2016 Dec 31^st

Let’s talk economics. I can’t compete with the background of Dr. Thomas Sowell the columnist who has a doctorate in economics from the University of Chicago, but Sowell hardly ever talks about economics. His primary agenda is the importance of denying the disadvantaged people any extra advantage. I suppose that’s some variety of economics.

My concern here is with Trumpian economics. I am not sure what Trumpian economics are and that uncertainty is part of its charm; whatever it is, it may well be different by New Year ’s Day.  

Trump’s has called for a number of things that will grow the economy: He wants to reduce taxes, particularly for the wealthy. He wants to eliminate the Inheritance Tax, which would benefit only people of very high net worth, such as himself. He wants to reduce the corporate tax rate, currently at 35 percent. Of the largest corporations, the average tax rate actually paid is just 17 percent; this is due to effective lobbying by these businesses and their hiring of skilled tax attorneys.

Trump plans to ask for a tax on imports if companies move production facilities abroad where labor and the cost of production are cheaper. If these companies comply, their products will be more expensive for American consumers to buy.

Trump is also going to “deregulate” various industries so as to achieve a growth rate of three to four percent thus creating at least 1.3 million new jobs every year. The happy talk about this from the investment community has already begun. The S&P index of 500 stocks rose 6.7 percent in the two months since the election.

 The upshot here is a massive increase in money in circulation and the result will be an increase in prices. There could also be a trade war. If we increase the tariffs on foreign goods coming into this country other countries will increase their tariffs on our products and we’ll have the Hoover depression all over again.

Back in the decade of the 1980s we had inflation as high as 1 percent per month. The result was a huge increase in interest rates to avoid a real runaway inflation; it worked. People who had fixed income securities found the value of their assets cut in half but inflation was controlled. I doubt that we see anything like that soon again, but fixed income securities, even long term government bonds are, like J.P Morgan said when asked what he thought the stock market would do said,  “It will fluctuate.”

So what’s the answer? If Trumpian economics does produce inflation probably the best bet will be the S&P 500 and very short term bonds whose interest rates change every couple of years to follow inflation…or we could just impeach Donald J. Trump!