Dangerous game of parsing Trump’s words

Tough reality check for pledge of jobs, wages

Move over, Janet Yellen. The Federal Reserve chief has a challenger for the title of speaker most scrutinized by Wall Street, and it’s Donald Trump. All new US president-elects are closely monitored by the financial community for clues about what their policies mean for markets. But Trump’s speaking style, often using enthymemes or incomplete sentences that leave room for interpretation, along with vague or contradictory campaign promises make him all the more challenging to decipher.

“His statements are crazy. He says peculiar things, like building the wall and getting Mexico to pay for it, that you know are just not going to happen,” said Allan Meltzer, a Fed historian and professor of political economy at Carnegie Mellon University, in Pittsburg. “But his actions as opposed to his statements have been very moderate,” he said.

Exhibit A for how Trump has policy makers and investors hanging on his every word came shortly after the Republican’s conciliatory acceptance speech early Wednesday. Bonds fell and stocks gained as investors placed tentative bets that Trump’s somewhat vague platform of economic stimulus would translate into corporate profits and higher inflation.

The stakes are high. With a Republican controlled House and Senate, Trump has the opportunity to use his time in office to radically reshape the American economy. He has pledged dramatic tax cuts, infrastructure spending and economic deregulation, and wants to repeal Obamacare. These measures he says will turbo-charge growth and help boost the wages of those who have lost out in a globalized world where “middle-class” jobs have been squeezed.

With the US budget deficit at just 3.2 percent of gross domestic product, compared with 9.8 percent in 2009, and near record low interest rates, Trump has room to undertake a large-scale fiscal boost, at least in the short term. His restrained acceptance speech hinted that infrastructure was a priority. Trump said he would “rebuild our highways, bridges, tunnels, airports, schools, hospitals (and) our infrastructure, which will become, by the way, second to none.”

On the campaign trail, Trump’s speeches were full of superlatives and unfinished thoughts that only complicated matters for traders and economic policy watchers. These enthymemes are a rhetorical device at the heart of a persuasive speaking style that has helped catapult the billionaire to the White House. Trying to parse his words is one thing. Actually putting money to work quickly base on them brings far more risk than usual, according to Brian Shapiro, CEO of SPAG Funds, a small global macro hedge fund manager based in New York. “I won’t react to it, but the world will,” he said. “I think people will have a heart attack if they react to every word.”

Economic advisory firm Fathom Consulting dubbed the election outcome “Trump Lite”: a world in which as President-elect he would be unwilling or unable to enact some of his more extreme policies such as building a wall at the Mexico border, mass deportations of immigrants and wide-ranging protectionist measures. “Markets are waiting to see if we are going to have the campaign Trump who spoke in rhetoric, or Trump the president who is going to be more pragmatic in his approach,” said Komal Sri-Kumar, president of Sri-Kumar Global Strategies.

Economists and fund managers, as well as the Fed’s policymakers, are looking to see which issues Trump will prioritize. So far, indications are he would pursue tax cuts, additional military spending, and revamping President Barack Obama’s Affordable Care Act, dubbed Obamacare. Chicago Fed President Charles Evans, speaking to reporters as Americans voted on Tuesday, said he would try to figure out whether or not the new president’s fiscal policies “would be more simulative, about the same, or worse,” adding the level of market volatility would provide a clue.

Trump has no defined economic team. It is unclear whether he will follow the lead of say Peter Navarro, a professor at the University of California at Irvine, whose studies suggest a tougher trade stance against China; or whether he could cleave to Wall Street allies such as former Goldman Sachs alumnus Steven Mnuchin, who has been mooted by Trump as a potential Treasury Secretary. —Reuters

Donald Trump’s promise to revive small town America faces a tough challenge in an economy that for decades has been wired to direct income and opportunities towards urban hubs and the better educated. Little in the president-elect’s so far sketchy economic plans indicates the trend can be reversed any time soon, according to interviews with experts on income inequality and recent occupational trends.

The manufacturing jobs Trump pledges to bring back have disappeared as much because of automation as the trade deals he has promised to rewrite, and that process will only continue. A promised infrastructure revamp would boost middle wage jobs but for only as long as the programs last, economists point out. During President Barack Obama’s eight years in office incomes for the best off continued to diverge, despite nearly 10 million new jobs and recent strength in those paying middle-tier wages.

On a pre-tax basis, the share of income to the top fifth of households increased from 50.4 percent to 51.4 percent between 2008 and 2015 at the expense of all the others, according to census estimates. Without the sort of tax and redistribution policies Republicans have traditionally opposed, Trump may struggle to make good on his promise to help those left behind in the global economy, economists who study inequality trends say.

“We have 30 to 40 years to catch up on...Lots of money has gone to the top and to change that is going to be a long and slow process,” said David Madland, a senior fellow at the Center for American Progress, a think tank with close ties to Democratic nominee Hillary Clinton’s campaign. Trump campaigned promising to shake up a Washington establishment he argued was responsible for destroying middle class jobs with bad trade deals. The message hit home across rural America and mid-sized cities, where voters felt they missed out on the fruits of the sevenyear economic recovery that big cities may have enjoyed.

Charlotte has been growing fast as a financial hub that attracts college educated talent from around the country, and Democratic nominee Hillary Clinton did better there than Obama did in 2012, handily beating Trump by 137,000 votes. But in the state’s textile and furniture belt just northwest from here, Trump’s promise of economic renewal and anxieties of a shrinking white majority more than offset Clinton’s urban victory, giving him 76 out of 100 North Carolina’s counties.

The Catawaba County region, one of the nation’s hardest-hit by cheap imports from China, now has a more diverse economy and even the furniture industry has begun adding jobs. But many still live in poverty and rely on disability and social services for support. “The trade argument was as prominent as any. That is certainly the bet that the Trump campaign has made,” said John Dinan, a political scientist at Wake Forest University.

Taking Out Obamacare

Trump has not highlighted income inequality the way Clinton did, but to help low-wage industries such as textiles or offer a “new deal” for blacks, he would need to tackle the income gap. Recent data show how hard it may be if Trump relies on economic growth alone: Despite a record jump in household income and a continued surge in middle wage jobs nationally, the effect on income inequality was “statistically insignificant” according to census estimates. —Reuters