Resisting the Siren Call of Quack Economics: A Cautionary Tale

As the specter of a Trump return to power looms, a critical examination of his advisers' economic proposals reveals a dangerous flirtation with unorthodox and potentially disastrous policies.

May 01, 2024

The Story:

Prominent economic advisers within Donald Trump's orbit are engaged in a fierce clash over their preferred policy ideas, with these unauthorized plans spilling into the public domain as they jockey for influence over the presumptive Republican presidential nominee's potential second-term agenda. The proposals being floated by these informal advisers include imposing penalties on countries that move away from using the US dollar, implementing a flat tax system, and reforming the Federal Reserve to grant the president greater control over the independent central bank. However, Trump himself has not formally endorsed any of these specific policy proposals, and his top campaign staff are frustrated by the unauthorized plans, which they view as distracting and potentially undermining their disciplined campaign strategy.

As stated by Trump campaign managers Susie Wiles and Chris LaCivita, "Let us be very specific here: unless a message is coming directly from President Trump or an authorized member of his campaign team, no aspect of future presidential staffing or policy announcements should be deemed official."

The public airing of these extreme economic ideas, which often embrace fringe doctrines, reinforces Trump's unorthodox political approach, leaving both voters and financial markets uncertain about his potential policy actions in a second term. According to Nathan Sheets, global chief economist at Citigroup Inc., "

The debate over the Federal Reserve's independence emerges as a particularly divisive issue among Republicans. During his first term, Trump frequently pressured the Fed and its chair, Jerome Powell, to maintain low interest rates. It remains an open question whether Trump would seek to appoint officials in a second term who would undermine the central bank's autonomy, a move that would likely be met with intense market volatility and backlash, according to experts.

As Stephen Myrow, a former George W. Bush Treasury official, notes, "We act like, 'Oh my god, this could never happen.' But it's not like it hasn't been attempted or succeeded in the past. It's just that it was always being done through subterfuge because no one would have the gall to just come out and do it. But gall is not an issue for Trump."

Historically, presidents have attempted to exert influence over the Fed, with Richard Nixon's calls for rate cuts in the 1970s contributing to a resurgence of inflation, and Ronald Reagan's administration pressuring then-Chair Paul Volcker not to raise rates before the 1984 election. Trump's repeated criticism of the Fed and Powell in 2018 and 2019 ultimately led to interest rate cuts, and some of his advisers have even discussed ways to potentially remove Powell before his term ends in 2026. However, the executive branch's ability to directly control monetary policy is limited, as all decisions by the Federal Reserve require approval by the Board of Governors. Even with the potential for Trump to nominate a few new Fed governors, they could still be outvoted by the existing board members, preserving the central bank's independence.

The View:

The ongoing clash among Donald Trump's economic advisers over their preferred policy ideas is deeply concerning, as it demonstrates a worrying trend of magical thinking and disregard for established economic principles. Instead of engaging in rational, evidence-based policymaking, these advisers are pushing fringe proposals that could have disastrous consequences for the American economy and its standing in the global financial system.

Trump's flirtation with quack economics is particularly alarming, as he has repeatedly shown a willingness to prioritize short-term political gain over long-term economic stability. The former president's past attempts to pressure the Federal Reserve and undermine its independence are a testament to his disregard for the hard-won lessons of the past, which emphasize the importance of an independent central bank in maintaining price stability and promoting sustainable growth. The public airing of these unauthorized policy proposals, which include ideas like penalizing countries for moving away from the US dollar and implementing a flat tax system, further reinforces the notion that Trump and his advisers are more interested in pursuing ideological fantasies than crafting pragmatic, evidence-based policies that would benefit the American people. This approach is not only irresponsible but potentially catastrophic, as it could lead to a resurgence of inflationary pressures, trade disruptions, and a damaging loss of confidence in US institutions.

The fact that Trump's top campaign staff are frustrated by these distractions is a glimmer of hope, as it suggests that even within the former president's inner circle, there is an understanding of the need to maintain a disciplined, reality-based approach to campaigning and policymaking. However, the persistence of these fringe economic ideas within Trump's orbit is a troubling sign, and it underscores the importance of vigilance and clear-eyed analysis in the face of such blatant disregard for sound economic principles.

Ultimately, the battle for influence over Trump's potential second-term agenda is not merely a political squabble; it is a battle for the very soul of the American economy. As concerned citizens, we must remain steadfast in our commitment to rational, evidence-based policymaking, and we must be willing to confront and challenge the purveyors of quack economics who seek to undermine the stability and prosperity that the United States has worked so hard to achieve.

TLDR:

Trump's economic advisers are proposing a range of unorthodox and potentially inflationary policies, including penalties for countries shifting away from the U.S. dollar, a flat tax, and reforms to the Federal Reserve to give the president more control over the independent central bank.
These unauthorized policy plans have infuriated Trump's top campaign staff, who are struggling to maintain discipline and focus on the general election strategy.
The public jockeying and embrace of fringe economic ideas by various factions within the Republican circles reinforce Trump's political unorthodoxy, leaving voters and markets uncertain about his future economic agenda.
Experts warn that any attempt to undermine the independence of the Federal Reserve would be met with fierce market backlash and volatility, as it has been in the past when presidents tried to exert influence over monetary policy.
A return to power for Trump could lead to a resurgence of destructive economic practices, with potentially severe consequences for the United States.

Insights From:

Trump’s Economic Confidants Battle for Sway on Tax, Fed Policy - Bloomberg

Opinion | Trump Is Flirting With Quack Economics - The New York Times (nytimes.com)