- Goldman Sachs predicts a Democratic clean sweep in November as the best result for the US economy.
- Other analysts forecast something similar, with increased fiscal stimulus seen as the main catalyst for improving GDP.
- But a Biden victory is far from certain, let alone a democratic clean sweep.
Goldman Sachs said a Biden election in November would boost the US economy by 2% to 3%. The bank claims that a “blue wave” would increase the chances of a comprehensive stimulus package that gets through Congress.
Other analysts have also suggested over the past few weeks that a Biden win would be good for the American economy. Moody’s chief economist Mark Zandi said something very similar two weeks ago The stock market itself was bolstered by Biden’s improved survey.
While Goldman Sachs claims the likelihood of a clean sweep is increasing, the market signals suggest otherwise. And while the polls still largely point to a Biden win, we all know what the polls said in 2016.
Goldman Sachs: Biden Victory would be good for GDP
Goldman Sachs’ chief economist wrote a note to investors Jan Hatzius highlighted the likely economic benefits that would result from a Biden victory and the Democrats’ recovery of the Senate.
A blue wave would likely prompt us to improve our forecasts. The reason is that it would greatly increase the likelihood of a stimulus package of at least $ 2 trillion shortly after the president’s inauguration on Jan. 20.
Goldman would also expect spending on infrastructure – including climate, health care and education – to increase over the long term. This would come at the expense of tax increases, although Goldman expects such increases to be primarily focused on businesses and higher-income individuals.
Goldman Sachs’ forecasts follow in the footsteps of similar forecasts by other analysts. Moody’s also identified a Democratic clean sweep as the best possible outcome in November. Its economists Mark Zandi and Bernard Yaros wrote the following at the end of September::
The economic outlook is strongest under the scenario where Biden and the Democrats sweep Congress and fully adopt their economic agenda. Higher government spending contributes directly to this [gross domestic product] and jobs, while the higher tax burden has an indirect impact on business investment and the spending and saving behavior of high-income households.
You aren’t the only prominent economists who agree with Goldman Sachs. Harvard economist Jason Furman wrote in a comment yesterday: “Biden’s tax plan would stimulate economic growth. “British economist – and former CEO of Goldman Sachs – Jim O’Neill has argued this Trump is too disruptive to international trade.
Is a “blue wave” really likely?
There is a problem with all of these predictions. We don’t really know the likelihood of a Biden win in November, let alone a Democratic clean sweep.
Data shows that the market has actually been less convinced of a Biden win in recent weeks. Goldman Sachs’ own research shows that stocks that benefit from tax cuts have risen lately.
The same research also shows a decreasing likelihood of the tax hike proposed by Biden.
Goldman now considers a Democratic clean sweep to be the most likely outcome. It has previously warned of a controversial election.
However, the graph above shows that the probability is only slightly above 50%. And this is based on their own predictions that have been notoriously unreliable in the past.
Let’s not forget that the 2016 poll was completely wrong. The New York Times gave Hillary Clinton a “85% chance of winning”In 2016, whatever that means.
A blue wave could be the best possible outcome for the American economy. But let’s not count our eggs before they have hatched.
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