Reflections on Donald Trump’s Election

As the markets and pundits react to Donald Trump’s enormous upset victory, let me offer my own reactions. As an economist, I will focus on matters pertaining to economic policy.

The Danger of Hubris and Denial. Everybody recognizes that the “experts” and polls were totally wrong. Indeed, I was listening to NPR around 6 p.m. Eastern time on Election Night, and these commentators were all but speculating on President Clinton’s Cabinet. Later, around midnight, I was curious how NPR’s anchors would handle the blow. I am only slightly exaggerating when I say that the explanation was, “Trump motivated more bigots than we expected.”

Yet this type of reaction reflects a complete evasion of the media elite’s own failings. Indeed, part of the support for Trump came from people who are not bigots but are sick and tired of being called names simply for disagreeing about the proper size of government.  I didn’t vote for Trump—I no longer vote, as a matter of principle—but I have had discussions with plenty of Trump supporters in the past two years. I don’t know a single person who approved of his boorish comments about women; they were all voting for him despite his obvious flaws as a person.

Look folks, there was no mystery about what Trump was running against. He laid it out clearly in his final ad. The critics dismissing this ad as a “dog whistle” for anti-Semites—as if someone couldn’t have legitimate reasons to criticize Janet Yellen or George Soros—are refusing to acknowledge reality. I’m reminded of the Keynesians who dealt with the surge in unemployment after implementation of the Obama stimulus package—where unemployment with the package was worse than what they warned would happen if the government “did nothing”—by arguing, “Wow, the economy was worse than we realized.” Likewise, after being utterly wrong about this election, many Establishment pundits reacted by saying, “Wow, the United States is worse than we realized.”

Stock Market Reactions Are Fickle. Some economists put unwarranted faith in strong versions of the “efficient market hypothesis.” And indeed, during Election Night many Trump critics were pointing to the tanking futures markets as proof of what an awful president he would be.

Yet ironically, these critics weren’t suddenly praising Trump when U.S. equity markets finished the next day way up. (The Dow Jones Industrial Average finished up 1.4 percent, while the S&P 500 was up 1.1 percent.) Now in principle we could explain the whiplash by saying new information had come out the day after the election, which totally changed investors’ expectations about the policies under a Trump Administration. But personally I think the real explanation is that investors are prone to emotional reactions just as other humans are. There was an initial panic and “rush to safety” when the shocking news developed, but then after a good night’s sleep investors realized that maybe the deregulation and tax cuts (at least relative to a Clinton Administration) would be bullish.

Immigration Policy Is Debatable Among Libertarians, but Trump’s Trade Rhetoric Is a Disaster. I personally think that much freer movement of people across sovereign borders would be a good thing, for Americans and foreigners, and both in material standards of living as well as intangible civil liberties. In particular, a giant wall to keep illegal immigrants out might make it that much easier for a future regime to keep dissidents in.

Having said that, I should acknowledge that libertarians are divided on questions of immigration. Although I agree with my colleague Ben Powell on the economics of greater labor mobility, some libertarians understandably worry about the negative consequences of letting in people who will vote for a larger welfare State.

Yet when it comes to the free movement of goods, then the Trump phenomenon is clearly misguided. As a free-market economist, I will unfortunately have to spend much more time during the next four years explaining to Americans why more regulations and taxes—levied on their choice to buy foreign products—won’t make America richer.

“Hard” Money Would Be Welcome, but Will Still Cause a Crash. Most mainstream economists are aghast at the prospect of Donald Trump intimidating the Federal Reserve into a policy of “tight” money, including the possibility of a return to something like the classical gold standard. It’s hard to know how seriously to entertain such talk, since Trump famously vacillated on key issues as the campaign progressed.

In contrast to most of my peers, I would welcome a move to rein in the Fed’s expansionary policies, on display since 2008. In particular, I agreed with Trump when he argued that the central bank had blown up a giant asset bubble. Yet the flipside of this analysis is that a move towards “hard” money would, in the short term, bring a hard crash. Ironically, if a Trump Administration did “the right thing” on monetary policy, I think it would guarantee a market crash, whereas another round of quantitative easing might push back the day of reckoning a few more years.

Repeal of Obamacare Would Be Great, but with What Replacement? The Affordable Care Act has been a disaster, as many free-market economists have been predicting. Even Bill Clinton knew enough to campaign against President Obama’s signature achievement. Yet I must confess that I do not trust a President Trump, even with both the House and Senate, to truly return health care and health insurance to the market.

It is a myth that Republicans are paragons of laissez-faire capitalism (and that Democrats are antiwar, for that matter). Richard Nixon, after all, closed the gold window and imposed wage and price controls, while George W. Bush presided over the passage of Medicare Part D, a large expansion of mandates for renewables and ethanol, and, of course, authorized a literal takeover of large banks (the Troubled Asset Relief Program).

We can hope that as an unparalleled outsider who was rejected by even the Republican Party leadership, Donald Trump doesn’t follow the path of his predecessors. But fans of economic and civil liberty should watch with a wary eye.

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For more on economic theory and policy, see Choice: Competition, Enterprise, and Human Action, by Robert P. Murphy.