A Biden Presidency May Be Just What Markets Need

Joe Biden's growing lead in the presidential polls combined with recent stock-market turbulence has some Wall Street observers wondering if markets are getting nervous about the odds of Democratic victories in November. This anxiety among investors may very well be misplaced, reflecting old and off-base stereotypes of what the two political parties are trying to accomplish. Just as investors were overly optimistic about the economic benefits of tax cuts and deregulations in President Donald Trump's agenda, they're too quick to dismiss a Biden platform as simply focused on tax increases and new regulations.

Here's what they're missing: Biden and the Democratic Party probably will concentrate on returning the labor market to full employment with increased spending and worker-focused tax policies. That should be decidedly good news for the economy and markets.

Thinking about what candidate would be best for growth starts with identifying the biggest problem facing the U.S. economy. Ever since the financial crisis -- and especially with the onset of the coronavirus pandemic -- the economy has been held back by a lack of aggregate demand. That's led to a host of negative effects. Among these are:

-- rising inequality amid labor-market slack that kept wage growth in check.

-- low inflation, which caused the Federal Reserve to consistently undershoot its inflation target, holding back growth.

-- weak business investment, as companies decided that there's not enough growth to warrant investment in new plants or facilities to boost production.

-- low interest rates, which hamper bank profitability and lead them to focus more on cost cuts and returning capital to shareholders than increasing lending.

-- and subpar productivity growth and labor force participation.