[US Presidential Election Urgent Interview] 'Nobel Scholar' Phelps "Biden-Senate Republicans Increase Corporate Uncertainty"

Nobel Economics Laureate Edmund Phelps, Columbia University Distinguished Professor
"Additional Economic Stimulus Needed... Concerns Over Government Debt Expansion"

[Asia Economy Reporter Jeong Hyunjin] "It will add uncertainty to businesses and lower growth rates."

As the 46th U.S. presidential election heads into unprecedented chaos, Edmund Phelps, Nobel laureate and Columbia University professor of political economy, warned that the economy could suffer significant damage. Although the likelihood of Democratic candidate Joe Biden winning has increased, the Republican Party is expected to maintain its majority in the Senate. Considering unemployment caused by the COVID-19 pandemic, he said additional stimulus measures are inevitable but expressed concern that large-scale fiscal policies could negatively impact the economy in the future.

In a written interview with Asia Economy on November 4 (local time), the day after the U.S. election, Professor Phelps diagnosed, "(At present) it appears that the Democrats will control the executive branch, while the Republicans will hold the legislature." He added, "This will add uncertainty to businesses, delay new projects, and lower growth rates," and predicted, "A razor-thin election result could lead to greater dissatisfaction with our political system."

Professor Phelps was among 12 Nobel laureates in economics, including Joseph Stiglitz of Columbia University, who signed a statement supporting Biden ahead of the U.S. election in September. In a Project Syndicate article at the time, he argued that although President Donald Trump lowered corporate taxes, he significantly expanded the fiscal deficit over three years and habitually threatened businesses, creating new uncertainties when making investment or trade decisions. He criticized Trump for shrinking global trade under the pretext of reducing trade deficits, which brought distrust and anxiety throughout society.

His concern about increased uncertainty for businesses seems to reflect the anticipated conflicts in passing additional stimulus measures. The large-scale stimulus package proposed by Biden and the Democrats could be blocked in the Republican-controlled Senate due to the election outcome, and other economic policies might also be buried amid political conflicts.

In the ongoing recession caused by the COVID-19 pandemic, Professor Phelps said, "Additional stimulus is inevitable to help workers who lost their jobs due to the pandemic overcome difficulties." Although the U.S. economy showed signs of recovery with a record 33.1% growth rate in the third quarter compared to the previous quarter, the unemployment rate in October remained high at 7.7%, and the recent resurgence of COVID-19 makes further economic damage unavoidable. Considering this, he mentioned the need for fiscal policies to support employment recovery. He explained, "As a result of large-scale government fiscal policies, demand will revive and employment will recover."

However, he expressed concerns about the expansion of government debt due to large-scale fiscal policies. Professor Phelps predicted, "The increase in government debt will work to gradually reduce savings and labor supply," and "Through this process, investment will decrease and wage growth will slow." He added, "Moreover, the already extremely low levels of innovation, caused by declines in savings and investment, are expected to slow down further," and said, "In my view, this will have serious consequences for the global economy." In his keynote speech at the World Economy Institute-Hana Bank International Conference held in Korea last June, he also pointed out, "An increase in public debt causes significant problems for capital and wealth, and the government inevitably becomes passive in responding to other issues."

Professor Phelps said that if Biden is elected, "I expect the U.S. to enter a phase of restoring international relations and reviving international trade to a high level." However, he viewed Biden’s proposed corporate tax increase as having a negative impact on savings and investment.

He emphasized the importance of the roles of political and social leaders to restore the dynamism of economic growth. He said, "People need to be encouraged to have decisiveness and courage to move forward, to dream of new ideas, and to seek and challenge new opportunities."

Edmund S. Phelps

- Born 1933 in Chicago, USA - Amherst College, Department of Economics - Yale University, MA and PhD in Economics - Columbia University, Professor and Director of the Center on Capitalism and Society - Nobel Prize in Economics, 2006 - Author of 'Mass Flourishing' and 'Dynamism'

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