Absolute Return letter for the month of November 2016, titled, “Trump – Another Brexit Moment?”
“In Donald Trump, Americans have finally found a man too stupid even for them.” — David Millward, Daily Telegraph
Given the highly provocative nature of the quote I have chosen to open this month’s Absolute Return Letter with, I should probably make a comment or two. My colleagues immediately accused me of sarcasm, but I am the least sarcastic person in the Western hemisphere – can’t even spell the word correctly. Of course I am not saying that all Americans are stupid – only that one of the presidential candidates is! How can you take a man, who plans to build a 2,000 mile (3,200 km) long wall between Mexico and the US, seriously?
From a European point of view, the election campaign has certainly been highly entertaining so far, but perhaps not quite as reassuring as one would have liked. Most of us have spent the last few months preoccupied with the profoundly important question: Will Hilary Clinton take the ultimate prize, or will Donald Trump play one of his (in)famous jokers at the 11th hour, bringing him back into contention?
On a related note, there has been surprisingly scarce mention of the Congress elections – at least here in Europe. Both chambers have a substantial number of seats up for grabs. To be more precise, 34 of the 100 seats in the Senate are up for election on the 8th, and so are all 435 seats in the House of Representatives.
The Republicans have controlled both chambers of Congress in recent years to the detriment of the US economy. I am not at all saying that the Republicans are any worse than the Democrats in terms of playing silly games; however, when two political parties are jointly in power, as they currently are in the US, the political process often comes to a virtual standstill. Annoying the other side becomes more important than making the necessary compromises. We only know too well here in Europe.
When that happens, there is only one loser – the country. For that reason, it is almost more important who takes the majority in Congress. Should Hilary Clinton win, as the opinion polls still suggest she will, and should the Republican party keep the power in both chambers of Congress, we are most likely in for another few years of open hostility between the President and Congress. It could quite possibly turn even worse under Clinton’s stewardship than it ever was under Obama, considering how disliked she is. The most likely outcome? Another few years of do-nothing, leading to continued slow economic growth.
That said, before I go any further, I should probably point out that presidents’ (and prime ministers’) impact on economic growth is diminutive relative to the impact they think they have. Yes, they can move the needle a little bit by building a new motorway here and there, or expand the number of runways at the local airport (think London Heathrow), but they cannot affect any of the truly seismic factors, such as demographics. The biggest impact lawmakers can ever expect to have on economic growth is through the rules and regulations they put in place (or remove).
As the US economy already benefits immensely from very business-friendly laws when compared to other developed markets, one shouldn’t really expect it to make a massive difference, whether Clinton or Trump wins. That said, there is a once-in-a-lifetime opportunity to upgrade a dilapidated US infrastructure.
The Brexit moment
As I began to prepare for this month’s Absolute Return Letter, I couldn’t stop comparing the Trump moment (as I call it) to the Brexit moment in the UK. Rapidly rising anti-establishment emotions combined with growing nationalism gave us an outcome of the EU referendum that took the political leadership in the UK by surprise. What they thought was a winnable battle turned out to be anything but, and what was supposed to be a referendum about continued EU membership turned into a referendum for or against the establishment.
Likewise, the inclination amongst many US voters to vote for Trump looks to me to be a vote against the establishment over there. People have simply had enough of the elite, who continue to grab whatever they can get away with. One example: 95% of the increase in US income since 2008 has ended up in the pockets of the top 1% of earners1.
Selecting Trump as the next US president would be a cry for change, just like the Brexit referendum was a plea for change in the UK, but will things really change, should he win? I honestly don’t know, and have no intentions of turning the Absolute Return Letter into a political manifesto, so let’s stick to things that I do know about – how would his political programme affect the US economic landscape, should he come out as a winner on the 8th November?
What has Donald Trump actually promised the Americans?
Trump’s programme is a colourful mix of socially responsible policies, such as his childcare programme, mixed up with largely meaningless promises (such as declaring American energy dominance a goal) and a few pies in the sky (e.g. promising at least 3.5% annual GDP growth) so, in that respect, he isn’t any different from other politicians. Where he differs is on his promise to deliver the preposterous, such as the already mentioned wall, designed to appeal to the uninformed.
At this point, I should probably stress that the following 13 policy points have been taken out of context so to speak. They are part of a broader political programme, and they are by no means all preposterous. Some of them make a great deal of sense, actually. Nevertheless, I am sure I will still be accused of being biased (which I am), but here we go:
- Child care
Provide six weeks of paid leave to new mothers before returning to work.
- Constitution and second amendment
Protect and defend freedom of religion, speech, press and right to bear arms.
Boost growth to 3.5% per year on average, with the potential to reach a 4% growth rate.
Immediately add an additional federal investment of $20 billion towards school choice.
Declare American energy dominance a strategic, economic and foreign policy goal of the United States.
- Foreign policy and defeating ISIS.
Rebuild our military, enhance and improve intelligence and cyber capabilities.
- Health care
Work with Congress to create a patient-centered health care system that promotes choice, quality and affordability.
Begin working on an impenetrable physical wall on the southern border, on day one. Mexico will pay for the wall.
- National defence
Increase the size of the US army to 540,000 active duty soldiers, which the army Chief of Staff says he needs to execute current missions.
Put the job-killing regulation industry out of business.
- Tax plan
Ensure the rich will pay their fair share, but no one will pay so much that it destroys jobs or undermines our ability to compete.
Instruct the Trade Secretary to label China a currency