Joe Biden is campaigning in states that have not been blue in four decades. Such is his momentum in the final days of the election, the Democratic challenger this week shifted his focus from Midwest battlegrounds to Republican strongholds, such as Texas and Georgia.
Speaking deep in the Bible Belt last week, he promised to tax “the wealthiest and the biggest corporations” to pay for the rebuilding of the post-pandemic economy. It therefore may surprise some that another hostile territory has been wooed by the former vice-president.
Yet Biden is also Wall Street’s candidate. More than $US50 million ($71 million) has been ploughed into the Democratic challenger’s campaign coffers by the finance industry with executives from the likes of Blackstone, Bain Capital and Soros Fund Management among those donating to Biden’s party, according to the non-partisan Centre for Responsive Politics. By comparison, the US finance industry has raised just under $US30 million for Donald Trump, marking only the second time during an election or midterm year since 1992 that Democrats have gained more donations from the executives.
Wall Street swinging behind Biden’s tax hikes and big spending agenda may seem like turkeys voting for Thanksgiving. But they have been driven into his arms by the erratic Trump and growing worries that US capitalism is in crisis. Since huge corporate tax cuts boosted profits and shareholder returns in late 2017, businesses have soured on Trump.
“Wall Street is always looking for some sanity in terms of policy,” says Steven Blitz, chief US economist at TS Lombard. “Wall Street doesn’t like tariffs, Wall Street doesn’t like trade disruptions. They like everything working smoothly and a rules-based system… It’s about that Trump has no policy, he has no plan, he has rhetoric.”
The president’s tariff war on several fronts upended global trade and was the biggest source of uncertainty for firms prior to the pandemic. His anti-democratic rhetoric has stoked worries of a contested election result and a volatile transition period. And Trump is also moving in the opposite direction to businesses on the key issues of the day, from race and immigration to economic inequality.
Such is the concern that the country’s most powerful business groups called for “peaceful” elections and patience on counting votes in an extraordinary intervention ahead of Tuesday’s vote. “A lot of business executives have been frustrated that many social issues that historically would have been addressed in the political arena have now been pushed to the C-suite,” says Ronald Temple, head of US equity at Lazard Asset Management.
“If you think about the social unrest, and frankly the systemic racism we’ve seen in the US with the murder of George Floyd and other issues this year, a lot of that historically you might have found senior politicians trying to comfort the country. But in this case that didn’t really happen necessarily at the political level and instead corporate executives had to get involved in topics of race and civil justice.”
There is also a growing sense on Wall Street that there are more fundamental problems with the US economic system that started even before Trump became president.
Economic gaps in American society are widening and the middle class has suffered a substantial decline in recent decades, with its share of US income slumping from 62 per cent in 1970 to 43 per cent in 2018, according to the Pew Research Centre. Its share of wealth fell from 32 per cent in 1983 to 17 per cent with wages for low and middle earners barely growing since 2000.
Corporate America is also coming under strain with growing pressure from the Left to break up Big Tech. A working paper by the Federal Reserve, the US central bank, in August revealed more concentrated market power for fewer firms was partly to blame for negative economic trends in recent decades, such as widening income inequality and declining business invest-ment. Its case is underscored by the top five stocks on the S&P 500 increasingly dominating the index in recent years with a record large share of market value.
Reforming capitalism in the US is needed to save it, say some Wall Street heavyweights ahead of the election. Jamie Dimon, JP Morgan boss, called on policymakers to reform capitalism to make it “more inclusive”, warning the system is at a “tipping point” as younger generations lose faith. He also chairs the Business Roundtable, a group of leading bosses that dropped its vow to put shareholders first last year as attitudes shift.
Ray Dalio, chief investment officer at Bridgewater Associates, the world’s largest hedge fund, has repeatedly said capitalism is in crisis and in need of a shake-up. Reforming capitalism may prove a tall order for Biden but economists expect a Democrat victory to at least boost the US economy while hitting high earners. Economists predict the trillions of dollars outlined to be spent on infrastructure and climate change will overpower any negative drag from his plans to increase taxes substantially on companies and those earning more than $US400,000.
“I think Wall Street understands that the route to growth post-COVID is going to come through government spending,” says Blitz.
Credit ratings agency Moody’s believes Biden’s fiscal plans would create 7.4 million more jobs than Trump’s and will generate higher average annual growth of 2.9 per cent over the next 10 years. Some 75 per cent of economists believe a Biden clean sweep where the Democrats take control of the presidency, House of Representatives and Senate would create the strongest economic recovery, according to a Reuters poll.
“In that scenario if you really do get all of this infrastructure and climate related spending – and yes, you do also get the tax increases – that would basically be a very material jolt to the economy in terms of extra fiscal stimulus. What’s interesting and almost exciting is for the first time in over a decade we might be shifting the spotlight off monetary policy and on to fiscal policy,” says Temple.
Eoin Murray, head of investment at Federated Hermes, said the tax increases could be “unsupportive of growth in the near-term” but says it would be “arguably critical to longer-term national harmony” and progress.
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