Archive for the 'Trump' Category

OMG! The Age of Trump Is upon Us

UPDATE (11/11, 10:47 am EST): Clinton’s lead in the popular vote is now about 400,000 and according to David Leonhardt of the New York Times, the lead is likely to increase to as much as 2 million votes by the time all the votes are counted.

Here’s a little thought experiment for you to ponder. Suppose that the outcome of yesterday’s election had been reversed and Hillary Clinton emerged with 270+ electoral votes but trailed Donald Trump by 200,000 popular votes. What would the world be like today? What would we be hearing from Trump and his entourage about the outcome of the election? I daresay we would be hearing about “second amendment remedies” from many of the Trumpsters. I wonder how that would have played out.

(As I write this, I am hearing news reports about rowdy demonstrations in a number of locations against Trump’s election. Insofar as these demonstrations become violent, they are certainly deplorable, but nothing we have heard from Clinton and her campaign or from leaders of the Democratic Party would provide any encouragement for violent protests against the outcome of a free election.)

But enough of fantasies about an alternative universe; in the one that we happen to inhabit, the one in which Donald Trump is going to be sworn in as President of the United States in about ten weeks, we are faced with this stark reality. The American voters, in their wisdom, have elected a mountebank (OED: “A false pretender to skill or knowledge, a charlatan: a person incurring contempt or ridicule through efforts to acquire something, esp. social distinction or glamour.”), a narcissistic sociopath, as their chief executive and head of state. The success of Trump’s demagogic campaign – a campaign repackaging the repugnant themes of such successful 20th century American demagogues as Huey Long, Father Coughlin and George Wallace (not to mention not so successful ones like the deplorable Pat Buchanan) — is now being celebrated by Trump apologists and Banana Republican sycophants as evidence of his political genius in sensing and tapping into the anger and frustrations of the forgotten white working class, as if the anger and frustration of the white working class has not been the trump card that every two-bit demagogue and would-be despot of the last 150 has tried to play. Some genius.

I recently overheard a conversation between a close friend of mine who is a Trump supporter and a non-Trump supporter. My friend is white, but is not one of the poorly educated of whom Trump is so fond, holding a Ph.D. in physics, and being well read and knowledgeable about many subjects. Although he doesn’t like Trump, he is very conservative and can’t stand Clinton, so he decided to vote for Trump without any apparent internal struggle or second thoughts. One of his reasons for favoring Trump is his opposition to Obamacare, which he blames for the very large increase in premiums he has to pay for the medical insurance he gets through his employer. When it was pointed out to him that it is unlikely that the increase in his insurance premiums was caused by Obamacare, his response was that Obamacare has added to the regulations that insurance companies must comply with, so that the cost of those regulations is ultimately borne by those buying insurance, which means that his insurance premiums must have gone up because of Obamacare.

Since I wasn’t part of the conversation, I didn’t interrupt to point out that the standard arguments about the costs of regulation being ultimately borne by consumers of the regulated product don’t necessarily apply to markets like health care in which customers don’t have good information about whether suppliers are providing them with the services that they need or are instead providing unnecessary services to enrich themselves. In such markets, third-parties (i.e., insurance companies) supposedly better informed than patients about whether the services provided to patients by their doctors are really serving the patients’ interests, and are really worth the cost of providing those services, can help protect the interests of patients. Of course, the interests of insurance companies aren’t necessarily aligned very well with the interests of their policyholders either, because insurance companies may prefer not to pay for treatments that it would be in the interests of patients to receive.

So in health markets there are doctors treating ill-informed patients whose bills are being paid by insurance companies that try to monitor doctors to make sure that doctors do not provide unnecessary services and treatments to patients. But since the interests of insurance companies may be not to pay doctors to provide services that would be beneficial to patients, who is going to protect policyholders from the insurance companies? Well, um, maybe the government should be involved. Yes, but how do we know if the government is doing a good job or bad job of looking out for the interests of patients? I don’t think that we know the answer to that question. But Obamacare, aside from making medical insurance more widely available to people who need it, is an attempt to try to make insurance companies more responsive to the interests of their policyholders. Perhaps not the smartest attempt, by any means, but given the system of health care delivery that has evolved in the United States over the past three quarters of a century, it is not obviously a step in the wrong direction.

But even if Obamacare is not working well, and I have no well thought out opinion about whether it is or isn’t, the kind of simple-minded critique that my friend was making seemed to me to be genuinely cringe-worthy. Here is a Ph.D. in physics making an argument that sounded as if it were coming straight out of the mouth of Sean Hannity. OMG! The dumbing down of America is being expertly engineered by Fox News, and, boy, are they succeeding. Geniuses, that’s what they are. Geniuses!

When I took my first economics course almost a half century ago and read the greatest economics textbook ever written, University Economics by Armen Alchian and William Allen, I was blown away by their ability to show how much sloppy and muddled thinking there was about how markets work and how controls that prevent prices from allocating resources don’t eliminate destructive or wasteful competition, but rather shift competition from relatively cheap modes like offering to pay a higher price or to accept a lower price to relatively costly forms like waiting in line or lobbying a regulator to gain access to a politically determined allocation system.

I have been a fan of free markets ever since. I oppose government intervention in the economy as a default position. But the lazy thinking that once led people to assume that government regulation is the cure for all problems now leads people to assume that government regulation is the cause of all problems. What a difference half a century makes.

So You Don’t Think the Stock Market Cares Who Wins the Election — Think Again UPDATE

UPDATE (October 30 (9:22pm EDST): Commenter BJH correctly finds a basic flaw in my little attempt to infer some causation between Trump’s effect on the peso, the peso’s correlation with the S&P 500 and Trump’s effect on the stock market. The correlation cannot bear the weight I put on it. See my reply to BJH below.

The little swoon in the stock markets on Friday afternoon after FBI Director James Comey announced that the FBI was again investigating Hillary Clinton’s emails coincided with a sharp drop in the Mexican peso, whose value is widely assumed to be a market barometer of the likelihood of Trump’s victory. A lot of people have wondered why the stock market has not evidenced much concern about the prospect of a Trump presidency, notwithstanding his surprising success at, and in, the polls. After all, the market recovered from a rough start at the beginning of 2016 even as Trump was racking up victory after victory over his competitors for the Republican presidential nomination. And even after Trump’s capture of the Republican nomination was seen as inevitable, even though many people did start to panick, the stock markets have been behaving as if they were under heavy sedation.

So I thought that I would do a little checking on how the market has been behaving since April, when it had become clear that, barring a miracle, Trump was going to be the Republican nominee for President. Here is a chart showing the movements in the S&P 500 and in the dollar value of the Mexican peso since April 1 (normalized at their April 1 values). The stability in the two indexes is evident. The difference between the high and low values of the S&P 500 has been less than 7 percent; the peso has fluctuated more than the S&P 500, presumably because of Mexico’s extreme vulnerability to Trumpian policies, but the difference between the high and low values of the peso has been only about 12%.


But what happens when you look at the daily changes in the S&P 500 and in the peso? Looking at the changes, rather than the levels, can help identify what is actually moving the markets. Taking the logarithms of the S&P 500 and of the peso (measured in cents) and calculating the daily changes in the logarithms gives the daily percentage change in the two series. The next chart plots the daily percentage changes in the S&P 500 and the peso since April 4. The chart looks pretty remarkable to me; the correlation between changes in the peso and change in the S&P 500 is striking.


A quick regression analysis on excel produces the following result:

∆S&P = 0.0002 + .5∆peso, r-squared = .557,

where ∆S&P is the daily percentage change in the S&P 500 and ∆peso is the daily percentage change in the dollar value of the peso. The t-value on the peso coefficient is 13.5, which, in a regression with only 147 observations, is an unusually high level of statistical significance.

This result says that almost 56% of the observed daily variation in the S&P 500 between April 4 and October 28 of 2016 is accounted for by the observed daily variation in the peso. To be precise, the result doesn’t mean that there is any causal relationship between changes in the value of the peso and changes in the S&P 500. Correlation does not establish causation. It could be the case that the regression is simply reflecting the existence of causal factors that are common to both the Mexican peso and to the S&P 500 and affect both of them at the same time. Now it seems pretty obvious who or what has been the main causal factor affecting the value of the peso, so I leave it as an exercise for readers to identify what factor has been affecting the S&P 500 these past few months, and in which direction.

About Me

David Glasner
Washington, DC

I am an economist in the Washington DC area. My research and writing has been mostly on monetary economics and policy and the history of economics. In my book Free Banking and Monetary Reform, I argued for a non-Monetarist non-Keynesian approach to monetary policy, based on a theory of a competitive supply of money. Over the years, I have become increasingly impressed by the similarities between my approach and that of R. G. Hawtrey and hope to bring Hawtrey’s unduly neglected contributions to the attention of a wider audience.

My new book Studies in the History of Monetary Theory: Controversies and Clarifications has been published by Palgrave Macmillan

Follow me on Twitter @david_glasner


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