Tuesday, August 7, 2018

How Will Trump React to An Economic Downturn?

Former Treasury Secretary and Keynesian Larry Summers says it won't be well.

Below is the sound part of Summer's take on the current situation (with his crazy Keynesian analysis removed).
President Trump regularly and proudly takes credit for the U.S. economy’s strong performance. And with rapid growth during the second quarter, the stock market strong, the unemployment rate back below 4 percent and the midterm elections looming, Trump’s rhetoric and that of his supporters will probably escalate in coming months...

 [H]istory suggests that presidential popularity rises with declining unemployment. It is reasonable to suppose that, if unemployment was at its historical average of 5.8 percent, instead of the current 3.9 percent, Trump’s approval rating would fall lower than its already anemic level. As it is, he is less popular than any first-term president with an unemployment rate less than 5 percent...

This is all quite dangerous. The president has taken credit for far more economic success than he deserves. He will disproportionately be blamed when the downturn comes.
Summers then goes on to become the ultimate doomsayer when he writes that a Trump recession "will be a test of our democracy."

Summers is correct when he suggests that Trump will not act well in a recession. He may become FDR on steroids, when a Ronald Reagan shrug would  be better. But the Keynesian Summers has a deeper point than he realizes. Trump could become a Keynesian like we have never seen before--and that would be a move that would shrink the Empire and cause economic havoc across the land for a very long period.

For sure an economic storm is coming, the exact timing will be up to the Fed. A Trump reaction is unlikely to be pretty. The last thing we need during a recession is a can-do president.

What we would need at such a time is signified by a term that probably isn't part of Trump's "billionaire of the people" vocabulary: laissez-faire. Trump runs more on what Mises would call the Führer Principle.

Trump under an economic downturn? Probably a Führer-lite Keynesian/