Sensible Cash Podcast — Election Economics: How Can Presidents Actually Influence Your Pocketbook? – NerdWallet

Welcome to NerdWallet’s Sensible Cash podcast, the place we reply your real-world cash questions. On this episode:

Be taught what powers the president does and doesn’t must affect the financial system and your pockets.

Does the president actually have energy over the financial system? How do presidential guarantees impression your pockets? Hosts Sean Pyles and Anna Helhoski talk about the grand financial guarantees made by presidential candidates and the intricate realities of presidential affect on the financial system that can assist you perceive the true results in your day by day funds. They start with a dialogue of the coverage proposals from Donald Trump and Kamala Harris, with ideas and methods on understanding the scope of presidential affect on taxes, inflation and financial development. Then, Anna talks to NerdWallet Senior Economist Elizabeth Renter concerning the complexities of the enterprise cycle and the Federal Reserve’s function within the financial system. They talk about the restricted presidential energy over financial cycles, the construction and independence of the Federal Reserve, and the direct results of presidential actions like pupil mortgage aid on particular person funds.

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For anybody who hasn’t observed, it is election season. Candidates close to and much, native, state, and federal, are making all kinds of guarantees about what they’re going to do if you happen to vote for them. That is very true within the presidential election. At the moment, we launch a particular sequence wanting on the energy of presidents to affect the financial system and your private funds.

The president has some enter right here, however perhaps not as a lot because the marketing campaign guarantees would have you ever consider. I believe these statements they make about spending and taxes are largely a sign of what they’d like greatest if the celebs aligned they usually may get their means on all the things, however issues not often shake out that means.

Welcome to NerdWallet’s Sensible Cash podcast. I am Sean Pyles.

This episode kicks off our Nerdy deep dive into presidential coverage and private finance. It is being stated that this is among the most consequential elections within the historical past of the American Republic for a lot of, many causes. At the moment and for the subsequent few weeks main as much as November fifth, we will discover what sort of energy the president has to affect the financial system.

From taxes to inflation to healthcare to banking, what can the president actually do and what guarantees can they actually maintain with out consulting, say, Congress?

Or with out being smacked down by a courtroom? So Anna, listeners are little question aware of you as you’re my co-host on our weekly Cash Information Roundup. However inform us a little bit bit about what you are engaged on within the newsroom and why we’re doing this sequence.

So I have been engaged on a sequence of tales analyzing coverage proposals that we have heard on the marketing campaign path from each former President Donald Trump and Vice President Kamala Harris, particularly coverage proposals that may impression the financial system and private funds. So with one month left till election day, we wish to do one thing related for Sensible Cash to present listeners a transparent, no-nonsense understanding of what every candidate is promising to do and the way it may impression you. If you wish to learn these tales, you possibly can go to NerdWallet’s Monetary Information Hub, which we’ll hyperlink to in right now’s present notes, or simply seek for “NerdWallet Monetary Information.”

All proper. Nicely, if you happen to’ve been paying even the slightest consideration, you already know that each Trump and Harris have been speaking up their financial insurance policies and making all types of guarantees about what they’re going to do in the event that they’re elected. Here is a sampling.

I’m promising low taxes, low rules, low vitality prices, low rates of interest, safe borders, low, low, low crime, and surging incomes for residents of each race, faith, shade and creed. My plan will quickly defeat inflation, rapidly deliver down costs, and reignite explosive financial development.

As President, I’ll tackle the excessive prices that matter most to most People, like the price of meals. Everyone knows that costs went up in the course of the pandemic when the provision chains shut down and failed, however our provide chains have now improved and costs are nonetheless too excessive lots. A loaf of bread prices 50% extra right now than it did earlier than the pandemic. Floor beef is up nearly 50%. Most of the massive meals corporations are seeing their highest earnings in twenty years.

And in addition no tax on Social Safety advantages. Folks on Social Safety have been worn out by inflation, and now on high of it, we tax their advantages. We’re not going to tax their advantages. We have now so many alternative methods of constructing a lot cash. This nation, the potential is so unbelievable. We do not have to take it away from individuals on Social Safety, we’re not going to try this. We’ll save Social Safety.

And I’ll work as president with states like right here in North Carolina, Roy Cooper, thanks once more, to cancel medical debt for an increasing number of, tens of millions extra People.

With these sweeping authorities, we are going to blast by way of each bureaucratic hurdle to subject fast approvals for brand new drilling, new pipelines, new refineries, new energy crops, new electrical crops, and reactors of every type. Costs will fall instantly in anticipation of this great provide that we will create moderately rapidly.

So proper now the tax deduction for startup corporations for small companies is $5,000. I am rising it to $50,000 as a result of no person can begin a small enterprise on $5,000, proper? And it is a tax deduction, so it will go over a time frame.

The fifth pillar of my plan is to make the Trump tax cuts everlasting. They’re large tax cuts, largest ever, everlasting. And to chop taxes much more. And we may have no tax on ideas, one thing which they copied 4 weeks after I stated it.

I consider competitors is the lifeblood of our financial system. Extra competitors means decrease costs for you and your households.

On this sequence, we will take a look at just a few methods presidential energy can have an effect on the financial system and your pockets, or in some instances, neither. For the entire guarantees heard on marketing campaign trails, in lots of instances, there’s little that candidates can do to truly change issues on their very own.

So we’ll be taxes.

Everyone’s favourite subject.

Yeah, positive, Sean. We’ll additionally speak about what, if any, energy the president has to affect costs. From what we pay for groceries to what we pay on the pump to what it prices to purchase a home.

We’ll additionally take a look at some specifics like pupil loans. So it is going to be lots, however it’s essential stuff and it is important to know the best way to sift by way of guarantees that may be stored and people which can be simply, effectively, wishful pondering.

That is proper, Sean. I wish to give a fast overview earlier than we dive into our first subject within the sequence. So listed here are among the top-line guarantees every candidate is making. Kamala Harris needs to create a quote, “Alternative financial system.” That features issues like lowering prescription drug prices, banning worth gouging on groceries, tax cuts for folks and small enterprise homeowners, reducing rental prices, supporting housing development, and offering down fee help for first-time patrons. In the meantime, Donald Trump needs to impose 10% across-the-board tariffs on overseas imports, prolong the 2017 tax cuts and reduce the company tax fee, deport unauthorized immigrants, get rid of taxes on Social Safety, and cap bank card rates of interest. Each candidates additionally wish to get rid of tax on ideas. Common listeners of the podcast could have heard our episode on that on August twenty first, however if you happen to did not hear it then, I like to recommend having a hear.

We wish to say on the outset that we aren’t right here to take sides or fire up an already contentious political season. Our purpose right here is similar purpose we all the time have at NerdWallet: that can assist you, our listeners, make sensible, knowledgeable choices concerning the stuff that impacts your funds. Generally which means choosing the proper bank card to your wants, different instances which means voting for the candidate who you consider will enable you to obtain your life and monetary targets. All proper, effectively, we wish to hear what you assume too, listeners. To share your ideas across the election and private funds, go away us a voicemail or textual content the Nerd hotline at 901-730-6373. That is 901-730-NERD, or electronic mail a voice memo to [email protected]. Anna, the place will we begin right now?

Nicely, we will begin with a well-recognized identify for Sensible Cash listeners. Elizabeth Renter is NerdWallet’s Senior Economist. Her work has been cited by The New York Instances, The Washington Publish, The At the moment Present, CNBC and elsewhere. At the moment she’s right here to speak with us about what powers the president does and doesn’t must affect the financial system and your pockets.

Elizabeth Renter, so nice to have you ever again on the present.

Thanks for having me, Anna.

So I used to be studying a bit in The New York Instances from 2017 by the columnist Neil Irwin about this topic, and I used to be struck by this sentence: “Presidential financial information are extremely depending on the dumb luck of the place the nation is within the financial cycle.” First off, Elizabeth, do you agree?

I positively agree that their information are dependent totally on elements exterior of their management, however would cease wanting saying presidents have no impression on the financial system, which I’ve heard anecdotally as form of the acute finish of this view. The financial or enterprise cycle has lots to do with how we characterize the well being of the financial system when a president is in workplace, and that cycle is in movement, both increasing or contracting on account of an enormous array of things, many exterior of the management of the federal authorities, not to mention the president. However the president can affect sure facets of the financial system by way of coverage or sentiment, for instance.

So what does that inform us concerning the president’s energy to affect these cycles? And whereas we’re at it, what’s an financial cycle?

So the enterprise cycle or financial cycle is how the financial system adjustments over time. On a graph, it might seem like waves the place the financial system is increasing because the wave rises and contracting because it declines. An increasing financial system is characterised by elevated financial output or GDP, gross home product. In an enlargement, the financial system is rising. A unfavorable facet impact of that is typically excessive inflation or fast worth development. A contracting financial system, then again, is characterised by decreased manufacturing or decrease actual GDP. Generally a contraction can develop into a recession, which is characterised by excessive unemployment. If a president has any affect over this cycle, it is sometimes oblique and positively only one affect in an entire mixture of others. Simply as one instance, the president may suggest adjustments to the federal funds. However the funds is generally the purview of Congress, so the administration’s advice solely turns into coverage if it passes each homes of the legislature. And even when it makes it that far, the fiscal funds is only one of many, many elements influencing the U.S. financial system, and due to this fact the enterprise cycle, all to various levels at numerous instances.

And is there an instance you could possibly give us of when luck allowed a president to make the most of a optimistic financial cycle after which when a president bought unfortunate?

I believe that New York Instances article you referenced had a great instance for each in a single president, and that is President Obama. He was inaugurated within the depths of the Nice Recession. So he took workplace when unemployment was shut to eight% and it might hit 10% earlier than the top of his first 12 months, which isn’t actually a welcome surroundings and one I am positive just a few of us blamed him for not having the ability to repair immediately. Then again, he additionally bought to personal the restoration the place unemployment improved from that 10% to below 5% when he handed the baton to former president Trump. Trump then inherited that trajectory. It was a optimistic trajectory of an increasing financial system till COVID hit. Most individuals acknowledged that he could not be blamed for a worldwide pandemic, however many individuals credited him with the whole lot of the fast restoration from COVID recession. On this means, you possibly can see it is typically the luck of whenever you take workplace and whenever you go away that impacts your financial information, so to talk.

One factor the president does do is appoint key individuals to financial positions, together with Federal Reserve governors. What is the sensible impact of that appointment?

Nicely, you are proper, however it’s not just like the president takes workplace and names all new Fed governors. So first off, whenever you hear about Federal Reserve governors and the Federal Reserve Board, we’re speaking about the identical individuals. It is a board of governors, and there are seven members of that board. Whereas they’re appointed by the president, they must be confirmed by the Senate, after which they serve for 14 years. So you find yourself with a board of fairly numerous political affiliations as a result of they’re there by way of a number of administrations.

From that board, the president appoints a chair and two vice chairs who the Senate has to approve. They serve in these roles for four-year phrases that may be renewed. Our present chair, Jerome Powell, is in his second time period after being renewed below Biden, which speaks a little bit to the shortage of politicization on this function. Each within the guidelines surrounding the nominations to the board and its leaders and within the guidelines concerning the execution of their jobs, there are quite a few guardrails to guard towards political affect on the central financial institution. This could possibly be a podcast subject in and of itself and perhaps it must be on it, however the quick model is that though the president performs a task in staffing these positions and these positions impression the financial system, it would not actually equate to presidential energy over the financial system.

I might think about that the choice a few Fed chair and governors comes into play most prominently when the financial system is in some form of downturn, proper? Like in the course of the 2008 monetary disaster when it needed to prop up failing banks. And extra not too long ago, as it has been preventing inflation the final couple of years. Honest to say in good instances, we do not pay as a lot consideration to these presidential picks?

I believe that is positively honest, and I additionally assume it is essential to level out that Central Financial institution independence is de facto on the bedrock of monetary and financial stability, each right here within the U.S. and throughout the globe. This independence is broadly accepted as an important element of a sound financial system, and what I imply is that each written into the insurance policies of the Central Financial institution and form of understood as a guiding ethos is that this want for the Fed to stay nonpolitical and free from such affect. In the end, as we see proper now in an election 12 months, politics will get dragged into the conversations by nature of the impression of the Fed’s choices and the individuals who finally assist fill these roles. However the financial institution, and I believe most policymakers in authorities, respect the Fed’s independence from politics and the necessity to maintain it that means.

And the Fed would not must ask anyone’s permission to do issues which have broad results on the financial system, proper? It would not must get an okay from Congress or anyone else?

That is proper. The Fed would not ask for permission to do the assorted components of their job, however they do have very clear jobs. So these jobs are conducting financial coverage, sustaining monetary stability, regulating banks, overseeing fee programs, and selling client protections. Now, they do not essentially have carte blanche to fiddle with all facets of the financial system in an unrestrained means.

For instance, the Fed could must finally use the instruments at their disposal to cope with the impression of fiscal coverage, in order that’s coverage enacted by Congress, however they don’t seem to be going to play a task within the creation or implementation of fiscal coverage. So their job is financial coverage and monetary stability. If politics or fiscal coverage impression the broader financial system, then it may fall below the Fed’s jurisdiction, however they don’t seem to be going to be actively concerned in these issues, merely their impacts because it pertains to their clearly outlined jobs.

In a second, extra of our dialog about presidents and their function within the financial system with Elizabeth Renter. Stick with us.

So Elizabeth, the Biden administration did lots to attempt to tamp down on the pupil mortgage burden over the past three years. Would that be an instance of how the president can have an effect on our particular person funds perhaps greater than the macroeconomy?

Completely. Government orders like these utilized in pupil mortgage aid efforts of late are a great instance. As we have seen with the Biden administration’s makes an attempt at broad aid, these are sometimes topic to authorized challenges, and people challenges typically hinge on whether or not the president ought to have the ability to make such insurance policies. But when and once they’re finally carried out, they’ll have a direct impression. And here is a random piece of trivia I got here throughout. Because the prevalence of those government orders will get loads of consideration, Biden has issued about 140 government orders and Trump issued about 220 whereas in workplace. These numbers are fairly on par with the presidencies of the previous a number of many years, however if you happen to return to the primary half of the twentieth century, you will discover presidents issued many, many extra. Woodrow Wilson, for instance, issued about 1,800, and Franklin Roosevelt, a whopping 3,700. So government orders usually are not new and never novel.

Whoa. Let’s speak about authorities spending. We have a tendency to listen to fairly a bit in the course of the marketing campaign about how this candidate will reign in spending and that candidate will spend on new packages or use tax cuts to assist individuals. How a lot sway does the president have over these issues when it is Congress that holds the ability of the purse?

Nicely, the president has some enter right here, however perhaps not as a lot because the marketing campaign guarantees would have you ever consider. I believe these statements they make about spending and taxes are largely a sign of what they’d like greatest if the celebs aligned they usually may get their means on all the things, however issues not often shake out that means. For instance, in terms of the funds, federal businesses submit their annual funds request to the White Home, the place the Workplace of Administration and Price range develops the general funds proposal with enter from the president. The president then submits the proposal to Congress, and from there, it is in for a wild bumpy trip. Utilizing enter from numerous subcommittee hearings, the 2 homes every create their very own funds decision after which they should come collectively and move a single model of a funding invoice. I stated that multi function sentence, however we all know it is a messy, messy course of. After that, a sometimes fairly completely different funds goes again to the president for signing or vetoing.

Presidential fiscal coverage, what I imply by that’s taxes and spending, actually develop into probably the most influential when in addition they have each homes of Congress, proper? Obama in 2008 can be an instance, the place he had two years with a pleasant Congress and handed, amongst different issues, a large stimulus package deal and the Inexpensive Care Act.

Proper. The power of a president to have most enter on these items depends upon the chance that compromises within the Home and Senate fall their means. That is actually made simpler when the president’s political social gathering outnumbers the opposition in each of those homes. When that is not the case, we’re extra prone to see disagreements over the funds to push us to the verge of presidency shutdowns. And we have seen this fairly a bit lately.

Elizabeth, we have talked to you a bit about this on the present earlier than, however I believe it is price repeating as a part of this sequence. You have completed analysis and written lots concerning the very generally felt disconnect between how the financial system is doing in actuality and the way the general public feels about it. Are you able to speak a bit about that once more within the context of what energy the president has to affect each actuality and notion?

Yeah. Nicely, we all know that how individuals really feel concerning the financial system relies upon largely on whether or not their political social gathering of selection is within the White Home. You may see this within the knowledge. The College of Michigan’s Shopper Sentiment Index measures how individuals really feel concerning the financial system and their place inside it. And if you happen to parse the information from this survey by political social gathering, you possibly can see on the chart when a brand new administration takes workplace. So for instance, when Trump was in workplace, Republican sentiment was roughly 50 factors increased than Democrats. And when Biden took workplace, you possibly can see the sentiment flip, the place the sentiment of Democrats is effectively above that of Republicans. And the magnitude of this impact has grown over the previous a number of administrations, suggesting that growing partisanship is having an outsized impression on general client sentiment. All that to say it is doable the true energy of the president over the financial system is of their potential to form sentiment. And this extends past emotions. Shopper sentiment can be utilized to foretell client spending behaviors. So it is doable that election outcomes can steer the financial system by way of this oblique means as effectively.

Elizabeth Renter, thanks as all the time for serving to us out right now.

Thanks, Anna, and thanks for having me. Joyful voting season.

Anna, what I am interested by after your dialog with Elizabeth is how in our politically divided, media-siloed world the place we’re every taking in our personal model of actuality by way of our telephones, notion turns into actuality. And proper now, that feels extra highly effective than what anybody president can truly do to alter the trajectory of our particular person private funds. And in a means, that is form of a aid. Whoever the subsequent president might be will not radically remodel my monetary life, even when I really feel like that is what they’re doing.

And to be clear, we’re not attempting to invalidate how individuals really feel, particularly about their very own funds. However in terms of the bigger financial system, there’s notion and there is actuality, however the two do not all the time combine. And a type of issues is the function a president can play in your private funds. Sean, I believe you hit the nail on the pinnacle that loads of media that individuals eat right now is tailor-made to them through an algorithm, and that signifies that they find yourself with largely content material of their social media feeds that reinforces preconceived notions that they have already got. So it is useful to get out of that bubble every so often and simply take a look at plain information.

It most likely goes with out saying, however we’ll say it anyway. Crucial a part of all of that is that you simply exit and vote. We’ll undergo among the candidate’s positions on numerous financial and private finance points. Then, listener, it is as much as you to do extra analysis if you happen to like. Learn voters pamphlets for races from the president on down. Tthink about the way you need these candidates to deal with your cash. Take into consideration what energy they’ve over your {dollars}, and what energy they do not have however are promising anyway.

Yeah, it actually is significant to vote and to be educated about these points. We have scratched the floor right here, however hopefully all through the sequence, you will get a greater understanding of the place the candidates stand on all these subjects which can be essential to your backside line.

So Anna, talking of the sequence, inform us what’s developing in episode two.

Subsequent time, we will take a deeper dive into what an American president can truly do about costs. Each candidates have put forth their concepts of the best way to deliver down inflation, however there’s solely a lot they’ll do with out the assistance of Congress and the Federal Reserve.

I simply discover it attention-grabbing that each presidential candidates have form of centered on these extremely unstable markets, which we frequently assume they actually cannot try this a lot about and which can be typically pushed by these form of world forces principally. However each of them have form of centered on these as their avenues to bringing inflation down.

For now, that is all we’ve for this episode. Do you might have a cash query of your individual? Flip to the Nerds and name or textual content us your questions at 901-730-6373. That is 901-730-NERD. You may as well electronic mail us at [email protected]. And keep in mind, you possibly can comply with the present in your favourite podcast app, together with Spotify, Apple Podcasts, and iHeartRadio, to robotically obtain new episodes.

This episode was produced by Tess Vigeland. I helped with enhancing. Rick VanderKnyff and Amanda Derengowski helped with fact-checking. Megan Mauer combined our audio, and an enormous thanks to NerdWallet’s editors for all their assist.

And here is our temporary disclaimer. We’re not monetary or funding advisors. This nerdy data is supplied for basic instructional and leisure functions and will not apply to your particular circumstances.