As you probably noticed, there haven’t been any posts in two entire weeks. Between exams, technical difficulties, and the complete lack of motivation triggered by the onset of summer break, I haven’t gotten around to writing. Anyway, thanks for your patience! Today, I want to discuss Trump and the economy. I have on many occasions ripped his foreign policy as stupid and naive, but I’ve come to realize that his economic policy might actually be worse. This is particularly scary because Trump’s major claim to fame is that he is a successful businessman who attended Wharton. While it might be possible to excuse his foreign policy ignorance – after all, he didn’t go to a top IR school like Georgetown, Tufts, or George Washington – there is no excuse for his stunning ignorance of macroeconomic systems and financial markets.
I know many people might be skeptical. After all, many believe that Trump is a self-made man. A titan of the real estate industry. An unparalleled economic genius. While it is true that Trump is a rich man, an economic genius he is not. People who believe that he is are mostly just low-information reality TV show cultists who are too naive or ignorant to actually look up his record. First, as was pointed out months ago, Trump would have made far more money if he had simply invested the “small loan” from his father into index funds that track the market. He is certainly very rich, but he could have been a lot richer if he knew what he was doing. Moreover, as Dan Drezner pointed out a while ago, Trump is a complete ignoramus when it comes to predicting housing market bubbles. This is surprising considering that his alleged area of expertise is real estate. Indeed, Trump failed to predict that Japanese housing crisis in the early 1990s, and his alarmist comments about China overtaking the U.S. seem to indicate that he is completely unaware of China’s enormous housing bubble, failing currency, and ballooning debt. How can a titan of real-estate be so ill-informed about real estate markets!? It truly boggles the mind.
Of course, knowing real estate markets is important, but one can be a successful president without being an expert on housing. Trump’s dedicated acolytes might argue that his utter incompetence regarding housing markets is not a reason to dismiss him. And, to be fair, they are probably right. This, however, brings me to my second major concern with Trump: He knows absolutely nothing about how financial markets work! A few weeks ago, Trump announced that he would consider defaulting on the U.S. debt. This idea is stupidity on a galactic level. Not only would it jack up interest rates on U.S. T-bonds, but it would jack up interest rates universally because U.S. debt is considered the safest investment in the world. If the safest investment suddenly defaults, every other investment immediately becomes significantly riskier. Moreover, there is absolutely no need to default on the debt because the U.S. can always print more money to decrease the value of the dollar (and thus the value of the debt) and pay off the debt. Of course, this can lead to inflation, but in moderation it is a powerful tool that grants the U.S. flexibility. Never fear, though! Trump, realizing his mistake, reversed course. A few days after announcing he would default on the debt, he declared that he would instead print around 20 trillion dollars to pay off the debt. This, by the way, is an equally insane proposal because it would push the U.S. towards severe inflation, destroying the value of people’s savings and pensions and causing the price of goods and services to skyrocket. Indeed, this proposal smacks of Modern Monetary Policy, a far-left economic policy that even most progressive economists think is absolutely nuts. It’s as if Trump read that the U.S. could actually print more money to ameliorate debt problems and took this logic to its absolute extreme, creating an even more ridiculous solution than his original default proposal.
Not only does Trump display a frightening lack of knowledge about financial market, but he also apparently understands very little about trade. As many of you know, Trump has proposed a 35% tariff on Chinese imports. Not only would this violate WTO rules, potentially collapsing global trade, but it would almost certainly create a trade war with China. China would retaliate with tariffs of its own, and all the American manufacturing companies that rely on exports to China would suffer immensely as access to their primary market is closed off. Indeed, the very people who think Trump will restore their jobs and earnings would the be the ones to suffer as U.S. manufacturers get shut out of one of the biggest markets on the planet. Asked yesterday about this, Trump’s response was “who the hell cares?” Uhhh… the millions of Americans whose livelihood will be imperiled, Mr. Trump. That is who cares. Again, the low-information Trump supporters are being conned into believing that Trump is in this to help them. He is not. He is in this for himself, and the policies he proposes will only make the working class suffer more than they already do. Trade wars turned the 1929 stock market collapse into the Great Depression, and they create major market inefficiencies. Anyone with a basic knowledge of history or economic theory would understand this. Sadly, the proud know-nothing Trump has no understanding of either history or economics.
To be clear, I’m not actually worried that Trump would do these things if he became president. There are, in fact, smart people at the Fed and Treasury who understand that Trump’s knowledge of economics is no better than that of his mindless followers, and these professional bureaucrats would almost certainly use their powers to reign The Donald in. What is more concerning, however, is that Trump speaks without thinking, and says incredibly stupid things. Indeed, he prides himself on this. He wants to be more “unpredictable.” Unpredictability is a stupid approach to foreign policy, and it is an even stupider approach to economic policy. After all, anyone with even a passing knowledge of the stock market knows how much the markets hate unpredictability. A president recklessly swinging from one bizarre proposal to the next would certainly not inspire confidence in the market. Instead, it would trigger an investor panic, and market volatility would increase dramatically. Saying stupid, untenable things may get the idiot caucus to support you, but it will not create prosperity or growth for the U.S. economy.