The American economy – does it even care about Trump and Harris?

Cutting straight to the point – does it matter to the American economy who wins the presidential election in November?

– No, we cannot tell for sure. It is difficult to say since we cannot observe a world where Donald Trump won in 2020 and compare it to our world. But if politicians are competing for votes to get elected, they might have to adapt to attract voters who are still undecided, and according to several well-known models, this means that the candidates will offer more or less the same thing.

Interest rates and inflation are also sensitive to the state of the economy in a country. Can a president impact these factors in any way?

– If we look at the rhetoric, none of the two presidential candidates seems to be that interested in reducing the federal budget deficit. This means that the government must continue to borrow money, which means that interest rates go up (the demand for loans goes up). The budget deficit goes years back and neither Trump nor Biden (or Harris) has seemed to care about it. It is the Federal Reserve who is ultimately in charge of controlling the inflation, but the budget deficits have not helped the situation.

Trump talks a lot about implementing tariffs. What effect would they have on the American economy?

– They would lead to reduced imports as well as exports.

Are there any examples of direct financial measures that would contribute to a majority of the American people noticing a positive economic change for them personally?

– Well, there is a lot to be said about that. Unfortunately, there are few or none such measures among the proposed reforms presented by the two candidates. Things such as tariffs on imports, as proposed by Trump, and price control, as proposed by Harris, would have the exact opposite effect. But overall and over time, the American people have significantly improved their standard of living by working and living in a country where property rights are respected, where pricing is fairly free and immigrants are welcome. If these conditions continue to apply, the American people will continue to improve their financial status.

The US has a capitalist economy. What is required to keep an economy like that going?

– Strictly speaking, it should be referred to as a mixed economy since there is a fair number of state interventions in the American economy. But if you by capitalism refer to competitive markets and recognition of property rights, the most important factor is probably limited state intervention. The economy keeps running spontaneously, so to speak, by people’s voluntary financial interactions. 

What are the differences between taxes in the US and Sweden?

– In the US, there is quite a big variety in taxes between different states. Some states have no income tax at all, while others have very high income tax. At more local levels, there may be other taxes as well. However, regardless of where you live, you must always pay federal tax, which increases percentually with your income. A bigger difference is that Sweden applies value-added tax, which does not exist in the US, even though many places have a “sales tax”. Historically, Sweden has had a relatively low corporate tax compared to the US, but I don’t think there are any significant differences today.

Could the US approach an economy that is similar to the Swedish economy – would it even be possible?

– If it relates to things such as regulations and taxes, the two systems are not necessarily that different from one another, but the differences between the states of the US can be quite significant. A fairly big general difference is that pricing for pharmaceutical drugs are more liberal in the US compared to the rest of the world. Politicians could put pressure on medical companies to lower prices, and you see motions for this from time to time. However, the effect on pharmaceutical development would probably not be very pleasant.

Americans seem reluctant to pay higher tax to finance services that we in Sweden take more or less as a given (school, healthcare, etc.). Why is that?

– I’m no expert on what people actually feel about these mattes, but I doubt that you get particularly accurate picture by asking people if they would like to pay more tax. If you want to know about people’s true preferences, it is better to look at behaviour than what people say. If Swedish people were more than happy to pay taxes, the Swedish Tax Agency could simply replace all its operations with a website that listed all tax rates and perhaps a calculator to help people work out their taxes. People would then be able to pay their taxes spontaneously and the state would receive the same amount of tax as today. But since no one is proposing such a system, I doubt that Swedes who say they are happy to pay taxes are truly sincere. I don’t think there is any major difference between Swedes and Americans and depending on which state you live in, you may end up paying quite high taxes in the US as well.

The US dollar plays a crucial role in the global economy. Why is that?

– Many want to do business with Americans and American companies because they produce a very large part of what people want in the world. That makes it important to have dollars to handle a lot of payments. This means that many people use dollars, and people also know that if they have dollars, their money will be accepted by many.

What actions must a US president take to ensure the dollar remains strong globally?

– If the US remains the world's largest economy, the dollar will maintain its status. There seems to be something in the US that works because the country's GDP is incredibly high. The country has operated under its current constitution since the 18th century, so if the nation’s prosperity relied solely on having very intelligent leaders in power at all times, it is unlikely that the US would have achieved its current level of wealth. You would really have to make a great effort to be stupid to lower the status of the dollar. Maybe it will happen someday, but so far it has not.

How long would it take to see the effects of any economic changes in the US and what factors are involved?

– Changes are difficult and it is not certain that the possibility of drastic changes would be favourable to the public. A business climate where conditions can rapidly change depending on who is in the White House might not be that appealing - who would like to invest in a company not knowing if the next president will make drastic changes for the worse in terms of running a business? Perhaps the best thing to do if you want to see big changes is to start the next Amazon or invent the next technological breakthrough. Things that are outside the political arena.

How much influence do the richest individuals have on the US economy?

– No one knows for sure. Who is rich and who is poor also tends to shift. I think in most countries there seems to be a positive correlation between income (which is not the same as wealth) and willingness to vote. Slightly exaggerated, one could say that low-income earners exclude themselves. Whether it is good or bad depends on a number of factors. It may be that low-income earners have poorer perceptions of what favourable policy is, and if high-income earners have better perceptions, it might be desirable for them to have more influence.

– More fundamentally, it is unclear whether it even matters that much how people vote since individuals more or less lack the incentive to monitor what elected politicians do. People have their own lives to manage and since all you control is a vote, you lack the power to depose a politician if you notice that he or she is behaving badly. Against this background, it is possible that politicians focus more on individual interest groups than voters. 

The election result will have an impact on the world at large – who do you think would create the best economic conditions for all of us, Trump or Harris?

– As I said, it is not certain that the election result will have any significant impact on anything. The rhetoric is one thing, but the reality may be another, for reasons that I’ve already mentioned. However, if we look at the rhetoric that has characterised the candidates, Trump’s talk of general tariffs of 10–20 percent (the figure varies) cannot be easily backed up with economic logic. Such tariffs would mean that producers who can produce at a low cost would find it less profitable to export their goods to the US, which means that the US would have to spend resources producing at a high cost. Would you rather not buy a shirt or a phone, and instead produce it yourself? That thought experiment illustrates that the tariffs are a stupid idea. 

– There has also been talk of deporting illegal immigrants, but if these individuals can produce more value in the US than elsewhere (which their higher wages in the US indicate they can), then this would be downright value-destroying. 

– Harris’s talk of banning so-called “price gouging” is also extremely unhealthy. If the government says a price must be lowered, the lower price will attract more buyers which in turn means the product runs out faster than it would otherwise. High prices are a signal to all people to be more cautious about how they spend their money and consume important resources, and that signal will be erased if Harris is serious about her proposal. In addition, there is no incentive to produce a scarce product if the production cost exceeds the price control. 

– There has also been talk of financial support for first-time home buyers of 25,000 dollars, but unless there is a marked increase in houses on the market, this type of incentive would only increase prices by 25,000 dollars. In other words, the financial support would end up in the pockets of the sellers and not the buyers. 

– Neither candidate seems to have any desire to do anything about the enormous national debt that has grown through budget deficit after budget deficit throughout this millennium. Interest on that debt is currently a larger federal expense than military spending, and with large future commitments in pensions and health care costs for many citizens, getting the national debt under control is very urgent. So it is sad that neither Trump nor Harris seems to care about this.