Just 21 days ago, Heather Long tweeted:
— Heather Long (@byHeatherLong) November 16, 2016
— Heather Long (@byHeatherLong) December 7, 2016
For the record, the Dow closed at 19,549.62, which is up 297.84 (1.55%). Which leads me to this article:
By Kenneth Rogoff1 | December 7, 2016
CAMBRIDGE – After years of hibernation, will the US economy rouse itself for a big comeback over the next couple of years? With an incoming Republican administration hell-bent on reflating an economy already near full employment, and with promised trade restrictions driving up the price of import-competing goods, and with central-bank independence likely to come under attack, higher inflation – likely exceeding 3% at times – is a near-certainty. And output growth could surprise as well, possibly reaching 4%, at least temporarily.
Impossible you say? Not at all.
The economy already seems to be growing at a 3% annual clip.2 And even steadfast opponents of President-elect Trump’s economic policies would have to admit they are staunchly pro-business (with the notable exception of trade).
Consider regulation. Under President Barack Obama, labor regulation expanded significantly, not to mention the dramatic increase in environmental legislation. And that is not even counting the huge shadow Obamacare casts on the health-care system, which alone accounts for 17% of the economy. I am certainly not saying that repealing Obama-era regulation will improve the average American’s wellbeing. Far from it. But businesses will be ecstatic, maybe enough to start really investing again. The boost to confidence is already palpable.
Then there is the prospect of a massive stimulus, featuring a huge expansion of badly needed infrastructure spending. (Trump will presumably bulldoze Congressional opposition to higher deficits.) Ever since the 2008 financial crisis, economists across the political spectrum have argued for taking advantage of ultra-low interest rates to finance productive infrastructure investment, even at the cost of higher debt. High-return projects pay for themselves.
There’s a lot more at the link, and Dr Rogoff makes a good case; I’m just not sure yet that it is a persuasive case!
As of yesterday, the total national debt stood at $19,892,366,528,061.22. The incoming President’s policy proposals could add as much as $5 trillion in additional debt — meaning: debt above and beyond the currently projected increase in the debt — over ten years. Our debt is already $2 trillion above our gross domestic product; every single penny of our entire nation’s production, for an entire year, would not pay off our debt. I have calculated that the national debt will exceed $20 trillion on inauguration day, though daily fluctuations could change that.
Nobel laureate and New York Times columnist Paul Krugman, who to this day tweets about what a disaster Donald Trump’s victory is, wrote in despair at 12:42 AM on election night:
It really does now look like President Donald J. Trump, and markets are plunging. When might we expect them to recover?
Frankly, I find it hard to care much, even though this is my specialty. The disaster for America and the world has so many aspects that the economic ramifications are way down my list of things to fear.
Still, I guess people want an answer: If the question is when markets will recover, a first-pass answer is never.
Under any circumstances, putting an irresponsible, ignorant man who takes his advice from all the wrong people in charge of the nation with the world’s most important economy would be very bad news. What makes it especially bad right now, however, is the fundamentally fragile state much of the world is still in, eight years after the great financial crisis.
It’s true that we’ve been adding jobs at a pretty good pace and are quite close to full employment. But we’ve been doing O.K. only thanks to extremely low interest rates. There’s nothing wrong with that per se. But what if something bad happens and the economy needs a boost? The Fed and its counterparts abroad basically have very little room for further rate cuts, and therefore very little ability to respond to adverse events.
Now comes the mother of all adverse effects — and what it brings with it is a regime that will be ignorant of economic policy and hostile to any effort to make it work. Effective fiscal support for the Fed? Not a chance. In fact, you can bet that the Fed will lose its independence, and be bullied by cranks.
So we are very probably looking at a global recession, with no end in sight. I suppose we could get lucky somehow. But on economics, as on everything else, a terrible thing has just happened.
At least so far, the esteemed Dr Krugman has been proven wrong, wrong, wrong. Of course, he wasn’t the only economic expert to get it wrong:
Patti Domm | @pattidomm | Thursday, 3 Nov 2016 | 10:35 AM ET
Wall Street’s long-running view that Hillary Clinton would easily become the next president has been replaced by a new fear that Donald Trump could win, and it probably won’t be a pretty picture for stocks if he does.
Bond yields have moved lower and so have stocks, as the markets have begun to react to the possibility of a Trump victory in the last several days. On Thursday, the S&P 500 was up slightly, after falling 13 points Wednesday, to close at the key support level of 2,097.
The work of two economics professors may provide a glimpse of how the stock market might react if Donald Trump were elected. They studied the predictions market, including PredictIt.org and the reaction in the financial markets to events around the election. One of the economists says their findings point to a sharp immediate sell-off if Trump wins and a slight rally if Clinton wins. The amount of the rally or sell-off depends on the predicted outcome.
“If we were to go in 70/30 [for Clinton], and we think the market is 10 percent higher under Clinton than Trump, if Clinton wins it should be up about 3 percent and if Trump wins, it should go down 7 percent,” said Eric Zitzewitz, economics professor at Dartmouth College. He and Justin Wolfers of the University of Michigan studied the market effect of the first debate in a Brookings paper. Clinton’s odds in the prediction markets had been closer to 80 percent, and at that level, a Trump victory would have triggered an 8 to 10 percent sell-off, he said.
As always, there’s much more at the original.
As we have noted before, Dow futures fell a whopping 750 points as it was becoming obvious on election evening that Mr Trump was going to win. It looks to me like a whole bunch of people lost a whole lot of money that night! We have not been particularly kind to the professional economists of late, but there’s an old maxim that if you ask five economists a question, you will get six different answers.
Will Dr Rogoff be correct, or at least more correct than Dr Krugman and his colleagues have been? Only the Lord knows, and He isn’t telling anyone.
Of course, the liberal economists, Dr Krugman in particular, are somewhat hemmed in by their previous statements that the 2009 stimulus plan was too small. They credit the American Reinvestment and Recovery Act of 2009 with what recovery we have had,3 and thus ought to be willing, were they intellectually honest,4 to support the massive deficit spending the incoming President is supposedly going to propose for American infrastructure. After all, much of the ARRA was aimed at infrastructure spending as well.
Me? Yes, I want to see my taxes cut, but I want to see that after spending is cut as well. The Keynesian argument that governments need to run deficits during poor economic times has seemed particularly blunted to me, because the second part of Dr Keynes’ point, that governments need to balance their budgets and pay down their debts during good times, simply hasn’t been part of the plan. Our continual deficit spending, during good times as well as bad, has taken us completely away from Keynesian ideas and has, in effect, inoculated our economy to any projected benefits from stimulus. Constant stimulus has already been figured in to our economy.
What would it take? Under President Bush, we were stimulating the economy with well over $100 billion every year, $161 billion in FY2007 and that was before the recession began. FY2008 saw a $458 billion deficit, and FY2009 ramped the deficit up to $1.413 trillion. We had four straight years of trillion dollar deficits, which means four straight years of trillion dollar stimulus, and still our economy did nothing more than settle into a slower-than-normal growth pattern.
If four straight years of trillion dollar stimuli didn’t do the trick, just how large a deficits could the incoming President propose and still have the support of the liberal economists?
Yeah, I know: that was a rhetorical question, and a stupid one at that: Dr Krugman wouldn’t approve of any economic plan that Mr Trump might propose. He could swipe Hillary Clinton’s proposals, word-for-word, and Dr Krugman wouldn’t approve of them, simply because it would be Mr Trump proposing them, and not Mrs Clinton. But he cannot say one single word, at least not legitimately, about whatever deficit spending Mr Trump proposes.
- Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. The co-author of This Time is Different: Eight Centuries of Financial Folly, his new book, The Curse of Cash, was released in August 2016. ↩
- Uhh, no, it isn’t. There was a very favorable 3rd quarter report, with 3.2% annualized growth, but overall 2016 is looking like the slowest growth since 2009. ↩
- Something with which I disagree, given that the recovery has been much slower and weaker than any previous recovery since World War II. ↩
- Assumption taken solely for the purpose of argument; I do not believe that Dr Krugman is intellectually honest in the slightest. ↩