I’m not a big fan of Lawrence Summers, but he had an interesting op-ed article in the Financial Times early this month. He observes that, unnoticed by most domestic stock market commentators, the foreign- exchange value of the dollar has steadily deteriorated since Mr. Trump’s inauguration. Currency futures markets are predicting a continuing deterioration in the coming years. He thinks the two things are connected. I do, too.
To my mind, what is happening on Wall Street recently is that currency market worry is now seeping into stock trading as well. If someone forced me to pick a catalyst for this move (I would prefer not to), I’d say it was the possibility, introduced in the press investigation of Cambridge Analytica, that what we’ve believed to be Mr. Trump’s uncanny insight into human motivation (arguably his principal redeeming feature) may be nothing more than his reading a script CA has prepared for him. This would echo the contrast between the role of successful businessman he played on reality TV vs. his sub-par real-world record (half the return of his fellow real estate investors while assuming twice the risk).
The real economic issue is not Mr. Trump’s flawed self, though. Rather, it’s the idea that public policy in Washington generally, White House and Congress, seems to have shifted from laissez faire promotion of businesses of the future to the opposite extreme–protecting sunset industries at the former’s expense. In this scenario, overall growth slows, and the country doubles down on areas of declining economic relevance.
We’ve seen this movie before–in the conduct of Tokyo, protecting the 1980s-era businesses of the descendants of the samurai while discouraging innovation. The result has been over a quarter-century of economic stagnation + a collapse in the currency.