Earlier this week, Lloyd Blankfein, the former head of Goldman Sachs, waded into the presidential race. “If Dems go on to nominate Sanders, the Russians will have to reconsider who to work for to best screw up the US,” he wrote on Twitter. “Sanders is just as polarizing as Trump AND he’ll ruin our economy and doesn’t care about our military. If I’m Russian, I go with Sanders this time around.”
Gaining an anti-endorsement from one of the leading experts on economy-ruining must have delighted the Sanders campaign. And it was just the latest nastygram Wall Street has sent to the Democrat leading in the presidential primary. The billionaires Jeff Gundlach and Stanley Druckenmiller have suggested that a Sanders victory would cause the stock market to tank; big money has tossed big money at every candidate who might plausibly defeat Sanders and his progressive fellow traveler, Elizabeth Warren; and bankers have spent months bellowing about the two liberals’ policies, some with smarm, some with true alarm.
A social democrat winning the nomination or the White House would damage the financial markets, hurt business investment, and slow the underlying American economy, or so the argument goes. The only problem is that there is no reason to think that this is actually true.
A President Bernie Sanders would have about as much control over the economy as President Donald Trump: outside of a recession, not nearly as much as one might think, and particularly not in the short term. Political scientists and economists have demonstrated that how well the economy performs under different administrations mostly has to do with the fortuities of market timing. President Barack Obama inherited a catastrophe that had nowhere to go but up; Trump inherited a long boom that has just kept booming. Their policies have mattered but, outside the response to the Great Recession itself, mostly on the margin. The same would be true for Sanders or Warren or Amy Klobuchar or Joe Biden or any of the other candidates. If the economy tanks on Sanders’s watch, what he does will be enormously important. If it does not, his policies would take years to change the shape of American growth. [Continue reading…]