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.


What about the "wisdom of crowds" trope?
How'd the betting markets end up just before the election? Perhaps they will also drop in status.
Anything associated with aggregated knowledge which could also be associated with superficial understanding, they will likely fall in status.

Or perhaps it makes more sense to model it along one axis: "animal spirits" vs "wisdom of crowds"

They aren't perfect, but do we have anything better?

Not betting was clearly better than taking the market price, so yeah.

The phrasing of #7 confuses me, but the betting markets are a good proof of why the EMH should be well and truly dead. Our actions are never divorced from feelings, from little people to "leaders." Buying Apple because you love Apple is no different than buying Hillary because you love Hillary.

We are better off aware, and using BE tricks to keep ourselves as individuals and groups in line.

The market price on a DJT win paid handsomely.

The strong form EMH says the price is right for either side of the bet. And so there should not have been an unexpected windfall nor loss.

As has been noted though, odds of one time events are tricky.

Was it rational to think that Hillary would win? I didn't think so but would not have bet at all because it was very uncertain.

The information that people had at the time seemed reasonable. We now have another data point which is that the people who spent time looking at this stuff, and were paid to do it, were utterly useless, and possibly worse, purposely mislead.

One thing I know is that the best way for a market to work is that correction of mistakes needs to be quick and decisive. That is the way information is disseminated.

Betting markets are not representative. It represents bettors, which is a peculiar slice of humanity. I think this applies to the financial market as well.

For what it's worth, I thought this was a great book:


Yes, the book mentioned below is very nice.
"The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street"

"betting markets are a good proof of why the EMH should be well and truly dead"

Strongly disagree. If the odds are 15%, this will happen 1 in 7 times. When that 1 times comes, we do not conclude that the odds were wrong.

It's like concluding that the deck is stacked after losing a single hand of poker.

And anyways, it basically didn't have anything to do with markets.

In other words, buy those index funds not because markets are efficient, but because you know you are not.

"People don't maximise monetary value, so they are irrational, so the rational market hypotesis does not work".
Stating out loud this reasoning lowers the IQ of the whole area.
Intangibles have a value, that people take into account, and that might differ from your own evaluation.

If the demographic distribution of bettors is nothing near the distribution of voters (or if a certain demographic of bettor makes vastly higher wagers), betting markets will not be accurate. The illegality of online betting in the US makes this much more likely. Thoughts?

"The efficient markets hypothesis will decline in status. It imposes too much discipline on our judgments of leaders and their policies."

Just to add the nonsense....

Market are the invisible hand doling out truth.

That means you can eliminate all leaders and planners. Market create order and direction out of the chaotic activity of the masses.

It is in effect, evolution as a straight line.

But evolution branches infinitely into billions of dead ends. A dead is failure.

Thus markets lead to billions of failures, billions of dead ends.

In fact, there are more failures in markets than successes.

A maximally efficient economy would have zero profit because resouces would be 100% fully utilized with perfect competition driving prices to costs. Thus zero profit.

Advocates of markets are the profit seekers, the ones who need markets to fail. Small failures that are extremely frequent are ideal for the speculators trading by machine millions of times per day.

Ideally, full information disclosure reaching all parties would shift prices of buyers and sellers to identity, but the speculators demand buyers and sellers act immediately without full information to lock in two prices that are market failure, and thus profit.

The way a market could operate is in slow motion like the TV spectrum auction that has been spread out over 6 months so far to allow far more information to reach all parties with plenty of time to contemplate the information before setting a trial price. It turns out the cellular wireless carriers don't see that much value in the TV spectrum, far less than broadcasters of "free" TV. A bunch of speculators got into broadcasting to make a killing, but I'm betting they are losing their bets.

It is entirely possible that the betting pool was "small," but I don't think the EMH required it to be as large as the nation. The idea was that people were trading for actual money, and would thus set aside biases in aggregate.

Election markets were giving Trump about a 10% chance on the eve of the election. Stll, I struggle to see the argument that they are not the best predictor we have. Anyone who knows of a better one has a free lunch waiting for them.

Empiricism, the simplest answer to anyone who thinks status matters.

For example, the real time satellite data of Arctic ice extent neither rises nor sinks in status, it just rises and sinks in extent according to physical conditions. A summary of those conditions makes for an interesting monthly read, of the sort that this web site tends to be extremely uninterested in - http://nsidc.org/arcticseaicenews/

This is literally the most non sequitur-y thing I've ever seen

As you wish - this web site has been selling terms like 'status,' 'mood affiliation,' and 'Straussian' when examining various events. Recently, for example, policies are rated by changes in status of various individuals, or how mood affiliation affects one's opinion.

Yet it is a strange conceit to think that the physical world around us cares about our mood affiliation or status. For example, the drought in California remains essentially unchanged, but for some reason, Prof. Tabarrok has been notably quiet when talking about how if we only unleash the power of the free market, California's water problems will be solved. There is no Straussian reading possible for a snowpack amount measurement, and one's mood affiliation plays no role in the level of water in a reservior.

Of course, it is true that many people love to play games. Which is why empiricism tends to be ignored by such people, as in the end, the only thing that matters for ending the ongoing drought in California is rainfall/snowfall, because it is not possible for the status of precipitation to be raised or lowered in empirical terms. Nor is it possible to attach mood affiliation to the height of a reservior's intake pipes compared to that reservior's depth - unless, of course, one is writing satire.

We have some volunteer tomatoes that came up in September, ripening fruit now in November, they too don't care what people think about changing California weather.

"Of course, it is true that many people love to play games."

Indeed. Like posting irrelevant random commentary that has nothing to do with the topic at hand.

Since so many people who should know better (any adherent of the Virginia School, for example) still apparently don't understand the next president, Trumps wants lots and lots and lots of tax cuts - for himself. Whether anyone else's taxes are cut is extremely likely to be a matter of supreme indifference to him.

In other words, if Congress offers Trump a package that includes reducing Trump's personal federal tax bill by 66%, one can be fairly confident that Trump will sign such legislation into law, regardless of what the rest of the package does.

Though as reported in the press, such an event would obviously be nothing but a coincidence, as one can read here - 'A little-noticed provision in Donald Trump’s tax reform plan has the potential to deliver a large tax cut to companies in the Republican presidential nominee’s vast business empire, experts say.

Trump’s plan would dramatically reduce taxes on what is known in tax circles as “pass-through” entities, which do not pay corporate income taxes, but whose owners are taxed at individual rates on their share of profits. Those entities are the most common structure for small businesses and increasingly popular for larger ones as well. They are also a cornerstone of the Trump Organization. On his 2015 presidential financial disclosure report, Trump listed holdings of more than 200 limited liability corporations, which is a form of pass-through.

There is no indication that Trump designed his tax plan to benefit his own companies. “It wasn’t something we took into consideration when we made this plan,” Trump economic policy adviser Stephen Moore said.

Still, the provision highlights the tensions between Trump’s policy proposals and his personal financial interests. He would also benefit from his proposals to cut top income tax rates and eliminate federal taxes on inherited wealth, which now are imposed when a couple has more than $10.9 million in assets. Other wealthy candidates advocating for tax cuts similarly benefit from those types of proposals.' https://www.washingtonpost.com/news/wonk/wp/2016/08/10/donald-trumps-new-tax-plan-could-have-a-big-winner-donald-trumps-companies/

I believe he also wants to raise the standard deduction to $15,000( for singles). This would help also the poorest taxpayers

I didn't want to read all this because TLDR, but this is a very good point. Trump just pulled off the deal (con) of his career.

Weird how the idea of a billionaire president (Trump, Thiel, Bloomberg, etc) was supposed to be about being too rich to be corrupt. But what if your billionaire president is a sociopath who just wants to get even richer. By dominating, literally as president, all those elitists who never let the kid from Queens be an equal in status.

Trump has apparently already billed the U.S. government for $2.74 million in "airfare" for the space taken up on his private jets by Secret Service agents assigned to him during the campaign: http://www.bloomberg.com/news/articles/2016-11-15/how-trump-can-make-money-off-the-secret-service

"The campaigns of both Trump and Hillary Clinton have been paid a total of $5.45 million for flying agents around, according to the last tally available from the Federal Election Commission. Of that, $2.74 million was attributable to protecting Trump."

So, both campaigns were paid the same amount of money.

"So, both campaigns were paid the same amount of money."

The difference, of course, is that the Clinton campaign had to charter planes on the private market while Trump used his own Boeing 757. There is nothing obviously illegal about this but it is rather rich to see this coming from a candidate who claimed to be "self-funding" his campaign. Once he becomes President, there will be few to no checks and balances on how Trump's companies bill the U.S. government for riding on his private jets while providing security for his family members.

The difference, of course, is that the Clinton campaign had to charter planes on the private market while Trump used his own Boeing 757.

I know, right? Trump got his plane on the privilege market as opposed to the private market like that humble schlep Hillary Clinton. Sonuvabitch just used that 757 that all white males get just for being born and got the taxpayers to pay for it.

"But what if your billionaire president is a sociopath who just wants to get even richer. "

Well normally that's a non-starter, but when the choice is between a billionaire sociopath "who just wants to get even richer" versus a multi-millionaire sociopath who just wants more power, then the outcome is a toss up.

My point was that Trump has thrown the whole "billionaires make great presidents because they aren't corruptible" out the window.

And if Clinton had one she'd have all the power she'd ever want. How would that be a problem for her doing her job?

I still believe Trump was a bad choice, but so far at least he has toned down what worried me most. He is now just a standard tax cut and deficit spend Republican, which is at least normal.

Interestingly he seems to be trying to show everyone wrong again by actually governing pretty well (along with enriching himself). I think Clinton would also have tried to govern well as president, to show everyone they were wrong about her too. The choice was awful as we've all agreed. Neither one was a good choice. Some think he was a better one, a (small) majority of voters including myself thought she was.

'won' not 'one'

Why would Trump care if he gets any tax cuts? He's not making any (much) money these days, is he?

I think economists mainly rejected Trump based on his position on trade, not his position on infrastructure spending ( Krugman is always pushing for it)

They also rejected his deficit exploding tax cutting ideas.

I guess but the federal debt already exploded under Obama ( 90 % higher = + $ 9 trillions, 86% of GDP , highest ratio to GDP since WW2 ,I think) and they didn't seem to be complaining much . Interest rates are low right ? Also was the national debt an issue for any candidate during the campaign? Rand Paul ?

I think it's starting to dawn on a lot of Reps what's coming. A bunch of Dem spending and deficits, the same shit they were so against Obama doing. It's a mess.

Come on stephan, this is a fairly aware group. None of us should take the "exploded under Obama" line. We should all understand that spending was connected to the economic cycle, and two Presidents spent like crazy 2006-2010. We spent less after.

$ 4.6T has been added since 2011, the economy wasn't in recession then

"...and two Presidents spent like crazy 2006-2010. We spent less after."

That statement is not true.


"Krugman is always pushing for it" I'm sure he'll be against in now. There may or may not be excuses why.

The timing is wrong.

Trump seems like a response to the low inflation environment of recent years. Back in Nixon's day, his fiddling with the economy to get re-elected in 1972 set off a lot of inflation in 1973. But nothing seems to set off CPI inflation anymore, so why not have a Nixonian President? Of course, if we happen to get a lot of CPI inflation, then this will look very different.

It's like how Black Lives Matter and similar anti-law and order fads are a response to the low crime rate of recent years. We got used to the murder rate falling 3 to 5% per year, so why not cut back on law and order in the name of social justice? But we immediately got hit with double digit inflation in the homicide rate, with much of the inflation centered in a few cities with big BLM protests like Chicago and Baltimore.

"Social justice' bears no relation to justice. What the BLM hoo ha has made clear (or clearer than it was before) is that black protest is 98% rubbish and that the sorosphere isn't just in error, they are self-consciously destructive, as are the lawfare operators who people like Shira Sheindlin need as collaborators. Oh, and Alex Tabarrok is a willing peddler of humbug.

What's the relationship between double digit inflation in the homicide rate of Chicago and cops sending attack dogs after innocent people in St. Paul? http://www.twincities.com/2016/11/04/st-paul-police-chief-apologizes-to-man-who-officer-kicked-k-9-bit/ Or is cops shooting holes in drivers that they've pulled over another kind of fad? http://www.twincities.com/2016/11/16/criminal-charges-philando-castile-shooting-final-moments/ Once again, a country that can send objects to the farthest reaches of the solar system employs the 13th century technology of using a rapid chemical reaction to drive a metal pellet through the body of people that government employees determine aren't responding quickly enough to their orders. Evidently the targets are simply upset with the falling crime rate and feel that inciting the police will help to restore it.

Were you pro-inflation before Trump came up with a plan that is likely to overheat the economy?

I actually don't offer publicly many opinions any more on macroeconomics. I used to have lots of opinions on macroeconomic policy back in the previous century, but I don't see much evidence that I have any talent for being right about macroeconomics. It's a very complicated subject and a lot of talented people compete pretty hard to be right about it. In contrast, I get a better ROI on my efforts to understand simpler subjects such as, say, crime where there's not much competition.

I am very surprised Fiscal Theory of Price Level haven't been on the list. It can be a hit soon!

Cowen's observations may well be accurate, but he is being disingenuous. For eight years we have been warned of the dangers of deficits, government spending, and debt and low interest rates, warned by Cowen's economic friends on the right. Expect an epiphany from them, as deficits (large tax cuts not offset by spending cuts), government spending (on infrastructure and defense), and low interest rates (political pressure on the Fed) become the path to prosperity. If Howard Ruff hadn't died Saturday, he would have experienced another comeback, and been the guiding light for Cowen's economic friends on the right. Speaking of epiphanies, what I have come to appreciate is that it is us and our friends who are most likely to betray us and our principles, not our adversaries: we see a reflection of ourselves when we look at our enemies, which explains the depth of our animosity toward them.

There have always been cynics who said that Republicans didn't hate spending or deficts as long as they were in charge. Upgrade those old cynics? Be cynical about new arrivals?

By that I mean if you made strong anti-spending and debt arguments, try to stick to your guns for a little while at least. Otherwise we might think all your values are situational.

2002-06 Republican Congress proves Republicans increase spending. The House just considered bringing earmarks back. There are no clean hands.

Yep, and look for tax cuts that will pay for themselves, just as they did under George Bush.

Here, Here to the 1%.

They will make America Great Again.

I'm sorry rayward, but this is just plain wrong. Fiscal responsibility has gotten short shrift from just about everybody this century, as the national debt has ballooned from $4 trillion to $20 trillion. Tyler and his ilk are on record saying the debt ceiling must be abandoned. I am virtually alone in celebrating 2013 as the one year in this whole century when Washington DC acted in a grown-up and responsible manner as concerns government finances, and even this would not have happened without a debt ceiling.

Nobody cares about this slow-motion rot.

The debt ceiling was a charade. Spend or don't spend. Don't pretend virtue later when you have to finance what you already spent.

So what's your explanation for how and why the deficit was cut in half in 2013, due to higher taxes and constrained government spending that year?

And leading economists predicted a recession. Jesus, this is all in the public record. It was only a couple years ago. How did we as a country do that? Certainly not by listening to economists.

Gosh, was there an economic cycle in there?

This is your answer? An economic cycle in there? The economy has been in recovery mode since 2009. Year-on-year increases in RGDP have averaged 2.1% for the past 7.5 years, with a minimum of 1.0% and a maximum of 3.3%. A steady if somewhat tepid recovery. 2013 was smack in the middle of the current recovery.

I won't bother with your typical "anon muses on fascinating things inside his own head with no bearing on the outside world" comments below.

Exactly, 2013 was a good mark of where emergency measures ended.

So get mad at me because I see it in context?

No. That is a story you tell yourself. It is not true.

What happened is that tax increases were enacted in the beginning of the year to stave off the debt ceiling-driven "fiscal cliff". Then, government spending was constrained due to debt ceiling negotiations amid the government shutdown mid-year. Spending flat-lined for a year thereafter.

Go look at the data on government receipts and expenditures. That is what happened. Emergency spending, what there was of it, was a 2009/2010 thing.

I am saying a very specific thing. Spending bills matter. Debt limit is "virtue signalling" for reals.

The average craven congress critter voted for the spending and then rent his clothing on the debt limit. High theatre.

Your point being? The fight created the sequester. There was actual spending cuts, minor as they were.

Of course it was theatre. How do you think it works?

You arguing by agreeing?

The sequester was real, though we knew at the time that it too was not "do spending right." It was hands thrown in the air that "nobody knows" what spending was actually excess.

BTW, "nobody knows" bears now, doesn't it?

Do the New Republicans know where spending should now go?

Do you really not know that "debt limit" is an accounting result after tax and spending?

“We need to do stimulus right”

Yup, if only my religion's prophet was in charge of doling out government largesse.

As someone who did say "do it right" in 2009, let me remind that there are tools. An ROI calculation is a good place to start.

"Deficits don't matter" if the president is Republican.

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.

What? You're acknowledging that quite a number of economists who write for general audiences are poseurs and shills? Say it ain't so....

I feel as though this is going to become a tired topic over the next year or so. "What Will The Trump Era Mean for Librarians at Midwestern Public Research Universities?" "What Does A Trump Administration Have In Store For Retired Violinists?" "How Will Muslm-American Sheep Farmers Fare Under President Trump?"

Profound-sounding questions cloaking another excuse for navel-gazing.

#1. I would like you to be more concrete. Like maybe: “The multiplier is about 1.25 when Unemployment is above 7.” That seems ready to decline in status.

4. Narayana "Inflation Is Too Damn Low" Kocherlakota has already written a Bloomberg column fretting that Trump will pressure the Fed into allowing high inflation.

This is a great post Tyler.

Oooh Tyler you're such a _devil_.

4. is very funny.

What I keep looking for, and perhaps it will emerge from the Trump team's wish list in future, are policies that will help labor adapt to technological change. As an example, Trump says he is going to bring manufacturing jobs back from China and Mexico (reshoring). That's already happening but the domestic work is now being done by machines not people. For me, this is the elephant in room.

Great post. I'm afraid it will be painfully great over the coming year while economists make the necessary politically motivated adjustments in their viewpoints.

In fact, the over-emotional forecasting has already begun. Remember when Krugman predicted a recession when Trump was elected, was proven wrong, and then "retracted" the forecast? (See #5 in the link.)


Hopefully the media will hold pundits to their predictions a little more rigorously as we enter this brave Trump-filled world.

Seems to me that you could start with your fellow traveler, Kevin Murphy, and his slides of eight years ago.


There is no bigger troll than Tyler Cowen

He's close, but Donald Trump is a bigger one.

Goldman Sachs forecasts a return to "stagflation" under President Trump.

They are calling for inflation to soar to 2.3% and unemployment to skyrocket to 5.3% under the worst case scenario.

Goldman Sachs scaremongering forecasts will fall in status.

He hasn't put any policies on the table yet, so it's hard to figure what they'd be putting in the models to get anything out of them.

If they are putting in no-NAFTA + 45% Chinese tariffs + deporting 3 million + higher infrastructure spending, the numbers would come out very different.

I think the election of Trump is causing uncertainty for a lot of immigrants, especially illegals, which will likely have ripple effects on the economy. My sense is these immigrants and illegals have been cutting back on consumer spending since Nov 9th and are unlikely to make any major purchases (and some minor ones - that hair cut can wait a few more weeks) for the foreseeable future.

Animal spirits. Self fulfilling prophecies.

A handful of people managed to discuss macroeconomics when the subject was macroeconomics.

All you have to do is say "Trump" and trolls come out of the woodworks no matter what the actual subject at hand is.

My Choices For Macroeconomic Rise Or Downfall

1. Zero Interest Rate Policy(ZIRP). We have sufficient evidence to conclude that a Zero Interest Rate Policy does not stimulate the economy. ZIRP stabilizes a financial crisis when it is timely, targeted, and temporary. It is not a substitute for a good, long term monetary and fiscal policies.

2. Financial Engineering. The zero interest rate policy encouraged many companies to borrow money to buy back stock. Now the Federal Reserve is planning to raise interest rates. How are these self liquidating companies planning to raise sales without borrowing even more money?

3. Wall Street Bailout of 2008.  The longer we go with stagnant wages and slow GDP growth the more the bailout resembles Japan's Lost Decade. Hopefully, if we have a recession our policy leaders will not continue to borrow failed ideas from the Japanese.

4. All Bubbles Matter. The Wall Street bailout did not reduce the systemic risk posed by the derivatives market. Now we get to watch the European Union deal with the systemic risk posed by Deutsche Bank and multiple Italian banks. At some point we have to admit Keynesian economics is more prone to bubbles than Austrian economics.

The global market is really now looking into Trump’s work and how things are going to go about, so it will be interesting to see how things react for that, but we just need to be very wise and careful with how we go about doing our work. I love long term trades and due to OctaFX broker and their swap free account, I am able to do it very nicely while they also have daily market updates feature which further boost me.

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