With the Dow crossing 25,000, it’s worth pointing out the pitfalls that could reverse some of those gains — and how to avoid them.
One thing we don’t have to worry about is the economic sanity of President Trump.
In fact, it’s safe to say that the current president, for all his temperamental flaws and petty insecurities, makes his tightly wound predecessor, Barack Obama, look like a raving madman when it comes to showing sense on economic growth. Armchair psychiatrists are having a field day diagnosing the president’s mental state from afar, especially after his increasingly bizarre tweeting, but the market says otherwise.
Consider: The United States had one of the highest corporate tax rates in the world — so high that companies (and jobs) were fleeing to places like Ireland. That’s why it was perfectly sane to lower the corporate tax rate from 35 percent to 21 percent as Trump just did, and presto: Corporations are announcing plans to hire more workers, and the economy, which was expected to slow after seven years of weak growth, is heating up. The markets are predicting that growth with their surge.
Likewise, regulations have been strangling businesses for years while making it difficult for banks to lend to consumers and small business. Trump went out and hired perfectly sane regulators who basically pulled the federal government’s boot off the neck of the business community.
It was described to me as a de facto tax cut by one business owner that gives him leeway to hire more people. A major win for the working class.
And since so many of my fellow journalists are at it, let me do a little psychoanalysis of what an economically insane person might do as president.
An insane president would threaten a significant tax increase immediately upon taking office following a financial crisis, and then eventually impose one on individuals and small businesses still in recovery.
He’d impose job-crushing regulations on these same businesses as unemployment rose. He’d put a cumbersome mandate on businesses that upends the entire health care system just as the economy was finally turning a corner.
A really insane president would blow nearly $1 trillion on a stimulus plan with little planning and direction, wasting much of the money on boondoggles (see: Solyndra) and then laugh at the lack of “shovel ready” jobs created. He’d then try to spread his delusion to the masses, telling them to ignore historically low wage growth, anemic economic growth and the massive amount of people who dropped out of the work force because the stock market rallied, thanks in large part to the Fed printing money instead of his own fiscal policies.
Is Barack Obama crazy? No, but his post-2008 economic policies were. Are all Trump’s tweets sane? No, but smart investors with lots of skin in the game think his policies are perfectly rational, and that’s why the markets are soaring along with the prospect of economic growth.
Can Trump just sit back and act like a clown for the rest of his presidency as the economy and markets lift all boats? No again. Relying on the markets or the economy to disguise abhorrent presidential behavior is a fool’s game. Corrections always occur, and will occur if corporate earnings don’t match the investor enthusiasm built into Dow’s recent rise.
An unexpected burst of inflation that would force the Fed to raise interest rates could hurt both stocks and GDP. Trump might indulge his inner populist and engage in a trade war with China, or repeal NAFTA, both of which would undoubtedly hurt economic growth and stocks.
For all the good things about the business side of the tax reform bill, other parts are more complicated: Small businesses got a sliver of the tax breaks given to corporations; same goes for working-class people who don’t pay much in federal income taxes in the first place. But people who do pay a lot may get crushed when tax season rolls around. Individuals in high-tax states (like New York) could get hammered because the plan barely lowers the top rate and plugs so many deductions.
To pay for their higher taxes, these people could curb their personal spending, meaning less economic growth and possibly lower stock prices.
But none of these hiccups suggest a madman is at the helm of the US economy, which is something to consider the next time you hear Donald Trump is crazy.
Charles Gasparino is a Fox Business senior correspondent.