Greater infrastructure spending is welcome, but anti-free trade policies could lead to an economic downturnby George Magnus / November 14, 2016 / Leave a comment
It’s not been a week since Donald Trump was elected US president, and both the mainstream press and my corner of social media—an echo chamber, admittedly—are in full cry about the end of the world as we know it. The truth is that we just don’t know what will happen.
In his first major TV interview, Trump pulled back from the total repeal of Obamacare that he had said would be a priority, suggesting some key provisions could be retained. Among the possible cabinet appointees, including that for Treasury Secretary, are people with links to Wall Street and both Bush administrations, and dyed-in-the-wool Republican stalwarts. That’s pretty establishment by any standard.
For now, the impressions formed during the campaign are giving rise to dark thoughts, but we don’t know what a Trump presidency is going to look like and, probably, neither does he. On the basis of what he has said, is there any good news regarding the US economy?
Financial markets have changed compared with the initial aftermath of election night. They like the idea that Trump will propose to Congress (both houses will remain under Republican control) a large down payment on a $1trillion infrastructure programme and a big rise in military spending, plus the more widely advertised reductions in taxation of persons and companies.
Anthony Scaramucci, founder of SkyBridge Capital and a member of Trump’s economic advisory council, wrote in the Financial Times on Saturday: “Global economies are fighting deflation largely because of a post-crisis movement towards fiscal austerity. While easy monetary policies have exacerbated the income divide, central bankers handcuffed by political dysfunction have had little choice but to provide extraordinary accommodation. We can close the wealth gap in America by replacing emergency-level interest rates with fiscal stimulus.”
Wow—and this is from the right of the political spectrum, not the left. If true, it’s a genuine game-changer, and one that other countries, including the UK, look likely to follow.
Next month, the Fed, which has been calling for a stronger fiscal support role for a while, may well raise interest rates for the second time since the financial crisis, the first being exactly a year ago. If markets remain becalmed, and Trump’s first State of the Union speech and Budget validate…