Just a little over a week ago, Americans completed a historic presidential election process. In the face of the COVID-19 pandemic, voters came out in numbers never seen before. But now the 2020 U.S. presidential election could be remembered for another reason: as one of the most fascinating electoral case studies. Legal challenges and, for now, the incumbent’s refusal to concedediminish the chances for a smooth transition of leadership, which could create significant problems for the U.S. economy if the process is delayed much longer.
The conservative economic platform rests on a few important points: the power of free markets and the government’s role of creating trust in institutions and providing certainty for the economy. Many conservatives supported President Trump’s tax and regulatory agenda based on these principles, and many opposed his trade policies for the same reason. But what we are seeing now is fundamentally shaking this trust, setting a terrible precedent and creating major uncertainties for the U.S. and global economy.
The key word “uncertainty” has been running through the global economy since the beginning of COVID-19: Every major economy has suffered a recession. This was also reflected in goods and capital flow between countries. As a result of the pandemic, world merchandise trade suffered a record decline of 14.3 percent in the second quarter of 2020. According to the United Nations Conference on Trade and Development (UNCTAD’s) World Investment Report 2020, global foreign direct investment flows are forecasted to decrease by 40 percent in 2020 from their 2019 levels. With the positive news of a potential coronavirus vaccine, the markets rejoiced and hopefully the uncertainty associated with the pandemic and its economic ramifications will begin to abate.
Right before the elections, the U.S. started getting some good economic news. Gross domestic product was up by 33.1 percent in the third quarter, the unemployment rate had declined by 1 percentage point to 6.9 percent and the consumer confidence index was high in September, followed by a slight decrease in October. The hope is that this trajectory will continue unless, of course, we face another shutdown due to the resurgent pandemic
Amid the pandemic, political uncertainty is the last thing the American economy needs. While the president has every right to challenge voting results, his refusal to concede and initiate an orderly transfer of power, especially without credible evidence of fraud or vote manipulation, is creating unnecessary levels of uncertainty.
The U.S. has long condemned less democratic countries for their handling of elections and the thwarting of the will of the people in choosing their leaders. No doubt many businesses have differing opinions on policies proposed by the Biden administration. But what we are witnessing now is a situation that many major business organizations, including the Business Roundtable, U.S. Chamber of Commerce and the National Association of Manufacturers, among others, all see as setting a dangerous and disruptive precedent and is inconsistent with our democratic rule of law. This delay in the transition, when combined with ongoing policy and personnel changes, could have lasting and deleterious effects for the Biden presidency and our economy, especially as we continue to address the impacts of the pandemic.
As outlined in a 2013 report by the Federal Reserve Bank of St. Louis, the sluggish economic performance and business expansion during Obama administration was due to high levels of uncertainty. As the bank stated, “If the business and financial community believes the near-term outlook is murkier than usual, then the pace of hiring and outlays for capital spending projects may be unnecessarily constrained, thereby slowing the overall pace of economic activity.”
Whether or not we agree on the economic policies of either party, it is imperative to keep intact the principles of democracy that have always been the engine of the U.S. economy. We can continue to discuss potential economic impacts based on economic facts, but we do not need added uncertainty introduced by political gamesmanship.
Pinar Çebi Wilber, Ph.D., is chief economist and executive vice president for the American Council for Capital Formation.