I feel good about the nomination of Steven Mnuchin for Treasury Secretary. A banker (a not a political hack) in that seat is all right by me. Seriously. And Wilbur Ross as Commerce Secretary? Terrific.
I can’t tell you how happy I am to have private sector guys in these positions of power.
I’ll be candid—for eight years, under Obama, business was the enemy. That mindset is changing. It seems foreign because it’s been so long.
With the S&P 500 falling a double-digit percentage in the first half, most equity hedge fund managers struggled to keep their heads above water. The performance of the equity hedge fund sector stands in stark contrast to macro hedge funds, which are enjoying one of the best runs of good performance since the financial crisis. Read More
I was never a Trump supporter. But this is the reality of it: we have just elected a businessman (however flawed) to the highest public office. Trump is motivated by very different things than Obama was.
If you’re wondering about the newfound ebullience in the stock market, this is it. The last eight years saw an unprecedented expansion of the regulatory state. It will be rolled back.
Trump’s bullish tax plan
The most bullish thing of all about Trump is his tax plan. It establishes three brackets of 12%, 25%, and 33%, and the top rate kicks in at an income of $225,000.
So right off the top, about a 7% reduction in the top marginal rate.
Also: the standard deduction will be $30,000 for married filing jointly, instead of $12,600. That has massive implications.
Who pays more than $30,000 of mortgage interest every year? Why itemize deductions? All this running around we do at tax time, collecting receipts and such, could go away… for all except the wealthiest.
But here is the biggest proposal of all—make sure you’re sitting down.
Trump wants to lower the corporate tax rate to 15%. A laudable goal: lower the rate, broaden the base, collect more revenue, and maybe repatriate some of that overseas income.
But he wants to apply it to not just C corporations but to pass-through entities such as LLCs and S corps and partnerships. I’m sure some people get most or all of their income from pass-through entities. Think about how big this is.
Likelihood of passing? No idea. It’s hard not to imagine distortions arising from a 15% federal LLC tax (everyone opening up LLCs, for example), but even a partial reduction in taxes on small business… yuge, as they say.
A return to Reaganomics?
A lot of people are comparing this (favorably) to the early days of the Reagan administration, and the parallels are a bit eerie, actually.
In both cases, you had a Democratic Fed and Fed chairman who were more than willing to rip rates and plunge the economy into recession under a Republican president. (This is not a widely held view.)
But go back and look at the charts in 1980, in the days and weeks after Reagan was elected. The Dow looked like a rocketship, and stocks went up with few interruptions for 20 years.
But the big difference between Trump and Reagan (and there are many) are their attitudes toward trade. The modern Republican Party has always been in favor of free trade… but not Trump.
Is Trump right? Neither here nor there.
I think the economic impact will be negative, and the question is how negative.
Stories are starting to trickle in about how intertwined US-Mexico auto manufacturing is, and that there would be a massive unwind if NAFTA were to be renegotiated. (I blocked a guy on Twitter last week for calling me a filthy globalist or something like that, so take the free-trade views with a grain of salt.)
The benefits of free trade are not intuitively easy to understand. I’m surprised it’s lasted as long as it has. I think we have entered a period of de-globalization.
So if you think about who has benefited from globalization over the last 15 years and who has lost—imagine what the world will look like when the roles are reversed. That means bad news for the Chinese underclass and the 1%, and great news for America’s middle class.
Running the US like a business
So I suspect I am like many people… watching the Trump transition with a mixture of optimism and horror. The surprises do not end here. The policy 180 might go down in history as the biggest of all time. And we haven’t even talked about healthcare yet.
I’ve noticed that some journalists are a bit scornful of all these private sector guys in the cabinet. Don’t be. I worked in government once, remember. The main reason I left was because it was laughably inefficient. If the government starts running like a business, it wouldn’t be the worst thing in the world.
You can go back in time and think up presidents who once worked in the private sector (both Bushes, Truman, Carter, others), but not one of them had devoted an entire lifetime to business. Trump thinks more like an investor than a beaurocrat. So there’s a good reason for optimism.
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