purse,” but the influence from the executive branch is still considerable. In this episode of Catalyst, Ron Anderson, dean of Temple University’s Fox School of Business and School of Sport, Tourism and Hospitality Management and a professor of finance, discusses exactly what Biden means for business. He details why the economic recovery has been so significant thus far and also details both a short- and long-term future forecast for the economy under the new president.

Catalyst is a podcast from Temple University’s Fox School of Business about the pivotal moments that shape business and the global economy. We interview experts and dig deep into today’s most pressing issues. Season two will answer questions like: How will COVID-19 impact my financial future? Why hasn’t the #MeToo movement reached the professional sports industry? And what makes a leader credible? We explore these questions so you can spark change in your work. Episodes are timely, provocative and designed to help you solve today’s biggest challenges. Subscribe today. 



Host: Welcome to Catalyst, the podcast of Temple University’s Fox School of Business. I’m your host, Tiffany Sumner. Today, we have a very special guest: Ron Anderson, dean of the Fox School and the School of Sport, Tourism and Hospitality Management. He joins us to talk about a timely topic: what will President Biden mean for business? In this episode, we discuss the impact President Biden can make on the stock market and on fiscal policy. Dean Anderson draws on his career in finance, his research and his deep academic expertise [1:00] to discuss what we should anticipate regarding everything from stock market activity to our taxes. Plus, we’ll find out who among us will likely benefit the most from a Biden presidency.

So, I’ve heard a lot about the Biden boom. What is it?

Ron: I think the Biden boom is—well, first off when we talked about the Biden Boom, it’s this big increase we’ve seen in the stock market since this election. And I think it’s primarily predicated on three different factors. The first factor is we’re going to probably see additional stimulus for the American people. So when Congress back in March [00:02:00] passed the first CARES Act, Americans were getting $300 a week to get us to the lockdowns and so forth. Congress just recently passed another CARES Act, we kind of called CARES 2 for short, and most Americans received an additional $600 stimulus. So, what we’re hoping is, these Americans will go out and spend the money. And we’re actually starting to see that now. So that’s boosting business, it should boost employment as well. 

I’m fully expecting that President Biden and the Democratic House and Democratic Senate will pass additional stimulus here in the next 60 to 90 days and it could be as much as $2,000 per person. This would provide an incredible boost purchasing power and it would help the consumer immensely. I think two additional factors are making a big impact [00:03:00] in what we call the Biden Boom right now. In the first one is it most investors are expecting a more stable relationship with China, who is one of our biggest trading partners, and also with our other allies in the sense that we’ll probably start seeing the tariffs come off, at least come down at this point this will provide a more stable environment for companies to export and so forth. The other thing that we’re seeing there is that the US dollar is weakening which is good for exports, for us so we should see a pretty big pick up in that area as well. And then finally the pandemic, the virus appears to be coming under control. It’s a little bit coincidental in the fact that Pfizer and Moderna announced the approval of vaccines right about the same time as the election. [00:04:00] These are both highly effective vaccines and we should have the virus under control and life can start returning a bit back more towards normal. You know, I’m getting ready to call it the Roaring Twenties. I think we’re going to see the roaring 2020s as well. 

Host: And why do we see such a significant rise in the S&P after the 2020 election results were announced?

Ron: So I think if you take these three factors; more government stimulus, better relationships with our allies and in China, and then the idea that the virus is coming under control. I think it takes those three big factors right there, what we have done is reduced a lot of uncertainty, and one thing we know investors don’t like, they don’t like risk, they don’t like uncertainty and so   [00:05:00] what we’ve done, we’ve reduced uncertainty for investors and that prompts them to buy more stocks and as you’re buying more and more stocks the price will go up.

Host: I’m interested in knowing more about the historical context. How is the market typically affected by a new US president?

Ron: That’s a really good question, the market is typically really warm towards new Presidents and that’s regardless of party, generally speaking. So, if you look back all the way to Ronald Reagan what you’ll see is that in the first 100 days of a new president invariably the market is almost always up, going up from anywhere from 1 to 8% over that first hundred days. Now there is one exception to that when George Bush II. Bush took office the market was down a little bit on his election during the first hundred days but whether it was Reagan, Clinton, the first Bush,  [00:06:00]  Obama, Trump and now Biden, we’re likely to see the market go up over the next hundred days.

Host: That’s great and that’s actually just what I was going to ask you. Well, I would say do what policy changes do you anticipate happening first and how do you think businesses will respond in the first year?

Ron: This is really kind of a big question in the sense that we had the Georgia Senate runoff. It was kind of a surprise to the market that the Democrats swept both seats in Georgia. So, when we look at the government now what we have is we have a Democratic White House, we have a perfectly split Senate 50/50, 50 Republicans 50 Democrats which means the vice president will be the deciding vote [00:07:00] in anything that is a party-line split. Then we also have a Democratic house. So, generally speaking, the ball is in the Democrats court so some of the things that I kind of expect to see over the next year or so is more government stimulus, I think there will be a really big package passed for Americans in the next 90 days that will put more money into your bank account. One of the other things that we’re likely to see is a big infrastructure bill as well. When I talk about infrastructure, what you want to think about is bridges, airports and so forth. We’re likely to see somewhere between a 1-2 trillion dollar  [00:08:00] infrastructure bill which will provide an incredible number of jobs and so forth. When I look at that I do expect to see a lot more government spending over the next 12 months or so. Now, to pay for all this spending, we need to get the money from someplace, right? So the government over the last ten months, ten to 12 months has been borrowing a lot of money and we’re likely to continue to borrow a lot of money as we go forward. But at some point, this has to be paid for. I’m expecting that the new administration along with Congress is likely to see changes to the tax structure. I don’t think this is going to affect middle-class people all that much. I think it’s going to be mostly towards the more [00:09:00] affluent or the wealthy, and I think it will also be aimed towards large corporations under the Trump Administration. Corporate tax rates fell, I believe, from about 28% down to 21%. I’m fully expecting that they’re going to go back to 28% for the next 12 months. It’s interesting when we look at this in the context of the stock market though we always have to remember the stock market is future-looking. It’s like a crystal ball so it knows that there’s going to be more stimulus, it knows that there’s likely to be more taxes. Interestingly enough, the stock market seems to like this right now. Over the last couple of weeks, the stock market has been performing remarkably well. For instance, on the day that we found out that both Georgia senators [00:10:00] were going to be from the Democratic party, the market had a tremendous day. It was up nearly 500 points. The market seems to like what it’s seeing here. But the one caveat that I do want to put on that—this is an incredibly closely divided government at this point. The Democrats have a slight majority in the House of Representatives, they have no majority in the Senate, it’s perfectly split, so this could be a really positive optimistic signal that the market believes that the Democrats and the Republicans may work together and start addressing some of the issues that the country really needs to deal with rather than dealing with a Democratic issue or a Republican issue, it may start dealing with what we would call American issues [00:11:00] and the things that you need to deal with.

Host: What about Biden’s ability to make treasury in Federal Reserve appointments, how do these decisions affect fiscal policy and impact the stock market?

Ron: I think this is one of the things President Biden is going to struggle with. He does make the treasury appointments, he will make appointments to the Federal Reserve. But, historically, when you look at President Biden he has been a very moderate Democrat and he’s very mainstream in that sense. So he’s in the middle of the road. I think the one thing that he’s going to struggle with is, he’s got a large progressive wing of the Democratic party and it’s just something that he is going to have to deal with because they got him elected as well as the moderate Democrats and some of the Republicans as well. [00:12:00] But the progressive wing of the Democratic party is fairly large, and now with the Democrats in charge of the Senate there’s going to be a push: Can we get more done than what we were hoping, even prior to the Georgia runoffs? So some of the things that you might see here are the Green New Deal. I think that’s back on the table prior to January 6th. When they did the Georgia runoffs, I don’t think the Green New Deal was on the table, I’m not sure a big infrastructure bill was on the table. All that stuff is on the table again, and so I think President Biden will struggle. It’s nice to have Democrats in the House and the Senate when you’re the Democratic president, but he’s going to have to figure out how to walk a pretty narrow path.

Host: Biden does have the reputation  [00:13:00]  to be able to work across the aisle right, do you think that is part of the confidence that maybe the market is responding to?

Ron: I do, I think the market now likes the idea that it’s Centrist, whether they’re Republican or Democrat, that is in control at this point. So just for instance, with Senator Manchin from West Virginia, one of the ideas during the election period was let’s get rid of the filibuster. So anything can pass in the Senate at 51 votes and Senator Manchin, a Democrat from West Virginia said no I would not vote to eliminate the filibuster so what that’s done. It’s put the Centrist back in charge because you can’t get anything done without some Republicans and without the Democrats on board. [00:14:00] 

Host: So, typically it’s thought that the markets do better under Republican presidents, but history shows that the market actually does better under Democratic ones. Some analysts are anticipating a blue wave that could be good for the stock market. Should we expect a strong market performance under Biden?

Ron: The difference is pretty negligible between a Democratic and Republican president. The one thing that I would really like people to take away from this is that it’s only been over the last 10 or 15 years that we had a government where business and the economy are so intertwined with one another it’s almost hard to talk about one now without talking about the other. I know that when I first started teaching back in the late 1990s, I would talk more about business and you would always bring the government and the economy in, because that provides the foundation for how businesses operate. [00:15:00]  But that foundation changed a little bit—it’s become bigger, and so businesses and government now interact much much more than they ever have before. So it seems funny that we’re talking about the stock market and how much time we’re sitting here talking about the government, right? It’s because they play such a tremendous role in our economy and I suspect it will continue to play that role. When I look at the economy over the next three to four years, I think the first thing is we have to get the pandemic under control. We have to get back to whatever the “new normal” is going to be. We’re not going back to the way it was in the fall of 2019 whether it’s a school, company or any type of institution. Life is permanently changed now because of the pandemic. Once we get to the “new normal” I think it’s going to look different  [00:16:00] for us but to get there, I think there’s a lot of question marks at this point is how are the vaccines  going to work, whether the protocols that were following are going to get us back to a new normal over the next eight to nine months? But let’s assume that we are back to a “new normal” over the next eight to nine months: the economy is going to do better, people are going to be more employed, the economy will grow. I think the issue that we’re probably going to struggle with is how do we back the government off? The government cannot continue to spend at the rate that it’s spending for this fiscal year. The government’s going to run a 3.1 trillion dollar deficit. To put that in perspective, for every American the government borrowed [00:17:00] $10,000 per person. We already had a 23 trillion dollar deficit out there, so that’s about $70,000 per person. So at some point, we’ve got to start addressing this and so I think what we’re going to probably see is some higher tax rates over the next three to four years. I think we have to cut back on government spending. It’s only reasonable. So, for me when I look at the fact that you take the government stimulus out we have to hope that it’s replaced by individuals that they keep going so I don’t expect to see a booming stock market over the next three to four years, I think it will do fine. I think we’ll probably see historical averages 5, 6, 7,8 percent premiere  [00:18:00]  but I don’t expect to see booming markets. The other concern out there that I would be looking at right now is inflation. Economists have been talking about inflation now, since the financial crisis in 2008 when the government had to borrow a bunch of money to go further into debt and so forth. This is probably the first time that I keep wondering why we’re not seeing inflation. There is so much government spending going on that if I had any single concern over the next three or four years it would be inflation. 

Host: So, we’re not talking about legislation, which would be probably more in the realm of the legal studies faculty member, but you explain how the Democratic White House and an equally divided Congress might impact how the parties can work together? [00:19:00] How much impact on the stock market can President Biden have on his own?

Ron: A lot. Presidents can have a tremendous effect on the stock market. One of the things that we started to see happen under President Obama and then it continued under President Trump, and then there’s no reason we shouldn’t expect to see it under President Biden, is executive action. So almost all the tariffs action that President Trump took against China was done under the executive order and executive action, so there’s a tremendous amount that a president can do that way. The other thing that most Americans don’t know is that Congress is supposed to agree on a budget in the sense that over 60 Senators have to vote for it over a majority of the House of Representatives need to vote for it. But then they go into budget reconciliation  [00:20:00] which only requires 50/50 and so I think that we’ll see budgets that tend to favor the Democratic initiatives and he won’t have to do executive action on a lot of that so I do expect to see a lot of Democratic initiatives starting over the next 12 to 24 months.

Host: Has the stock market impact exaggerated the economic inequality in the country? I’ve seen in the news that the market and economy are doing well and have made billionaires richer, while everyday folks are struggling.

Ron: Yeah, so I think when we look at the pandemic, there have been clear winners and losers out of this so if you’re a worker and you are working on spreadsheets, writing script or you complete your class on Zoom you, from a financial or economic impact, have probably not been hurt much [00:21:00] by the pandemic. You may have suffered a lot emotionally or personally but from an economic sense, you have probably done alright because you’re able to do your job on a computer and you were able to do it from home. For those people that their jobs require face-to-face interaction and these are typically the people that have less education perhaps a little bit lower on the socioeconomic ladder, they’ve been impacted tremendously by the pandemic. So that makes you think about the hotel worker or you think about the waiter in a restaurant. These people probably didn’t have a lot of savings they thought they were able to work during the strictest parts of lockdown and it’s really hard to find that so for them to find work evening to this point and then you want to go to the exact opposite and do the extreme. Look at Amazon the pandemic may have been the single best shock [00:22:00] that ever happened to Amazon.Jeff Bezos is now the richest man in the world where it’s about a hundred and thirty billion dollars. I believe Amazon’s stock price has just done tremendously during this period as has Google, Facebook, and so forth. So things that we’re dealing with technical information and so this has made the wealth inequality problem in our society at this point. I do expect this will be something that the Democratic government will try to address over the next three to four years.

Host: Yeah, I was going to ask about the long-term outlook of Biden in the presidency, but like you said the stock market is like a crystal ball. So if you could look into your crystal ball and predict what the economy will look like in four years, what silver linings might you foresee?

Ron: I actually  [00:23:00] see a lot of silver linings in the economy over the next three to four years. I do think that there will be a more progressive tax structure, I think that will help ease the government spending problem and simultaneously it’s going to take care of some of the inequality problems as well. I think the other thing — one of the other points I’m seeing here is I think the climate is going to take a much much larger role, you’re seeing that both from a business perspective, and now you’re going to see it from a government perspective as well. I think we’ll take a much much closer look at climate change and how we’re impacting it and you’re already seeing that in the corporate world is the number of companies that are changing their policies and climbing on a sustainable business model  [00:24:00]  in terms of the climate so I think we’ll see much more of that. This other part is trickier for me; it deals with the pandemic, the pandemic accelerated technology introduction into business and society. if I take higher education as an example I knew what was going —  I had a pretty good picture of what it was going to be happening in higher education over the next 8 to 10 years then let’s say it was fall of ‘19 had a pretty good picture of what the next 8 to 10 years are going to look like in higher education. The pandemic hit us, and all of a sudden we and everybody else had to integrate massive amounts of Technology into the way we were doing it but we had to do it quickly. I thought this would take 8 to 10 years for us to do under normal circumstances,  [00:25:00] I now have a faculty that is 100% capable of teaching a good course online prior to the pandemic it was about 40% online some students I don’t know what fraction it is but it’s not 5 and it’s not 95 it’s probably like 25 or 30% they prefer their courses online so this is going to change everything that we’re seeing in higher ed if you if you take this to another industry retail, retail is changed Amazon has changed it for you even if I mean think about how many of us are getting our groceries now, how many of us closed shop we don’t go to Macy’s to buy close we’re getting it from Amazon now. so Technology has accelerated these changes and I keep wondering what the new normal was going to be and we still don’t know because the pandemic isn’t under control then we’re still kind of all limping along  [00:26:00]  but there will be a new normal emerging here in the next 6 to 9 months and I think it’s going to be perhaps a lot different than what most people believe I don’t think that we’re ever going back to what the fall of 2019 looked like, I think we’re going to have a very different life.

Host: I absolutely agree and I think that we probably have embraced and will continue to embrace technology more in our everyday lives than what we would anticipate so I’m interested to see how that plays out. but I also wanted to go back to what you said earlier about your biggest concern which is inflation, why do you think it hasn’t gone up and what’s happening to keep it down, and do you think that’s a trend that’s going to continue throughout Biden’s presidency?

Ron: So I think there’s a couple of issues going on here: one of the things in economic circles and we don’t have any financial-economic circles and we don’t [00:27:00]  have to go too deeply into it, economists are kind of bewildered why there isn’t more inflation at this point okay. it’s typically when the government spends spends spends you would think that was crowding out private investment okay because the government can only spend if it borrows the money to spend okay and so you would think it would be crowding out you and me would be crowding out IBM that there wouldn’t be that much money available and when money becomes scarce, interest rates go up and so what’s happened in this case is the government keep spending and spending and spending the inflation remains slow very very low. So economists and financial economists, what’s going on here? Why aren’t we seeing inflation? And so,  some of it might be just the simple that maybe we’re not  [00:28:00] measuring inflation properly. I mean, we sit there and think, what you would have paid for the 65-inch flat-screen TV 20 years ago? If you could find one and what you pay for it now or even compared to five years ago, it’s way down. The cost of food really hasn’t gone up that much in the last 10 to 15 years. So far, one of the things that economists wonder about is inflation. Perhaps there’s just so much money floating around out there that it’s easy for the government to borrow. It’s still easy for us to borrow and so we just continue to borrow. It could be that if the government continues to run huge deficits that this free money just evaporates, or gets used up [0:29:00]. Inflation is undoubtedly my biggest concern over the next three or four years.