June 2020 Newsletter

Our Heterodox Presidential Administration and Recession

President Joe Biden and his administration have immense power to influence the economy. Therefore, as is the case with all presidential power, if the President’s economic policy (mainstream or not) delivers the goods, a second term may be forthcoming. Choose the wrong economic policy, however, and you are likely to be a one-term president. Moreover, poor economic policy may produce a long-term ripple effect, one that affects generations of Americans for decades.

With that in mind, the Biden administration chose economic theories espoused by a small-town college professor by the name of Stephanie Kelton to run the world’s largest economy. She was an economic advisor to Bernie Sanders from 2016 to 2020. . Professor Kelton of Stoney Brook University argues in her book, “The Deficit Myth.” that governments can spend without limit if the government’s administration has control over their own currency. Professor Kelton calls her theory of limitless spending, Modern Monetary Theory (MMT) after a phrase coined in the early 1990s by an Australian economist by the name of Bill Mitchell. MMT is Mitchell’s theory. It was never explicitly used in Australia. Perhaps this is because Bill Mitchell’s ideas are not taken seriously among established Keynesian economists and because Michell did not attend college. His ideas are self-taught. This leaves Bill Mitchell’s place in history as somewhere between Chance Gardener of the 1979 movie Being There and genius.

In economics, such a theory is called a heterodox theory. The term heterodox is a term used to describe ideas that do not conform with traditionally accepted standards or beliefs. Heterodox theories often challenge the assumptions and conclusions of mainstream economics, and they may offer alternative explanations for economic phenomena. There are many different heterodox theories, and they vary widely in their approach to economics. Some heterodox theories focus on the role of institutions in the economy, while others focus on the role of power and inequality.  Still, others focus on the role of the environment in the economy.

Here are some examples of heterodox economic theories:

  • Institutional economics focuses on the role of institutions in the economy. Institutional economists argue that institutions, such as laws, regulations, and norms, play a significant role in shaping economic outcomes.
  • Post-Keynesian economics builds on the work of John Maynard Keynes. Post-Keynesian economists argue that the economy is inherently unstable and that government intervention is necessary to prevent recessions and depressions.
  • Marxian economics is based on the work of Karl Marx. Marxian economists argue that the economy is divided into two classes, the bourgeoisie (the owners of capital) and the proletariat (the workers). Marxian economists argue that the bourgeoisie exploits the proletariat, and that this exploitation leads to economic inequality and crises.
  • Ecological economics focuses on the relationship between the economy and the environment. Ecological economists argue that the economy is part of the natural world and that it cannot be separated from the environment. Ecological economists argue that economic growth is not sustainable and that it is necessary to change the way we produce and consume goods and services.

Allow me to interject regarding the current tug of war between those in favor of raising the congressional debt limit and those that want to end the craziness, that is, limitless borrowing, that neither side wants the US to default on its debt payments. Nor does any other nation in the world. The US economy is a complex and dynamic system that is a major driver of global economic growth, source of jobs and investment for other countries.  It is important to understand the factors that contribute to its size and growth. National debt discipline is important. A high national debt can have several negative consequences including reduced economic growth and a decline in the value of the currency.

The United States has relied upon mainstream economic policies to grow for most of its history. Mainstream economic policies are based on the principles of free markets and limited government intervention. These policies have been successful in helping the United States to become the world’s largest economy. In contrast, nations that have given up on mainstream economic policies include Venezuela, Argentina, Greece and Zimbabwe and North Korea. The consequences of giving up on mainstream economic policies can vary depending on the specific circumstances of each country. However, some of the most common consequences include economic crisis, political instability, and social unrest.

Heterodox theories have been criticized by mainstream economists for being too theoretical and not based on empirical evidence. The popularity of heterodox theories has increased in recent years because they offer alternative perspectives that can help us to understand the economy in a more complete way, while mainstream economics has been criticized for its failure to predict the 2008 financial crisis. Heterodox economists argue that their theories are more realistic and that they offer a more complete understanding of the economy which may help to prevent future crises by helping us to develop policies that are more effective in addressing economic problems.

It is difficult to say whether support for MMT is declining. There is still a significant amount of debate about the theory, and it is possible that it will become more mainstream in the future. However, it is also possible that MMT will continue to be criticized and that it will not be widely adopted by governments.

So, with all of this in mind, is current economic policy working?  A May 24th Conference Board survey shows that sixty-four percent of responding economists foresee a recession in the United States within the next 12 months. It is important to note that not all negative surveys lead to recessions and that not all recessions lead to the defeat of an incumbent President. For example, Ronald Reagan was re-elected in 1984, even though the economy was in a recession at the time. Nevertheless, the following five presidential reelection bids illustrate the difficulty of being reelected during a recession.

There have been five US. presidents who lost their reelection bids due to recessions:

  • Herbert Hoover (1932): Hoover was elected president in 1928, just as the Great Depression was beginning. The Depression caused widespread unemployment and poverty, and Hoover was blamed for not doing enough to help the American people. He lost his reelection bid to Franklin D. Roosevelt in 1932.
  • Jimmy Carter (1980): Carter was elected President in 1976, but his presidency was marked by a number of economic problems, including high inflation and interest rates. The economy worsened in 1979, and Carter was defeated by Ronald Reagan in 1980.
  • George H.W. Bush (1992): Bush was elected President in 1988, but the economy began to slow down in 1990. The recession that followed was relatively mild, but it was enough to hurt Bush’s reelection chances. He lost his reelection bid to Bill Clinton in 1992.
  • George W. Bush (2008): Bush was elected President in 2000, and he oversaw the longest economic expansion in American history. However, the economy began to slow down in 2007, and the Great Recession began in 2008. Bush was not up for reelection in 2008, but his approval ratings were low due to the recession.
  • Donald Trump (2020): Trump was elected President in 2016, and he oversaw a strong economy for much of his first term. However, the COVID-19 pandemic caused a recession in 2020, and Trump’s approval ratings were low due to his handling of the pandemic. He lost his reelection bid to Joe Biden in 2020.

It is worth noting that strategic actions taken by the Biden administration may be able to fend off an oncoming recession or at least until after an election.  That’s not to say strategic actions taken now can offset social unrest, war, inflation, the fed’s actions to increase unemployment, a tight money supply, the banking crisis, a declining currency, residential supply limits, and a pending commercial real estate crisis. Each issue can play a role influencing the economy and voter turnout. Although other issues may be important to voters, a recession is likely to have the biggest impact on voter turnout.

A recession is a period of economic decline, characterized by fear and a decrease in GDP, increased poverty, increased social isolation, increased unemployment, increased crime, more financial struggling, increased foreclosures and increased inequality between rich and poor. A recession can last for months or years. The fear of a recession causes millions of people to save more, spend less, pay down debt, and delay major purchases, each of which can cause the effects of a recession to mount. In the end, the only thing that stops a recession is increased consumer confidence, an improving global economy or new technologies which return the economy to its pre-recession state. Perhaps AI- Artificial Intelligence applications can improve job productivity , create new jobs, and boost the economy. Perhaps biotechnology will lead.

Considering the growing uncertainty in the economy, it is prudent to balance risk and appreciate defensive tactics. Some of the changes we are making or have made to restructure the asset allocation portfolios prior to a recession include rebalancing portfolio positions, remaining focused on defensive measures, using international stocks which have a lower correlation to domestic volatility and remaining invested as It is important to stay invested during a recession. For If you sell your investments when the market declines, you will lock in your losses. It is better to ride out the storm and wait for the market to recover. For historically when the recovery comes after a recession the upside is substantial in the first twelve months and that is just the beginning as economic growth can last five years or more

Wow. That was a lot. I write these newsletters. Thank you for reading. Through economic and political change, it is important to remember that no one can predict the future, and there is no guarantee that a recession will occur. Your trust in what we do daily to mitigate the downside and maximize the upside is much appreciated as are your referrals to people like you. Not everyone has access to a seasoned and credentialed wealth management team. We have come to limit the time we spend on new client relationships. We are accepting new business. However, referrals from you are our strategy of growth as we have learned that trust, like discipline, is a two-way street. The discipline of long-term expectation is a concept developed by economist John Maynard Keynes. It refers to the idea that investors should focus on the long-term prospects of a company or asset, rather than the short-term fluctuations in its price. The discipline we employ for you involves better risk management, more accurate market analysis, more discipline, more patience, and more confidence. Oh, and we listen, answer emails and the phone.



Vaughn L. Woods, CFP, MBA

Vaughn Woods Financial Group, Inc.

2226 Avenida De La Playa

La Jolla, CA 92037




Investors should be aware that there are risks inherent in all investments such as fluctuations in investment principal.  Past performance is not a guarantee of future results.  Asset allocation cannot assure a profit nor protect against loss.  Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed.  Views expressed in this newsletter are those of Vaughn Woods and Vaughn Woods Financial Group and may not reflect the views of Bolton Global Capital or Bolton Global Asset Management.  The information provided is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice.  VW1/VWA0288.



Debt: The First 5,000 Years” by David Graeber (2014)

The Deficit Myth: Modern Monetary Theory and the Birth of the Fair Tax” by Stephanie Kelton (2020)

The Case for Modern Monetary Theory” by Warren Mosler (2018)

North, Douglass C. Institutions, Institutional Change and Economic Performance. Cambridge University Press, 1990.

Davidson, Paul. “A Post Keynesian Perspective on the Macroeconomy.” Oxford Review of Economic Policy, vol. 26, no. 4, 2010, pp. 541-559. Oxford University Press, doi:10.1093/oxrep/gkq020.

Harcourt, Geoffrey Colin, and Philip Arestis, eds. A Handbook of Post-Keynesian Economics. Edward Elgar Publishing, 2007.

Harvey, David. A Brief History of Neoliberalism. Oxford University Press, USA, 2005.

Marx, Karl. Capital: A Critique of Political Economy. Vol. 1. Translated by Ben Fowkes, Penguin Books, 1990.

Odum, Howard T. Ecological and General Systems: An Introduction to Systems Ecology. University Press of Colorado, 1994.

Schneider, Stephen H., and Penelope J. Boston, eds. The Systems View of Life: A Unifying Vision. Columbia University Press, 2011.

“Recessions and Presidential Elections” by John Sides, Michael Tesler, and Lynn Vavreck (2018)

“Trump’s Handling of the COVID-19 Pandemic Cost Him the Election” by The New York Times (November 8, 2020)

Kosinski, Jerzy, and Robert C. Jones. Being There. New York: Simon & Schuster, 1979. Print.