Macro Weekly – Trump revisited

by: Han de Jong

  • Financial markets disagree completely with all my friends what the Trump presidency will bring
  • There is a big difference between European populists and Donald Trump
  • Trump is perhaps Machiavellian, more so than crazy
  • A lot of the campaign rhetoric may not make it onto the policy agenda
  • The economic agenda will dominate and will be strongly pro business
Macro-Weekly-11-November-2016-1.pdf (135 KB)

Almost all of my friends think that Donald Trump is crazy. In fact, most of the people I know think he is crazy. In addition, my American friends all think that Trump winning the presidency is a catastrophe. Emotions are running high.

Who am I to suggest so many highly intelligent people are wrong? Indeed, presidential candidate Trump has said quite some disturbingly weird stuff during the campaign. Equally disturbing are the enthusiastic congratulations he quickly received from many populist politicians around the world. But the short-term reaction in financial markets suggests that market participants see things somewhat differently from all the people I know.

It seems to me a little premature for a final verdict on the Trump presidency, but perhaps it is worthwhile thinking about what has happened and what might happen next, or to put it differently, to think about who is right, all the people I know or the financial markets.

Is Trump the Mother of all Populists?

The way Trump has won the presidency must certainly be labelled populist, depending, of course, on one’s definition. It is very important, however, to stress the one, big and crucial difference between, say, the populists in Europe and Trump. What strikes me about the likes of Marine Le Pen, Nigel Farage and Geert Wilders is that these people are essentially career politicians, although Farage worked in the City of London for years, but never in a very senior role, and Le Pen worked as a lawyer. I may have missed it in the fact checking I did, but as far as I can see, these populists have never been in a position to bear responsibility for hugely important decisions. Whatever one thinks of Trump, he is different. He is used to taking decisions with big consequences. His business is big enough that he must also be used to delegating and taking advice from experts, even if that didn’t really show during the campaign. In addition, he must know what it feels like if one takes a wrong decision.

What I mean to say is that European populists say disturbing stuff because they believe in it, while I think it is conceivable that Trump does not really believe himself in all the weird stuff he said? Let me explain myself.

If you are able to build the business that he built, you must be lucky, but you must also be very pragmatic, if not opportunistic, or better even, Machiavellian. What light does this shed on his election campaign? A possible explanation is that Trump realised he was not a politician and that he did not stand a chance in the campaign if he tried to be like the career politicians. He had to stand out. And so he did. He also realised that there is growing resentment against the political establishment. So he tried to mobilise it. And very successfully. My guess is, therefore, that Donald Trump is extremely Machiavellian and that he may have said all this weird stuff to get elected without actually believing it himself. This could be the biggest difference between European populists and Trump and I think it is somewhat laughable that Le Pen etc welcome him as their great informal leader. In fact, I think it is likely that Trump couldn’t care less about Le Pen etc. Compare, for example, Trump’s economic agenda with what we know of the PVV economic agenda in the Netherlands: very, very different.

Cause for concern

I have indicated in my initial response to the election result that I have all sorts of concerns about the Trump presidency. They include his views on international trade, immigration, Fed independence, climate change, his (lack of experience in) foreign policy to name a few. Given the possibility that Trump is extremely Machiavellian and that he is used to taking advice from experts, I would not assume he will try to carry out all the things he has said about these topics. In the case of a person like Donald J. Trump, there may be an even bigger difference than with regular politicians between campaign rhetoric and the actual policy agenda.

Cause for hope

There are also several reasons to be hopeful about the Trump presidency. First, Trump’s choice of Mike Pence for his running mate and now Vice President shows realism as Pence seems to be a stable factor and a person of integrity. He disagrees with Trump on some of the disturbing stuff Trump has said during the campaign such as immigration and foreign policy. Hopefully, there are enough checks and balances in the system to prevent many extreme policies. Some of the names of the people involved with the campaign so far are also reassuring in my view. For example, David Malpass was named economic advisor to the campaign in August and may well play a key role in the new Administration. One can disagree with Malpass’ views, but he is a respectable economist.

A second area of hope is the economy. Trump will want to show what he is about sooner rather than later. And the most likely early policy initiatives are in the area of economic policy. I think he is likely to provide the economy boost through tax cuts and infrastructure spending. This will increase the budget deficit, but that is something we can worry about later.

In addition, I think that Trump will surround himself by economic advisers focussing on the supply side of the economy, David Malpass, mentioned above, being one of them. That is not a bad thing in my view. Let’s face it, as Barack Obama highlighted in a recent essay he published in The Economist, one of the biggest economic challenges we face is low productivity growth. Isn’t that a supply-side problem? I am not saying the Trump team will find the solution, but it is possibly a refreshing approach compared to all the ‘there is a lack of demand school of thought’.

Politically incorrect?

Do not get me wrong. I am not a Trump fan. What I do want to say, however, is that many people make assumptions about the Trump presidency that may prove incorrect. When Ronald Reagan won White House most of my friends thought he was crazy and we could not understand how the Americans could elect such a man. Then the economy improved a lot and Reagan is now seen my many of his initial critics in a positive light. The same may happen in this case.

What is crucial to watch now is the composition of the new Administration, the names of the economic advisors and the tone of the President-elect. Trump was elected democratically and he must have a chance to do what he thinks he should. There are quite some areas of concern, but I would suggest that it may be a mistake to assume that a lot of the campaign rhetoric makes it onto the policy agenda. It is understandable that Trump opponents feel disappointed and angry and that emotions are running high. It is also understandable that these emotions contribute to the conclusion that the Trump presidency will be a disaster, but we should try to focus on the future as much as possible in a rational way.

On balance then, I think financial markets may well be right responding positively to the election result after initial gyrations.