Everything Is Going Great, So Let’s Change It

On fiscal policy, of course, this refers to the still not clearly formulated tax change (“reform” in the words of the GOP).  As we know cutting taxes for the rich is the one thing that seems to unite the party, so gosh darn it, they will probably do it, even if it takes a lot of effort.  As expected all those loud fiscal hawks from the Obama period are now fine with adding at least $1.5 trillion to the national debt, which will probably end up being more as some of the revenue increasing parts of the possible plan look like they may not pass.  After all, while Trump says the middle class will gain, indeed everybody, is going to get the hugest tax cut ever and it will pay for itself somehow.  But estimates have 80% of the cuts going to the top 1 or 2%, given the emphasis on cutting corporate taxes.  Anyway, here we have a pretty good growth performance that supposedly justifies a move to change the tax policy and system that has existed while this good performance happened.  Frankly, I do not know what the effect on growth will be as a result of whatever they pass, as they will pass something, although I doubt it will be all that big one way or the other on aggregate growth.

The more amusing part of this is the argument apparently been given by Treasury Secretary Mnuchin and others in the last few days that is decidedly ironic.  It is that the stock market increase we have seen has at least partly been fueled by the expectation of a nice big corporate tax cut that will boost profits, along with all the deregulation that has been going on .  So, the argument goes, if the tax plan (or some tax plan, heck, anything) is not passed, well folks, that nice stock market increase might be threatened.  No tax plan passed, well, maybe a sharp decline of the stock market!  I find this hilarious, although it might be true.  The stock market has begun to look a bit elevated, near the boundary of getting into bubble territory by some measures, so, you had better watch out!

The other matter has to do with monetary policy.  Everybody, including even Lou Dobbs, is telling Trump to reappoint Yellen, oh, with the exception of some House Republicans who want John Taylor and apparently Mnuchin who favors current Fed governor, Jerome Powell, a Republican appointed by Obama, who reportedly would more or less follow the Yellen policy, although be more open to ending the regulations on banks that Obama put in, which Yellen has publicly supported.  On Lou Dobbs’ show, Trump said he had spoken with Yellen, and he kind of likes her, but also that he “wants to make a mark,” which he indicated hurts the chances of Yellen, and WaPo yesterday said it is now down to just Powell versus Taylor.  I mean, hey, she was appointed by Obama, and simply nothing that Obama did must be allowed to stand, even when you have all sorts of Wall Street Republicans saying she should stay, and even populist looney Lou Dobbs as well.  Gotta go so Trump can make his mark and complete the changing of everything Obama, even though it is all just going so great.

BTW, this is just the opposite of what is going on in China.  There, everything is going great, so we are going to change not a bit of it, except for some of the leaders.

Barkley Rosser