The defeat of the Democrats in last Tuesday’s election was profound enough (Kamala appears to have moved the needle in her direction only with white women and over-65s; every other group shifted toward the Donald) that the outcome was apparent by early Wednesday morning.
The major stock indices are all up by one or two percentage points since then.
The most eye-catching, to me, were the moves in cryptocurrency-related things. Bitcoin, for example, is ahead by 30% or so, meaning it has just about doubled, year to date. And Tesla, though fading today, leaped by a similar amount.
Both are good news/bad news stories:
–bitcoin and other cryptocurrencies will likely receive more favorable regulatory treatment under Trump. On the other hand, a major use case for them, as far as I can see, is to facilitate flight capital
–the good news for TSLA is that, given the large amount of money Elon Musk has contributed to the Republican cause and the substantial influence he appears to have with Trump, Wall Street thinks the chances are high that Washington will block the cheap, stylish Chinese-made EVs that have swept through Europe from entering the US.
tariffs, workforce contraction and deficit spending
–I had been seeing tariffs from the point of view of an American, as well as from the experience of the Trump soybean tariffs that enhanced Latin America as a competitor to the US. These raised no money for the government, after payments to domestic farmers to offset the financial damage that tariff imposition caused.
The attitude of investors in Europe, for the moment at least, seems to be that while tariffs may cut US economic expansion from, say, 3% yearly to 2%, these same tariffs may kick their economies into reverse. So money is flowing into the US so far, not out. That’s also despite the fact that the real US economy expanded by about +10% during Trump’s first four years, which was considerably worse than the +28% during Biden’s or the +16% during Obama’s last four, with similar differences in stock market performance.
It will be interesting to see how long this lasts.
–even I get tired of writing this, but…a simple but useful way of looking at economic growth is that it comes from either having more workers or worker being more efficient. The latter springs either from better tools or better education (either through school or in the workplace). The domestic workforce is growing at about 0.5% yearly. Add maybe 1% in productivity gains to that.
About 20% of the workforce consists of immigrants, about a quarter of whom are here illegally. Want a straightforward way, in addition to tariffs, to derail economic growth? Deport 5% of the workforce. Disbanding the Department of Education might be another way to attack productivity gains.
the dollar
The Reagan/Thatcher revolution begun in earnest in the 1980s was based on the idea that the private sector could, and should, offer services that were at that time provided mostly/entirely by the state. The trigger to start the process was to reduce taxes, especially for the wealthy. Two hopes: private sector actors, now richer, would invest in ventures that would displace alternatives from state-run firms; and renewed vigor in the private sector would generate higher overall tax revenue, gradually closing any government budget deficit that the early tax breaks would create.
It’s now over 40 years later. Other than for three years around the turn of the century, the government has been in deficit the entire time. One can read the chart of deficits as saying that the deficit was beginning to stabilize, and even shrink–until the Trump tax cuts of his first term. The pandemic made the situation worse, as did Trump’s pandemic denial.
Suppose we get another set of tax cuts for the wealthy. It’s possible, in theory at least, that potential buyers of US government bonds will begin to worry that Washington will be unable to repay them in full. This could play out either through a decline in the currency or an increase in the rates that need to be offered to attract buyers (making the deficit worse) or both.