If you suffer the misfortune of having to write about developed country macro, you have four options.
Pontificate about AI.
Scream about how the Truss 2.0 in the White House is going to burn down the U.S. and probably global economy.
If you are free marketeer, you write about how the President is going to improve the economy, actually.
Ignore the previous, and hyper-focus on what is going to happen to some economic variable (under the assumption that U.S. statistical agencies will keep publishing that data).
Since I hate wasting time on things that do not matter, I am going to ignore options #1 and #4. As for the impact of Trussonomics 2.0, I think we are deep in “it depends” territory.
Trussonomics 1.0 stopped mattering because the British parliamentary system allows the governing party to knife the PM if they get out of hand. There are currently few guardrails in the American system to check the dimwittery of the White House, but economic reality might kick in very quickly.
All Bets are Off
Conventional economic commentary suffers from a severe normalcy bias. For example, most commentary on trade wars assume that the only lever used will be tariffs. However, the Colombia blow up indicates that the White House intends to use financial sanctions on its targets. A hard de-dollarisation scenario is now entirely plausible.
The belief that the Fed is legally independent could easily crash into the reality that most of the executive orders ignored the actual powers accorded to the President. It may be that a stock market freak out could inhibit the President, but I do not see an extended rate hike campaign as being politically feasible.
Finding Out May be Very Quick
The reason to not panic about the economic outlook is that the Finding Out phase may be extremely rapid, and lead to rapid U-turns. (Take for example, the Colombian fiasco. Trump backed down and met the demand of Colombia, but claimed victory — which was accepted as a fact by the client media.) The “pause” in grants has apparently shut Illinois out of Medicaid (link). Then there is the issue of the shutdown of research grants and possibly agricultural subsidies is going to gore a lot of oxen.
Although it is possible that the brain trust that organised an internet bank run on their own bank might be happy to burn down the economy by freezing Federal grants and loans for a long time, it still seems more likely that they would resume quickly (with new political commissars put in place vetting the ideological soundness of the funding). As such, loudly panicking would easily look silly — the worst effects would be prevented by the policy change being undone. In this case, it is supposed to be “pause” and so the resumption of grant-giving can easily be painted as not being a U-turn.
Nevertheless, to the extent that “policy uncertainty” matters (you don’t hear about policy uncertainty indices much any more for some reason) the business cycle might die the death of a thousand cuts. For example, it does not matter what your marginal tax rate is if you invest in wind farms and you cannot get a permit to build. The breadth of the actions makes it entirely possible that there will be major blowups that are happening just out of sight.
No comments:
Post a Comment
Note: Posts are manually moderated, with a varying delay. Some disappear.
The comment section here is largely dead. My Substack or Twitter are better places to have a conversation.
Given that this is largely a backup way to reach me, I am going to reject posts that annoy me. Please post lengthy essays elsewhere.