Biden’s Economic Speech vs. Surge in Small Business Optimism
To grasp the outcome of the recent presidential election, provided a clear explanation through a revealing contrast. President Biden delivered a speech commending his economic policy as a significant and historic triumph. In parallel, the NFIB unveiled its latest monthly survey on small business sentiment, revealing a notable rise in optimism for November. This followed Kamala Harris’s defeat, contributing to the surge.
Biden’s Economic Vision
After decades of trickle-down economics benefiting the wealthy, Mr. Biden addressed the issue at the Brookings Institution. He emphasized a new playbook, aimed at stimulating the economy from the middle out and bottom up. This shift is designed to benefit everyone, not just the wealthy. According to Mr. Biden, the new approach has already shown positive results. The focus is on economic growth that supports all levels of society.
Dissonance Inflation and Unsettled Voters
If this is true, why did his Vice President lose the election? Exit polls showed widespread dissatisfaction with Bidenomics. The short answer is inflation, which Mr. Biden justified as a byproduct of the pandemic and supply-chain issues. He did not mention his administration’s excessive spending or the Federal Reserve’s policies that worsened the inflation.
NFIB Survey A Surprising Upsurge
Another explanation emerges from the NFIB survey, which found the Optimism Index rising by eight points to 101.7 in November, following 34 months below the 50-year average of 98. This marks the highest reading since June 2021. Nine out of ten components in the index improved, with one remaining stable.
Could optimism link to the election results
Could this surge in optimism link to the election results? You decide. The accompanying chart illustrates the NFIB index from January 2019. It spiked after Donald Trump’s 2016 election win and stayed elevated until the pandemic struck. The index briefly rebounded in spring 2021 but then dipped into what could be termed the Bidenomics slump. Now, it has surged again as small business owners express renewed optimism about the future.
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Small Business Owners’ Shift in Sentiment
This optimism is particularly striking among small business owners, as Mr. Biden claims to champion them. Ms. Harris specifically campaigned as a defender of small businesses, promising new subsidies. Yet, small business owners seem more satisfied with Mr. Trump’s second-term victory.
Trump’s Influence Reviving Business Sentiment
To borrow a famous phrase from John Maynard Keynes, Mr. Trump’s win has reignited what he termed the “animal spirits” of business. These spirits have been subdued throughout the Biden presidency due to inflation, waves of regulation, antitrust barriers to mergers, and higher taxes. The Trump victory has lifted the cloud of uncertainty surrounding the steep taxes Mr. Biden proposed and Ms. Harris endorsed.
The Impact of Tax Policy and Regulation
Such taxes would have severely impacted small businesses, many of which are taxed at the individual rate. These businesses have also benefited from the 20% income exclusion introduced by the 2017 tax reform, which expires next year. Small businesses feel the weight of regulation more acutely than larger corporations, as they cannot easily absorb compliance costs.
Uncertainty Ahead for the Economy
This does not predict that the next four years will be a boom. Some of the current optimism may be linked to favorable credit conditions. As the November consumer price index revealed, inflation remains sticky at 2.7% and has risen since September. The Fed may be repeating its mistake with rate cuts, potentially necessitating higher rates next year.
The Road Ahead A Mixed Outlook
Soaring asset prices could face a sharp correction. Mr. Trump’s proposed tariffs, if as extensive as he suggests, could add uncertainty and drive up costs for businesses and consumers. A slim GOP majority in Congress will also need to extend pro-growth policies from the 2017 reform. Nonetheless, there’s no denying that Mr. Trump’s victory has reignited the animal spirits that have been absent from the economy for the past four years.
