Beltway gloom, Wall Street zen

While the political class freaks out, the stock market perks up

The most grounded fears about a Donald Trump presidency have always involved incompetence rather than malevolence, the perils of a catastrophically weak presidency rather than the prospect of a near-dictatorship.

So far many of these fears are being vindicated. Mr. Trump’s policy rollouts have been botched, his appointments mismanaged, his White House is a feuding mess, his legislative agenda is lost in the fog. He’s in wars with the press, the intelligence community, the bureaucracy and the courts, and he isn’t obviously winning any of them.

But those of us who feared a flailing Trump administration feared the second-order consequences — global instability, domestic unrest, constant economic jitters. There are hints of the first in North Korea’s missile test and various Russian maneuvers, signs of the second in the spasms of anti-Trump protest since Election Day.

But the third is nowhere to be seen. While political journalists and Washington hands freak out daily over the Trump presidency, the stock market keeps acting like everything is fine, or better than fine, or even (if you will) just great again.

A growing economy is compatible with creeping authoritarianism, of course, as Mr. Trump’s most alarmist critics are fond of pointing out. But is it compatible with outrageous presidential incompetence, with a White House that can’t hit a target with a Super Soaker from six inches away?

That’s what we’ll find out. In effect, the Trump era is pitting the wisdom of one elite crowd against the wisdom of another — the crowd of D.C. politicos against the herd of brokers and analysts and financiers just an Acela ride away. It’s the crowd of experts that totally failed to predict the rise of Mr. Trump against the crowd of experts that managed to miss the biggest financial meltdown since the Great Depression.

The best case for the Wall Street perspective runs as follows: Most presidents have less power over the economy than one might assume from presidential campaigns and voter expectations. If this is true of administrations whose carefully calibrated economic programs have all the weight of wonkery behind them, why shouldn’t it be true of administrations that find themselves unable to accomplish much of anything? If what matters is the fundamentals, and his White House is more likely to be balked and baffled than frenetically transformative, why not just bet those fundamentals and assume you’ll win?

There is historical evidence for this proposition, in the sense that the link between political and economic crises is more uncertain than direct. The financial crisis struck at a low ebb in George W. Bush’s effectiveness, but the Great Depression hit with a popular and (at that point) famously competent Herbert Hoover at the helm. The political turmoil of the late 1960s coincided with low unemployment rates and strong GDP growth. Watergate was rough on the stock market, but the Clinton impeachment, not so much, and markets mostly weathered the gridlock and debt-ceiling brinksmanship of the Obama years. If Mr. Trump is impotent or if he’s impeached, there is precedent for the markets simply shrugging, for the economy to keep chugging along.

However: This argument assumes that Mr. Trump’s level of incompetence stays within at least hailing distance of normal bounds, and/or that no crisis comes unlooked-for that the Trump White House fumbles into something much, much worse. Gridlock in Washington need not damage the economy, but a botched response to terrorism, a mismanagement of the next Ebola, or a buffoonish response to financial hiccups could be a different matter. So, too, with a Watergatelevel constitutional crisis, a civilian-military conflict, and so on down a list of plausible Trump-era tests.

It is possible we will pass four years without such a test. (Eight is tougher, but let’s not get ahead of ourselves.) And the investor class’s bet, right now, is that if you combine the chances of avoiding a major test entirely, the chances of the Trump White House somehow finding its footing, and the chances that Mr. Trump semi-accidentally handles his biggest test OK, you get a probability high enough to justify betting on continued prosperity and growth instead of freaking out about the daily White House meltdowns.

Except probably it’s not really that rational and calculated; it’s animal spirits and all that. But then again, irrationality cuts both ways: As the economist and columnist Tyler Cowen likes to point out, if political observers were really so confident in our alarm, we would all be dumping our portfolios.

If you’re a Trump-panicked reader with a nest egg and you haven’t, ask yourself why not. Because as long as you don’t, your mind may be with the panicked political class, but your money is with the Zen of Wall Street.