Train wreck

Bottom Line

The earliest debate in the history of presidential elections is now in the books, and it did not go well for President Biden. Frankly, there’s no way to sugar coat his abysmal performance last night. It may propel Democrats to hit the panic button to find a replacement candidate ahead of the party’s convention in Chicago August 19-22. The second debate scheduled for September 10 may be canceled.

Presidential pendulum swings right An incumbent president losing his first debate is not unusual, as they drop an average of 2.4% in the polls after this first debate loss. But last night, debate host CNN reported that 67% of viewers rated former President Trump as the winner. As a result, PredictIt has downgraded the probability of Biden being the Democratic nominee from 86% to 61%, and increased the odds of his resignation from 12% to 20%. On the other hand, the odds of Trump being the Republican nominee are essentially unchanged at 93%, while the probability of Trump winning the election on November 5 has increased from 55% to 59%, with Biden falling from 48% to 43%. 

Be careful what you wish for... But this was no ordinary first presidential debate, as Biden’s camp insisted that the debate be pulled forward to last night from mid-September to boost his flagging polls. In an attempt to establish favorable debate terms, they selected a friendly network with Democratic moderators (Jake Tapper and Dana Bash) held in a  studio with no live audience with microphones the hosts could mute if the candidate wasn’t speaking. 

Poking the bear Trump appeared to look and sound more presidential than we had expected, generally staying on message and refusing to take the bait and go rogue when provoked by Biden. We were anticipating at least one “A Few Good Men” moments, the 1992 movie in which Tom Cruise goads Jack Nicholson into exploding on the witness stand, but Trump exercised surprising self-control. While the expectations bar for Biden had been set exceedingly low, he somehow managed to limbo beneath it with a stumbling performance. 

Macro matters Three flubs on the economy and policy stood out for us. First, Biden said that the U.S. economy was in free fall when he took office in January 2021. But the National Bureau of Economic Research (NBER) had declared the COVID recession over in April 2020, with GDP growth soaring by 34.8% and 4.2% in the third and fourth quarters of 2020, respectively, on a quarter-over-quarter annualized basis. 

Second, Biden said that the unemployment rate was at 15% when he became president. But it had peaked at 14.8% in April 2020 and plunged to 6.4% by January 2021, on its way to a 53-year low of 3.4% in January 2023. It has since risen to 4.0% over the past 16 months. 

Third, Biden said that he inherited 9% inflation when he took office, and his efforts drove inflation down to 3% today. But nominal CPI inflation was at 1.4% in January 2021, half the previous 40-year average of 2.8%. Over the next 17 months, however, inflation spiked to a 41-year high of 9.1% in June 2022, due, in part, to excessive and unnecessary fiscal stimulus, according to a Federal Reserve whitepaper published at its annual monetary policy symposium in August 2022. Inflation has since retreated to 3.3% in May 2024, as the Fed hiked interest rates up to a 20-year high at 5.5% and shrunk its balance sheet from $9 trillion to nearly $7 trillion. 

Choice versus referendum? Biden was hoping to use the early debate as a high risk/high reward strategy to shift the narrative from a referendum on the efficacy of his presidency to a choice between him and Trump. But Trump kept Biden on his heels, focusing the debate on economic growth, inflation, energy policy, the federal debt and deficit, and border security, immigration and crime. Biden tried to swing the debate back to Trump’s weak points, such as his status as a convicted felon, the January 6 insurrection, abortion and tax cuts.

Plan B? To be sure, Biden has no interest in dropping out of his re-election bid at this point in the race. But if his health and poll numbers worsen, he may choose to deliver an Lyndon B. Johnson-esque speech at the convention. The donkey in the room is the Democratic party’s contingency plan if that occurs. They also must be concerned about the potential down-ballot impact of switching candidates this late in the game, with the Senate and the House of Representatives very much in play. 

The obvious choice is Vice President Kamala Harris, but her popularity and poll numbers are even worse than Biden’s. To compound matters, in a post-debate interview she said Biden just got off to a slow start. That’s like saying the Titanic just took on a little water after it hit that iceberg. 

Panic button If Democrats decide to move in another direction at the convention, speculation is rampant that they have several prominent sitting governors from which to choose: Gavin Newsome (Calif.), Gretchen Whitmer (Mich.), J.B. Pritzker (Ill.), Phil Murphy (N.J.) and Josh Shapiro (Pa.). Additionally, retired Rhode Island governor Gina Raimondo is Biden’s Commerce Secretary and is very accomplished. One potential final wild card is former first lady Michelle Obama, whose “Favorite Daughter” candidacy might generate a tremendous amount of delegate excitement with the convention in her hometown of Chicago.

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