While the financial markets, fueled by the expectations of a business-friendly president who promises lower taxes and fewer regulations, reach record highs, it is too early to tell whether this will be reflected in the real economy.
After all, this is an economy that will have to absorb a likely decline in immigration, a tighter labor market, higher prices due to penalties against domestic companies that produce overseas and then sell those products in the United States, the threat of robotization, possible trade wars, and the high national debt. It’s all happening in an environment in which half the country cannot cope with the result of the 2016 election, and most of the news media are unsure whether Donald Trump is a joke, a danger to democracy, or both.
Most economists would not dare to predict changes in the stock market, but most agree that current prices are the result of investors’ decisions based on the best information they have and their expectations about the future. Whether Wall Street knows something that Main Street has not processed yet, is something we’ll find out soon enough.
Trump is a results-driven, entrepreneur friendly, government-power skeptic and a self-made billionaire (he got some help from his family, who hasn’t?). He possesses an unparalleled set of characteristics. His view of the role of the United States in the world is quite different from that of his predecessors. His view of what we get out of trade deals is very different as well, as is his view of his role.
While American businesses know the rules of the game are changing, they still need to create wealth for shareholders, and we know this country has flourished thanks to flexible companies that adapt to turbulent times. The winds have changed. Maybe the winds are just hot air, but it is still air that can help businesses get where they want to go.
Most businesses will adapt to changes Trump brings about, even flourish, and workers with fatter paychecks thanks to tax code changes will sustain our retail system, fueling the economy. But not everyone will win. There will be losers. And it will probably be the worst of times to be a loser, because Trump plans to pay for tax cuts with reductions in several federal agencies, including the State Department and the Environmental Protection Agency.
It is unclear whether the Street will come to terms with a president who delivers, in his own way, on the promises he made and at a pace no one expected. Trump is smart to concentrate on distractions (the border wall, deportation of thugs, fake news, the news media, Russia and Ivanka’s shoes) while his team prepares the legislation that will shape his presidency (tax code, foreign investment, trade agreements, regulation) and the appointments that will mark his legacy.
I am optimistic and believe that behind Trump’s almost bully-like persona, he knows the stakes are high. Behind his apparent lack of compassion for immigrants, he knows we can’t separate the success of this country from the success it needs to continue to attract the best, the brightest and the hardest-working immigrants. Now, the introduction of a merit-based immigration system, to complement the family reunification-based system we have, seems part of the agenda.
Once Trump comes to terms with the fact that a successful president is one who gets things done right, not just faster, we will start to see the value of having an entrepreneur in the Oval Office. But he will have to be more presidential, and focus on delivering on the promise of making us an even greater nation.
I hope I am right.
Hugo Benitez-Silva is associate professor and director of undergraduate studies in the Department of Economics at Stony Brook University.