Three Ways to Continue the Trump Economic Boom
Financial markets have seen enormous volatility in recent weeks, including a violent 799-point Dow Jones Industrial Average drop on Tuesday. Perspective is important here. Even with recent losses, the DJIA is still higher on the year and up a stunning 37 percent since Donald Trump’s election.
I have long posited that a rising stock market, while helpful to wealth creation, should hardly be the sole, or even primary, barometer of economic success for our nation and for the Trump agenda. In fact, the stock market thrived during the slow-growth Obama presidency, benefiting from artificially low interest rates and depressed wages for American workers that inflated corporate profit margins.
In this era of the Trump economic boom, we see just the opposite results. Wages surge and optimism explodes, particularly for consumers and small businesses. Not only is growth accelerating because of tax and regulatory relief, but the Trump-boom prosperity is also broadening as blue-collar wage growth exceeds white-collar wage growth for the first time in almost a decade.
Recent market convulsions largely emanate from worries that pro-growth reforms will now cease given Democratic control of the House of Representatives. While the expansion-inducing options for the president are limited now, there are still three viable reforms that can help the Trump boom continue and even accelerate.
- Lean on the Federal Reserve -- Short-term interest rates have risen steadily ever since Trump’s 2016 triumph, and for good reason – faster growth! Because of the Trump boom, the Fed can finally normalize policy after years of top-down central planning that failed to ignite Main Street growth. But the Fed can also get carried away, and recent longer-dated bond market moves suggest that America is still far from macro-inflationary worries, as evidenced by the historic recent meltdown in oil prices. So, President Trump should use the bully pulpit to cajole the Fed to “slow its roll.”
- Bilateral trade deals – Much recent market angst surrounds trade tension with China. President Trump correctly demands reciprocity and symmetry from China, because Beijing has abused American workers for decades. An easy way to assuage market doubts and show America’s commitment to global trade would be securing strong bilateral trade deals with allies as quickly as possible. The USMCA agreement with our North American neighbors and the Korean trade pacts represent a template that should be replicated on an expedited basis with countries like the U.K., Japan, Singapore, and Brazil.
- Middle-class tax cuts – While admittedly unlikely, reducing middle-class taxes represents one of the few growth-oriented policy reforms that has a chance of passage by a Speaker Pelosi-led House. Specifically, President Trump should offer to tie such cuts for working-class people to other adjustments to his historic tax cuts. For example, for firms to fully utilize the new lower corporate rates, our code could be amended to require capital investment within the United States in people, manufacturing plants, and technology rather than only facilitating financial engineering through buybacks and dividends.
From my two decades working on Wall Street, I can attest that markets are often volatile and often not correlated to Main Street America’s success. Neither President Trump nor voters should fixate on unstable markets, but rather concentrate on policies that produce lasting growth for the preponderance of Americans. As we enter the year-end period, we can be thankful that opportunity and optimism abound again in America. But risks remain, and some smart policy moves from here can invigorate nervous markets and increase our overall prosperity.