Election Insights: Analyzing Biden’s Exit From the Race

Under pressure from top Democrats, President Joe Biden announced on July 21 that he wouldn’t seek a second term. A political crisis engulfed Biden, 81, after a poor performance in a televised debate against Republican nominee Donald Trump in June. Biden’s polling sagged after the debate leading many to believe Trump might glide to victory in November’s election.

But Biden’s decision to step out of the race has shaken up the contest. Here’s what we know right now.

Is there any precedent for Biden’s decision?

• Biden’s decision to withdraw from consideration for the Democratic nomination for president puts the nation into uncharted territory. The current nominating process traces its roots to 1972. The closest comparison to today’s situation is Lyndon Johnson's decision not to seek reelection in 1968. Amid the Vietnam War and Johnson’s approval rating at 36%, roughly the same as Biden’s today, Johnson’s announcement set off a political scramble for his replacement.

• A key difference is that Johnson announced his withdrawal in March 1968, giving Democrats more time to find a replacement than today’s party. Ultimately, they nominated Hubert Humphrey. While Richard Nixon won the Electoral College vote by a large margin (301-191, with American Independent Party candidate George Wallace picking up 45 votes), the popular vote margin between Nixon and Humphrey was less than 1%.

What happens next?

• The Democratic nominee must secure more than 50% — a simple majority — of the delegates' votes to the National Democratic Committee (DNC), according to Greg Vonnahme, Ph.D., chair of the University of Missouri-Kansas City Department of Political Science.

• Biden, as the only serious candidate during Democratic primaries earlier this year, earned pledged delegates bound to vote for him at the DNC. Now that Biden has dropped out, these pledged delegates are free to vote for whomever they like, although delegates typically follow candidate endorsements, Vonnahme said.

• After California Gov. Gavin Newsom, Michigan Gov. Gretchen Whitmer, Pennsylvania Gov. Josh Shapiro and Illinois Gov. J.B. Pritzker — all seen as potential Democratic nominees — endorsed Harris within 24 hours of Biden’s dropping out, it appears that no serious challenger will pose a threat to Harris. Buoyed by key endorsements from other Democratic leaders like former President Bill Clinton, Harris has already secured enough commitments from delegates to put her on a glide path to the nomination.

• Not wanting to risk a potential legal battle in Ohio, the DNC will hold a virtual roll call vote by August 7 to select the nominee.¹ Ohio law originally deemed this date the ballot deadline until it was recently extended to September 1.

What impact does Biden’s exit have on the race?

• Harris doesn’t have Biden's record or profile. Vonnahme said Harris is less prone to the gaffes that afflicted Biden’s reelection effort. Harris, 59, is also younger than Biden. Polls indicated that roughly three-fourths of registered voters believed Biden was too old to serve another four years.

• Harris will likely pick a running mate before the August 19 start date of the Democratic National Convention.

If Harris is the Democratic nominee, would her economic policies differ from Biden’s?

• It’s too soon to be certain, but Vonnahme doesn’t think it’s likely that Harris’s economic policy priorities would be significantly different than Biden’s.

• We believe Harris would support Biden’s proposals to raise the corporate tax rate and increase taxes on the highest-earning individuals. Trump’s priorities include permanently extending the 2017 tax cuts.

• If Harris follows Biden’s lead on trade, the Democrats’ trade policy will maintain a protectionist tilt. Biden didn’t reverse Trump’s tariffs on Chinese products and imposed some of his own. Trump, meanwhile, has proposed new tariffs on China and other U.S. trading partners.

• We also wouldn’t expect Harris’s view on regulation to vary significantly from Biden’s. In contrast, Trump has a deregulatory agenda, including a proposal to categorize more civil workers as political appointees.

How does Biden’s withdrawal influence the markets and investing decisions?

• As we’ve said before, while the election's outcome is often about the economy, the economy (and markets) are rarely about the election.

• Investing based on elections is like a “parlay” bet on the markets, in sports betting lingo. It’s essentially three separate bets, all of which you must call correctly:

  • You must pick the winner.

  • This winning candidate must be able to enact all the policies you expect them to enact (which depends as much on Congress as who’s in the White House).

  • All this can’t already be discounted in asset prices, meaning you possess greater insight than the market.