Which macroeconomic theories will rise and fall in status because of Donald Trump?
It seems likely that Trump and a Republican Congress can agree on some big mix of tax cuts and spending. Furthermore, there are plenty of rumors that Trump may push on the independence of the Fed and the ten-year yield leaped upon his election. So odds are it will be a stimulus with some degree of monetary accommodation, and in that case even tax cuts for the wealthy can serve as an effective form of QE into the assets the wealthy invest in.
And yet 80% of economists are Democrats, many top economists signed a petition opposing Trump, and I can’t think of a single top economist who has endorsed Trump. So clearly something has to give, and here are some theories that may rise or fall in status:
1. “The multiplier is high.” That seems ready to decline in status.
2. “Even wasteful expenditures can boost demand and help pull us out of secular stagnation.” Ditto. “We need to do stimulus right” will make a comeback. And I see “the distributional effects of stimulus really matter” lurking around the corner.
3. “Tax cuts aren’t as good as government spending.” That actually may rise in status, especially if Congress gets the bargain they want — lots of tax cuts — rather than what Trump wants.
4. The notion of how a credibly irresponsible leader can improve macro performance won’t get cited as much.
5. Austrian-like theories of how there can be a boom in the short run, yet with great long-run dangers, will return to prominence, albeit with modifications to the original Austrian story.
6. Criticizing countries with trade surpluses will decline in status.
7. The efficient markets hypothesis will decline in status. It imposes too much discipline on our judgments of leaders and their policies. The more certain we are of our own judgments, the more that evidence contradicting those judgments should be downgraded. Right?
Don’t get me wrong, I think most (not all) of these moves will be “economists coming to their senses,” and thus good news. But let’s be clear about what is going on. While I don’t expect many instances of people making claims they do not believe, in terms of what gets emphasized, stressed, and repeated, macroeconomic discourse is about to change.