Monday Smackdown: John Taylor vs. Janet Yellen in Early 2009 Edition

Who Will Donald Trump Turn Out To Be?

Clowns (ICP)

We have very little indication of what policies Donald Trump will try to follow or even what kind of president he will be. The U.S. press corps did an extraordinarily execrable job in covering the rise of Trump--even worse than it usually does. Even the most sophisticated of audiences--those interested in asset prices and how they are affected by government policies--have very little insight into Trump's views or those of his key associates.

Will Donald Trump turn out to be the equivalent of Ronald Reagan--someone who comes into office from the world of celebrity with a great many unfixed policy intuitions, but no consistent plan? Will he turn out to be the equivalent of Silvio Berlusconi, who regards the presidency as an opportunity to wreak his kleptocratic will on the country? Or will he turn out to be someone worse than Berlusconi?

I would say that Trump could be any of four figures:

Trump could be a Reagan: a force of nature with a commanding stage presence--Hollywood actor in the case of Reagan, reality TV star in the case of Trump--with some but not substantial true executive experience in the past--Reagan a success as president of the Screen Actors Guild, Trump a failure as a manager running his casinos into the ground in Atlantic City--who then shows up as president with strong but contradictory and incoherent policy intuitions.

Note that I am talking here not about the Reagan of mythology, but rather about the Reagan of reality.

The Reagan of reality had promised a lot of inconsistent things during the campaign. So has Trump. In the Reagan-like scenario, some of the things that Trump has promised will be attempted. Many will get ignored: thrown by the wayside. And five years from now we will look back and say that Trump was remarkably effective at accomplishing some of what he wanted to accomplish.

Reagan, for example, wanted to balance the budget. He wanted to increase military spending. He wanted to cut taxes. He wanted to cut federal spending that went to cheaters. He wanted to help the truly needy. Reagan wanted a hard-money gold standard. Reagan wanted to be tough on the Russians--the "evil empire". Reagan wanted world peace--and talked about how if there were an alien menace we would all quickly see how unimportant all the issues that caused diplomatic trouble were. Reagan wanted the U.S. to be the strongest country in the world. Reagan wanted to develop "star wars" missile defense technology--and then give it away to everyone, so that nobody anywhere in the world would have to live under the threat of death by nuclear fire. Reagan wanted lower interest rates so that people could borrow and invest and the U.S. economy could grow. You see the problem?

These don't all go together. And so there were by one count ten different factions within the Reagan white house, all of which thought--and thought correctly--that they had Reagan's approval, encouragement and baton for getting their particular subcombination of these goals blessed by Reagan accomplished and implemented. Yet of those ten factions, at most only five could win.

In retrospect we see a coherence and consistency to the Reagan policy agenda. But that is false. That is something we imposed on the past because we are narrative-loving animals who seek logical stories with a beginning, a middle, and an end in order to make sense of the world. And we see a logic running from Reagan's campaign through to his retirement. But that logic is not really there. Many other things could have happened--the Reagan administration could have gone very differently, and nearly did, at many junctions.

Trump is all this, in spades. The process is best understood as incoherent, random chaos. And it is one that will inevitably have a number of destructive side effects, or effects.

Reagan did not campaign for and enter the presidency thinking that he was going to more than double the national debt relative to GDP. That was not what he thought his agenda was.

Reagan did not campaign for and enter the presidency thinking that he was going to push the value of the dollar up by 70%, and thus deal a death blow to a surprisingly large component of American manufacturing--and thus both start the process of the erosion of the living standards of America's blue collar workers and destroy communities of engineering practice that we really should have nurtured, encouraged, and expanded. That was not what he thought his agenda was.

Yet those were, in historical perspective, two of the three largest consequences of Reagan's policies--with the launching of the explosion in income inequality that has created our Second Gilded Age being the third. That last was supposed to be part of an acceleration of economic growth: a richer rich, yes, but a rising tide that would life all boats; we got the richer rich, we did not get the rising tide.

Reagan did not want the Argentine generals to think that, because they had aided the U.S. in its fight against communists in central America, the U.S. would stand by and be substantively neutral when Argentina launched its war against Britain to conquer the Falkland Islands. Yet the Argentina generals did think that, and they had--from their contacts with some of the most senior Reagan administration officials--reason to think that that was the case.

Trump might be like that. People with Trump's baton will try to implement everything he said on the campaign trail. Some will succeed. Most will fail. Policy will be random. Which random part? We don't know. Will he protect and expand Social Security and Medicare? Is he going to deport 5 million people in the next two years and build a wall? Is he going to make Mexico pay for it? Is he going to somehow "renegotiate" NAFTA? Is he going to somehow reach into the WTO and try to kick China out of it? Is he going to impose tariffs? Is he going to promote a substantial fiscal stimulus? Is he going to make America great again?

We don't know. We can't know now. We won't know until after the fact we impose some false narrative coherence--as we did for Reagan, interpreting him as a force of nature who changed the world.

Trump as Reagan--the Reagan of reality, not the Reagan of mythology--is the good scenario.

And note that such a good scenario is not very good: you can safely say that such a policy process is unlikely to make America any greater than it already is.

The second possibility is that Trump will be like Arnold Schwarzenegger when he was governor of California--an office he won in a "discontent with normal politics" election. Arnold had substantial personality similarities with Trump: the word in Sacramento was that no woman should ever get into an elevator alone with Arnold Schwarzenegger.

As California governor he tried to make Hollywood-style deals and failed comprehensively. The state government went on autopilot. He hung out in his smoking tent with his cigars. It was eight years of missed opportunities to address the challenges facing California.

The third possibility is Berlusconi. An awful lot of public money going astray and into the pockets of the kleptocrat and his friends. An awful lot of random policy decisions, with occasional bursts of technocracy as something leads the leader of the bunga-bunga movement to think that this is an issue area where, you know, somebody with real expertise should be handling the situation. This kind of bunga-bunga governance is definitely a possibility. Italy lost a decade of economic growth, I think, because of Berlusconi.

I would say at the moment that at the moment there's a much larger chance that he will be Berlusconi than Reagan or Schwarzenegger. I think the odds are that we will look back on the Trump presidency five years from now as four years that were essentially wasted, as far as dealing with the problems of America's economy and society are concerned.

The fourth possibility is one that I do not want to put on the table but that I have to put on the table: Mussolini. Never before in America have we had a candidate running for president threaten his opponent with imprisonment after the election. Now we have. That is crossing major lines on the road to fascism. I really wish I did not have to put this on the table. But I do. This is a low risk, this is a tail risk, but this is a risk.