The rising and falling of the stock market is, almost always, a lousy way to gauge the health of an economy over all. Still, the President has used the rise of the stock market as primary confirmation that his vision for the U.S. economy is working. So this week—with the Dow Jones Industrial Average losing five per cent of its value in two days, though regaining a bit before the weekend—it’s hard not to ask, Is Trumponomics failing?
This is a good week to check in on Trump’s economic view of the world. He shocked the financial world—if anyone can still be shocked—by attacking the Federal Reserve. “The Fed is going wild. They’re raising rates and it’s ridiculous.” He added, “the fed is going loco.” Trump’s problem is that the Fed is raising its key interest rate, because unemployment is low and it fears an overheated economy and rising inflation. It is doing so about as slowly and carefully as possible, in accordance with the best practices of a central bank. Still, for Trump, a self-described “low-interest-rate person,” any increase at all threatens to slow economic growth just as he is hoping to win seats in the midterms. (The move could also affect his chances for reëlection in two years; Federal Reserve moves are thought to take around eighteen months or so to have an impact on the over-all economy.)
His comments came as confirmation of warnings that the International Monetary Fund issued last weekend. The I.M.F.’s World Economic Outlook provides the benchmark forecast for the global economy. It is a bureaucratic document, using careful, bloodless words to convey even the most hysterical of warnings. But readers familiar with the language of international finance can’t help but see the fear and contempt in the most recent reports. The executive summary warns, “The trade measures implemented since April will weigh on activity in 2019 and beyond; US fiscal policy will subtract momentum starting in 2020.” In regular English, this means: Trump has unilaterally launched a series of trade wars that will damage the global economy next year. Also, the tax cuts that were sold as growth-inspiring will so dramatically increase the U.S. government’s deficit that its economy will begin to slow.
It can be tempting to mock President Trump because his craven rhetoric makes him sound ignorant of basic economic principles. To be fair to him, all Presidents pursue policies that international-finance experts see as contrary to long-term growth. All Presidents boast when the economy is doing well and blame others when it fails. And all Presidents get angry at the Fed when it raises rates. They just don’t speak publicly about it and try so nakedly to manipulate the process. (President Richard Nixon pressured his Fed Chair, Arthur Burns, into keeping rates low in order to artificially boost economic growth before the 1972 election. Nixon, though, implicitly recognized the importance of Fed independence by keeping his intervention secret.)
Trump, though, stands alone among post-Second World War Presidents in describing himself not just as a steward of the economy but as a visionary tactician, a person who has unique ideas about how best to promote economic growth. And his ideas are radically different from those of recent Presidents of both parties. This is a good week in which to explore what those ideas look like in practice and to begin to describe a unified Trumpian theory of the economy.
To understand just how radical a departure Trump’s views are, it’s helpful to remember that Presidential economic thinking for the past seventy or so years has existed in a remarkably narrow band. From the late nineteen-thirties until 1980, all Presidents were, essentially, Keynesian. To absurdly oversimplify complex policies that played out over decades, this means they all believed that most decisions about how money is spent and invested should be made by the private sector, by people and companies, and that the government’s primary role was to provide clear, thoughtful rules and apply them fairly. Keynesians, such as John F. Kennedy, typically believe in government intervention as a break-this-glass-in-case-of-emergency exception. When an economy is temporarily underperforming, the government can step in, spend money, and jolt the free market back up to a healthier level. In 1981, President Ronald Reagan famously dismissed Keynesians and embraced what is known as the Chicago School of almost religious devotion to the free market, shunning interventions. Since then, Presidents have seesawed between Keynes and Chicago. Partisans seek to heighten the distinction between these economic schools, which do have major differences in policy advice and methodology. But, in contrast to Trumponomics, they appear as near twins.
Trumponomics is something else entirely. For Trump, an economy, apparently, is best run when some person with power and good sense continuously weighs in on key economic questions. It could be called an anti-theory theory. For Trump, theoretical models—no matter how well grounded in data and experience—are binding constraints that limit the President’s ability to respond however he thinks appropriate and, worse, they telegraph which policies the President will likely pursue. This is an essential difference. For past Presidents, stability and predictability were crucial. These qualities allow companies to make long-term investments, feeling confident they will pay off decades later. Stability also encourages other countries to orient their economies around the United States, knowing that its economic policies are unlikely to change dramatically, no matter who is in power.
In many ways, Trump’s views on economics are off base. Decades of research show that economies run best when there are clear and neutral rules, fairly applied. But understanding Trump’s view is important to having a sense of what our next two to six years might look like.
Some Republican leaders, I imagine, comfort themselves by picturing Trump’s erraticism as a bit of showmanship that masks an embrace of standard Republican orthodoxy. He yells at China or Canada, he insults the Fed, he doesn’t understand how our economy functions. But that’s noise. They believe that, at base, Trump is a Mitt Romney Republican: he wants low taxes and less regulation and thinks that the only way for poor and middle-class people to thrive is to ensure that the rich do so first.
This is, clearly now, a misreading. The chaos is not the aberration. It is the point. It is Trumponomics.
Consider something else we learned this week. ProPublica reported that last year Trump asked Japan’s Prime Minister Shinzō Abe to help out his donor, Sheldon Adelson, in his bid to enter the new Japanese casino market. On one hand, political leaders have always carried water for their rich donors. This is the swamp. But, with Trump, it is something more (or, possibly, something less). It is a model of governance and economics based, it seems, on impulse. Trump puts pressure on one of our closest allies so that a crony can make some money; Trump strong-arms Carrier so that a few hundred people can stay employed for a few weeks longer; Trump decides which industries and which countries should thrive and which should fail. The salient point is not consistency or theoretical rigor. It is that the world economy is governed by Trump’s whims. Trumponomics is not a steady state. It is, by its nature, constant turmoil.
This is, of course, deeply self-serving. Trump gets to enrich his cronies and, one supposes, himself. He gets to distract the media and the public when there is unfavorable news about him. But I believe it is not right to assume that Trump—in his own experience—is solely cynical. His mentality, apparently, allows him to pay little heed to the forces leading him to prefer one action over another. Is he pitching Adelson and attacking the Fed because he wants to help himself or because it’s good for America? Who cares? They’re the same. If he wants to do it, it’s good for America, then it’s good for Trump, and vice versa.
Trump is no longer a mystery. He is among the most transparent of public figures. The mystery is that it all works. The stock market, even with this week’s drop, has been at record highs. Unemployment is at record lows. Consumer and business confidence is robust. How can this be? According to basic economic theory, businesspeople should look at this chaos and realize it is unsustainable.
G.O.P. politicians and some sympathetic economists argue that the tax cuts and deregulation are spurring business. But there is one idea that Keynesians and Chicago School thinkers have long agreed upon: It is always possible to give an economy a sugar rush, a short-term boost, by flushing huge amounts of government money through the system. One can do this through tax cuts or government spending. Or, in a sense, by weakening regulation. (When the government removes consumer protections, it makes it cheaper for banks to do business and operates like a tax cut or a subsidy.) This creates a promise of near-term profits for companies, which leads to higher stock prices, which can lead to business expansion and new hiring. The newly employed buy more things, increasing the rate of expansion. It can be exciting and self-reinforcing.
An important lesson of the financial crisis of ten years ago is that markets are very bad at figuring out how to respond to warning signs. Many people on Wall Street knew that the housing market might be a bubble, that there was something of a frenzy. But they didn’t know when it would all fall apart, so they just traded as if everything would keep going up. Many on Wall Street today know that the likelihood of the President making a series of decisions—from launching a trade war to influencing fed policy—that sends our economy downward is unusually high. But, on any given day, the businessperson looks at the numbers that provide clarity (unemployment, wages, G.D.P. growth, the stock market) and sees no reason for today to be the day for despair. Yes, of course, they are all looking, anxiously, at the President, always unsure of what he will do next but knowing something, someday, might be cataclysmic. But before then, perhaps, he’ll do something else, something that helps their business and makes them richer. They don’t know, because there is nothing to base their forecast on other than Trump’s own gut. And that is precisely how he wants it.
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