It’s The Stupid Economy

Raining money. Image capture by TNB.

By the standard measures, the economy is in good shape.  Initial jobless claims are low.  Productivity is up.  The GDP is growing steadily.  In theory, this means that the economy is a winning issue for the Republicans, as they were responsible for the last major piece of fiscal legislation (tax cuts) and they have the Presidency.

The average person is economically illiterate, however.  Their interpretations of the economy are predicated on a handful of factors with little direct relation to the national economic status.  At the most basic, it comes down to things like what type of take-home pay a person is making, how much fuel, food and utilities cost, and what the Dow Jones is doing.  They’re not concerned with the complexities of the national economy, they’re focused on their personal economy: how much money is coming in, going out, and being generated toward their retirement.

They are not concerned about the validity or invalidity of velocity of money theory.  They do not care about market cycles.  They dismiss concerns about the inherent imprecision of static numbers in a dynamic system.  Most simply view themselves as too busy to worry about such things, or they trust their thought leaders to alert them to troubles.

This is why concerns about the effects of deficit spending or people being shifted off of the unemployment numbers if they’ve been unemployed for too long can go from being a major concern to a minor one.  For many, the real issues are the simple, personal ones and the broader concerns are whatever their punditry or politicians have told them to worry about.  Many in the “TEA Party” were worried about overspending, but many more feared what their leaders had told them to fear, with overspending merely being the monster of the week.

This situation has been used to great effect by both Republicans and Democrats.  It benefited the Republicans in the midterms, drawing voters to the polls to keep the strong economy moving.  It now threatens to harm them.

The Dow Jones, inaccurately viewed as the sole benchmark of national economic strength, has been nearly flat for the year after multiple years of steady growth (with a notable exception of 2015 – 2016, where a dip in the Dow may have contributed to Trump’s success in the general election.)  If that trend continues – or worse, if the Dow falls, it will likely be a strong headwind against Republican success. 

It shows signs of falling, too.  Trump and the Republicans are likely to point to the Democrats’ actions in the House as the cause, but the fact remains that investors had factored a likely Democrat House win into the market months before October’s doldrums.  The true cause of the Dow stagnation is simple: Trump’s isolationist trade policy.

Trump is not a complete idiot.  He thinks far more highly of himself than is reasonable and his negotiation skills are demonstrably terrible, but he has made a comfortable living by being a flashy salesman.  Part of that routine is playing to people’s expectations and not challenging, but rather using erroneous assumptions.

Much has been made recently of his anger, and it has been attributed to feeling trapped by the ongoing investigations.  I submit that the economy may be another factor.  Trump is not particularly wise about making or spending money, but he recognizes that the perception of wealth is one of his key selling points.  His persona is that of the great negotiator, the man with a Midas touch.

His efforts at trade negotiation have, to date, been utter failures.  He has alienated long-term allies in exchange for minor concessions with no concrete addition of value to American industry.  This has been attributed to his ego, due to the renaming of the trade bargains.  Rather, it may be that he has been realizing that his tariff-driven, isolationist policies are not having the expected results.  Rather than hand the United States everything it wants in exchange for continued access to our markets, other countries are threatening to find new markets.  Trump has been forced to accept previously negotiated arrangements.  The “concessions” have merely been allowances from other countries to Trump so that he might save face, and the renamings to allow Trump to distract his citizenry.  “Hey, look at the new name!  Don’t focus on what’s in it!”

The markets are run by people who focus on the details of trade policy.  They recognize how similar the new deals are to the ones they replace, and that has provided them a measure of confidence.  Rather than revise their industries, they merely need to continue what they’ve been doing to be in compliance with international rules.

The tariffs haven’t gone away, though.  Trump has doubled down on them repeatedly and, because he is not particularly learned on international trade, he believes in them.  While they exist, they are going to be a continued drag on the markets… which is why the Dow is virtually flat for the year.

There are no more tax cuts coming; rather, personal taxes are due to rise every year after the initial deep cut.  The Republicans will attempt to blame the Democrats for this, but it was in their legislation which they passed without Democrat aid.  Interest rates are already rising.

This will result in the average person seeing their available spending money diminish over the next two years.  That is unlikely to be offset by a rise in their 401(k) value if the stock market is fighting tariff headwinds.  If the market slips into actual bear territory – something that the cycles indicate is long overdue – the result is likely a perceived economic bloodbath, even if the underlying economy remains strong.

This much, at least, Trump knows.  He is egotistical enough to believe that he is competent to avoid it, but he is clueless on what would be required to do so.  This is another source of great tension in the White House and Congress alike, and it, as much as any of the continued political drama, is likely to critically damage the Republicans in the next election cycle.

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About AlienMotives 1897 Articles
Ex-Navy Reactor Operator turned bookseller. Father of an amazing girl and husband to an amazing wife. Tired of willful political blindness, but never tired of politics. Hopeful for the future.