Moneybeat: The Supreme Court’s gift to Biden

MARY REICHARD, HOST: Next up on The World and Everything in It: the Monday Moneybeat.

NICK EICHER, HOST: It’s time to talk business, markets, and the economy with financial analyst and adviser David Bahnsen.

He’s head of the wealth management firm The Bahnsen Group and he’s here now.

David, good morning!

DAVID BAHNSEN: Let’s begin with Bidenomics. The president last week in Chicago:

BIDEN: Bidenomics is about building an economy from the middle out and the bottom up, not the top down. And there are three fundamental changes that we decided to make with the help of Congress and been able to do it: first, making smart investments in America; second, educating and empowering American workers to grow the middle class; and third, promoting competition to lower costs to help small businesses.

EICHER: So he’s leaning in to what has been a political liability for him so far: the economy.

I say that because polls consistently rate his unfavorables higher than his favorables. Yet, here he goes with a campaign-style event with big banners in tall, white lettering “Bidenomics.” The optics about as likely to appear in Republican ads as in Democratic ads.

Which strikes me as risky.

But I read a quote in The Wall Street Journal coverage that does seem to explain the thinking of the Biden re-elect campaign. Celinda Lake, a pollster for Biden’s 2020 campaign, said voters tend to make their decisions based on the perceived direction of the economy in May or June of the election year … .” So that gives the White House 10 or 11 months to boost the president’s numbers.

So here’s my question on that, half-political, half-economic forecasting: Is it conceivable that this is a good gamble, that in 10 or 11 months, the economy is in good shape and Biden legitimately claims credit for the success of “Bidenomics”?

BAHNSEN: I don’t think that there is a way to know what the economy will be doing in 10 or 11 months, but there is a way to know if there have already been inside conversations about what the Fed is going to do or not do.

I don’t have a very strong propensity towards conspiracy; it isn’t really what I’m about, and I’m usually pretty averse to it. What I’m suggesting here is not really a conspiracy theory. It’s just established fact over many decades that there is a lot more communication between the White House and the Federal Reserve than people would think by both parties. Nixon had a lot of influence with Arthur Burns. Bill Clinton had a lot of conversations with Alan Greenspan. Reagan’s team talked a lot with Paul Volcker. So I don’t think I’m saying anything particularly out of bounds here.

What I’m trying to get at is this: If the Fed is not going to continue tightening (and in fact, there is some hope in the White House that they will be loosening next year) a change to status quo can’t be made right before the election. We’re talking about basically the whole year. That might bolster a little more confidence that we’ll be sitting in a better position in 8, 9, 10, or 11 months than is anticipated right now.

What you can’t do politically is brag about the economy and have the economy legitimately be bad, and then claim it isn’t. People know what is going on. That is similar to an argument I made in the pages of WORLD a year and a half ago, saying you can’t really convince people that we’re in a recession when no one feels like we’re in a recession. A year and a half ago, wages weren’t dropping, jobs weren’t dropping, corporate profits weren’t dropping. We could say, “well, there’s some data points that indicate we’re in a recession,” but sure enough, we weren’t. I think that was really proven over time.

If we go into a recession, it doesn’t matter. It’s a political mess for the incumbent party. But I have a feeling that the White House’s confidence is stronger than it was a couple of months ago that a recession may be averted.

EICHER: So, last time we named a political brand of economics after a president, as I remember, was Reaganomics. 40 years ago. And Reaganomics was very different from Bidenomics: lower taxes, less regulation, freer markets versus higher taxes and government spending. So maybe talk about the differences between the two.

BAHNSEN: Well, Reaganomics had the advantage of being rather simply defined. It primarily had to do with relieving income tax burden so that marginally people had more incentive to produce. It’s the ethos of the supply side movement, that by incentivizing more supply in the economy (which you do through lowering tax burden and deregulation) you opened up more opportunity. Of course, we had just a massive wave of job production with many new jobs created, and also economic growth with a substantial increase in actual measurable output.

Bidenomics is not intending to be defined by a particular policy plank. What we could look at is Build Back Better, which didn’t pass and which was attempting trillions of dollars of tax increases and further government spending. But you can’t really look to what he didn’t pass as an element of Bidenomics. So what does it refer to?

Well, they did pass the CHIPS Act. So maybe he wants to say they’re doing more for domestic production. But that was, of course, something that President Trump had run on too. Biden hasn’t got rid of any of the tariffs that President Trump put on trade with China. So maybe he wants to run on a more economically nationalist message? I don’t imagine he plans to say that, but I can’t tell you what the specific ideology of Bidenomics would be other than just the obvious: That they do believe in spending a lot more money, and that they do want to raise taxes, but they haven’t really been able to successfully do all of that. And so I think it is meant to be a marketing term, not a policy term.

EICHER: All right, as you know, the Supreme Court struck down President Biden’s student-loan forgiveness program. It was based on the emergency provisions of the Heroes Act. The court called it an overreach. It affects 40 million Americans, estimated to cost 430-billion dollars.

We know the legalities. What is the economic significance of that decision?

BAHNSEN: Well, I happened to be on CNBC on Friday afternoon. When the news came in, I was in the middle of being interviewed. And then they took a break to go to President Biden’s press conference. Then they came back to me and I’ll tell you the same thing I said on television last Friday afternoon.

I think the Supreme Court did President Biden a huge favor, because people that are saying, “now that’s $10,000 people don’t have to go spend.” They don’t understand the way economic wealth is created. This money was already spent. The $10,000 was already spent when they were in college. So now we’re talking about paying back the government who gave the money to the end user who spent it. And so the government would have not gotten that money back. But all that would have meant is further deficits.

The primary issue here was that it would have led to higher education prices, which would have led to more bad behavior of people knowing that they can run up debt, and ultimately there would be some form of an additional forgiveness or bailout. Once the precedent was set and the Supreme Court ruled that the head of the executive branch of government can’t just on a whim forgive debt that Congress has not ruled on with money appropriated by Congress, but not forgiven by Congress—once the precedent gets set there, then there is a moral hazard that no one was really talking about. You are going to have people that would think they could go to get a master’s degree when they didn’t really need one. And I also think of credit card debt: That people would eventually believe a government program would come for that. So I think it was a very good thing what the Supreme Court did and, of course, it has the advantages of being entirely the right ruling.

And you know who else agreed that what President Biden did was illegal? President Biden, who campaigned saying, “I can’t do this, because it’s illegal,” when he was defending himself against Elizabeth Warren and Bernie Sanders, who were critical, asking, “why don’t you want to forgive student debt?” And Biden said, “it wouldn’t be legal.” So they got it right, legally, and they got it right economically.

But of course, it isn’t the Supreme Court’s job to administer economic policy. I’m just making my analysis that what they did is going to be beneficial to the economy, and it will lead to less moral hazard and less debt. This is the way we have to do economics, by counting the cost of what we don’t see. Everyone sees it as now they have $10,000 still in debt. But what you don’t see is the decision making having impacts into the future, and the free check it gives to college presidents to raise tuition, knowing that there’s that much more free government money coming to help subsidize it. These distortive effects into the economy are disastrous.

EICHER: Alright, David Bahnsen, Founder, Managing Partner, Chief Investment Officer at the Bahnsen Group, his personal website is bahnsen.com. That’s spelled B-A-H-N-S-E-N, bahnsen.com. His weekly dividend cafe you can find it dividendcafe.com. David, thank you. We'll see you next time. And in the meantime, have a terrific week. Happy holiday.

BAHNSEN: Thanks so much, Nick. Happy Fourth.

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