Stoopid Does It

Usually an election offers two similar, if contrasting, economic programs, both of which are equally valid.

The 2016 election was different, offering a simple choice between smart and stupid. Voters chose stupid.

So, you’re going to get stupid. I think you’re going to get Stoopid. Trump and his Republican friends are too stupid to merit a correct spelling.

As the advance of technology has accelerated, evidence has become more-and-more important to policymakers. Trump rejects that reality and substitutes his own personality. His followers substitute a rigid ideology.

This is the epitome of Stoopid.

Clouds have changed the economic world. It is no longer possible for a small investor to beat the “quants,” the computer algorithms running daily trading. What is true for stock investing is also true for economic policy. You can’t beat the house, the house in this case being the collective wisdom of the economic system’s algorithms.

Even before Trump takes office we’ve seen him fall into Stoopid, bigly. His policy to Whip Deflation Now by talking up the price of oil has sent the price over $55. Great for his Texas and North Dakota followers. Bad for anyone who buys energy, meaning everyone.

Higher oil prices are going to ripple through the economy, raising inflation. They will also raise interest rates, meaning they are going to raise the price of carrying the national debt. Just since the election the yield of the benchmark 10-year note has gone from 1.8% to 2.5%. The yield on the 30-year is up to 3.1%, from 2.6%. This means the cost of carrying the U.S. national debt has jumped about 25% in two months.

This too is going to ripple through the U.S. economy and the U.S. budget, causing huge knock-on effects. The rising costs of carrying U.S. debt, currently $13.76 trillion, is about to rise. We spent $223 billion carrying this load last year.  This year we’ll spend about $300 billion, and more next year. This will be true even if, by some miracle, Trump balances the next budget.

The debt was not a problem during the Obama years. Trump is making it one.

His efforts will prove a disaster. Balancing the budget means adding $500 billion in taxes, or taking $500 billion out of spending. Either way you do it, that’s money that comes out of the economy, an economic downdraft of epic proportions even on an economy of almost $18 trillion.

Guess what happens when you take $500 billion out of an $18 trillion economy? You don’t have an $18 trillion economy. Trump and his Trumpkins think this is cool because they believe the central lie of Reaganomics, the economic myth that as tax rates fall production magically goes up. It’s an essential element in their ideology, which as I said does not respond to evidence. I once personally watched Arthur Laffer draw his famous curve on a napkin, and even he knew it was a nonsense. Even if there were some truth to the idea that lower rates can mean higher revenues there comes a point where lower rates do indeed mean lower revenue – otherwise a tax rate of zero would yield infinite revenue.

The only way to do anything economically without upsetting an apple cart is gradually, based on evidence. You do anything suddenly, based on ideology – and I’m talking here of ANY ideology – and you are Stoopid.

Even were I completely wrong and the budget is magically balanced without a recession, you’re still going to be paying more on the existing debt – a lot more. Chances are that cutting the budget substantially, slowing the economy, will also lower tax revenues, meaning that instead of balancing the budget your result will be an increase in the deficit. It’s a vicious circle that’s very hard to get out of, impossible if you’re basing decisions on ideology and gut feel rather than evidence.

There will be winners here. Foreign oil powers will be winners in the short run. The same is true for renewable energy producers. As oil prices rise, solar and wind power can be installed more profitably. Tesla Motors Inc., whose purchase of Solarcity seemed three kinds of dumb last year, is now going to look good thanks to higher oil prices and mass production techniques that will allow it to hold the line on pricing and make money doing it.

This is just one example of Stoopid in action. The economy is filled with fast-moving parts. Stoopid can’t keep up with it. What you need are experts, people who will analyze situations dispassionately and adjust policy incrementally.

No ideology works anymore. Communist, fascist, liberal or conservative, you name it. Beliefs can be, at best, only a rough guide, one you need to discard based on evidence. The best you can do in a world of data is try to muddle through. You can’t control events as you once did. You’re not going to get the time.  

There are underlying trends, and they’re all moving against Trump. Demographics are against him. Closing borders is a great way to get those demographics moving even faster in the wrong direction. Denying climate change won’t stop climate change, it will only accelerate it. Remember Katrina? Remember Sandy? Prepare to lose at least two more cities in the next four years, and to lose some big cities permanently. That’s even assuming the San Andreas Fault remains stable, an increasingly dicey proposition.

The bottom line is that all holy heck is about to break loose, in the U.S. economy, in U.S. politics, and globally, as the Gang that Can’t Shoot Straight grabs the reins of power and rides it down like Slim Pickens in Dr. Strangelove.

Next week, I’ll write about the underlying trends lying beneath Trump’s Stoopid and what will be done to change it.