Biden's policies would 'land the economy in a better place': Mark Zandi

Mark Zandi, Moody's Analytics Chief Economist, joins Yahoo Finance's Zack Guzman to discuss which Presidential candidate he believes would be better for the economy.

Video Transcript

ZACK GUZMAN: Of course, a lot of the question marks beyond what might happen this week, and into Q4 here in 2020, center around what potential deal might come out of Washington. And hopes have not been high in getting the next stimulus deal there, as Republicans and Democrats remain far apart. We got the update from Morgan Stanley here, updating their GDP forecasts, real GDP to grow at 3.5% at an annualized pace in Q4, down from 9.3% previously. And compatriots over here at Moody's share similar views about how big this next phase of stimulus, if we don't get it, lingers in the balance here. Also saying the baseline scenario there suggests a potential decline in real GDP in Q4, and even Q1 of 2021, if we do not get additional stimulus this year. Joining us now for more on that is Mark Zandi. He is Moody's Analytics' chief economist. And joins us on the phone here. And Mark, appreciate you taking the time to chat. I guess, again, this just kind of really hammers the point home, because we've been waiting for months here since that additional CARES Act money here rolled off in the month of July. But talk to me about how important getting that stimulus is here, as the recovery looks a bit shaky and losing some steam here.

MARK ZANDI: Yeah, it's key. I mean, the economy, it's growing. But it's a very halting growth. Kind of moving sideways. And that's with all the fiscal support that Congress and the administration have provided up to this point in time. But, as you pointed out, all that funding is now expiring. The UI checks, unemployment insurance checks. No more stimulus payments. Paycheck Protection Program has expired. So all that government support is now fading away. And if there's not additional support then I think the odds are pretty high that the economy is going to start to backslide. I mean, some job loss towards the end of the year into next. But, as you pointed out, it could be declines in GDP in Q4 and Q1. So I think it's critical that Congress and the administration get it together. But, you know, as you say, the odds of that look like they're dimming pretty quickly here.

ZACK GUZMAN: And obviously, I mean, it's tough for the average American here to wonder what GDP impacts might mean for them personally. But obviously that stems and ties back to, I guess, the recovery that we've been seeing on the employment and jobs market here too. And we're going to get that update Friday. The big and last jobs number we will get before the election. But talk to me about how that comes into the recovery here as well, and how that next stimulus package would help on that front in regards to where your unemployment forecasts might go.

MARK ZANDI: Yeah. If we don't get that rescue package and the economy starts to backslide that means we'll start to see job loss. Now the number we get on Friday is for the month of September. Really mid-September is when the Bureau of Labor Statistics ran the survey. And that should show a gain of about 700,000 jobs. Now that's down from where we've been over the last several. But still solid job growth. It's slowing. But if we don't get that additional support then my sense is that by the end of the year we'll start to see some more job losses. I mean, just to give you one concrete reason why, you've got a lot of state and local governments that have been holding off making any additional cuts in their payrolls and programs, thinking that the feds, the federal government, would come through with some additional support for them. But now, if they don't get that support, if that aid isn't coming, then they're going to have no choice, given their budget, to cut. And that means we'll start to see job losses in state and local government programs. And of course that will reverberate around the economy. So that's just an example of what's dead ahead if we don't get that additional fiscal support.

ZACK GUZMAN: And that's why, you know, what happens here around the election matters. And potentially, I mean, we've talked about a compromise bill here on the $1.5 trillion mark, around. Where the White House seems comfortable. Where Democrats, obviously, would need to come down to. We'll see what happens there. But, again, hopes not necessarily high that that happens. As you've highlighted, very important in terms of where this recovery goes. But I want to shift into another one of your guys' recent reports highlighting the differing economic plans from both President Trump and his counter here in Joe Biden. You highlight that Biden's plan will actually do more to add to the economy. And I'm sure a lot of our guests want to know your thinking around that. But it sounds like a lot of this is tied back to foreign trade and immigration. But talk to me about which one of these plans, and why you think Biden's plan will do more to bolster the recovery.

MARK ZANDI: Yeah. Now, of course, that's under the assumption that Biden is able to get his policies through Congress. And that depends on the makeup of Congress. And, more specifically, who controls the Senate, Democrats or Republicans. But this is under the working assumption that Biden wins and he has control over Congress. I think his policies would land the economy in a better place. Three key reasons. He has a much more expansive fiscal policy proposal than Trump. And you can see that, more specifically, in infrastructure. He's got a $2.3 trillion infrastructure structure plan. It's kind of traditional infrastructure, along with R&D and clean energy. Trump has an infrastructure plan but it's about $1 trillion. So that just gives you a sense of magnitude. And then, as you mentioned, very different perspectives on trade. President Trump will double down on, in all likelihood, on this trade war and tariffs in a second term. Biden will continue to confront the Chinese, but I think he's been talking about entering into the Trans-Pacific Partnership, which excludes the Chinese until they start to place fair. And then immigration policy. Huge, obvious difference. And that's key for the economy's growth long-run. Not only in terms of people, labor force, skilled and unskilled, but labor productivity. Immigrants tend to be, by definition, risk-takers. Much more willing to start and quicker to start businesses. And that's key to long-term productivity growth. So there are lots of different ways in which I think the Biden proposal lands the economy in a better place. But those are the three key ways.

ZACK GUZMAN: Yeah. And, as you highlight, all that boils down to, when you do the math, according to your numbers, real GDP about 4.5% larger under Biden's plan than Trump's, translating into 7.4 million more jobs under Biden than Trump. So those are big numbers, when you think about it. But also, I guess, our investors watching this might have the question of, look, I mean, Biden wants to raise taxes. He wants to spend more. So, I mean, how does that all fit into this? And I imagine the answer would tie back to the idea of the Federal Reserve holding interest rates lower for longer. And how, if you're going to spend, now would seem the time to do it if that's going to be the case. So maybe explain that a bit more for us.

MARK ZANDI: Yeah, you got that exactly right. I mean, we have an 8.4% unemployment rate. We're a long way from full employment. Inflation is low, well below the Fed's target. Interest rates are zero, effectively zero, and the Federal Reserve has told us point-blank that they're going to keep them there for a long time. Given that information, the policy response to that should be you should have your foot flat on the accelerator. And of course the Federal Reserve is doing that. They're doing everything they can. And, by the way, the Fed Chair, Powell, has been telling lawmakers to put their foot on the accelerator. And that's exactly what Biden is doing. He's saying, look, I'm going to get this economy back to full employment. Get people employed as quickly as I can. And I'm going to do that by ramping up, particularly, infrastructure spending. But spending on education, and health care, and housing, and various other social programs. And I'm going to help pay for that by raising taxes. But that's going to go on big business and high-income households. So that will be a negative on growth, but a relatively modest one. But then I am going to go out and borrow some money to finance all this. And that's exactly what you should do in an economy that, again, has an 8.4% unemployment rate with inflation that's low and well below the Fed's target.

ZACK GUZMAN: Yeah, we'll see how this all plays out. But, according to your numbers, President Trump might have some explaining to do when he hits the debate stage tomorrow night. But appreciate you breaking all that down for us both on the political front and what we should expect from this recovery. Mark Zandi, Moody's Analytics' chief economist. Appreciate you taking the time to chat.

MARK ZANDI: Thanks, Zack.