In a crisis, can the economy keep calm and carry on?

On election night 2016, I gave in temporarily to a temptation I warn others about: I let my political feelings distort my economic judgment. A very bad man had just won the Electoral College; and my first thought was that this would translate quickly into a bad economy. I quickly retracted the claim, and issued a mea culpa. (Being an old-fashioned guy, I try to admit and learn from my mistakes.)

What I should have clung to, despite my dismay, was the well-known proposition that in normal times the president has very little influence on macroeconomic developments — far less influence than the chair of the Federal Reserve.

This only stops being true when the economy is so depressed that monetary policy loses traction, as was the case in 200910; at that point, it mattered a lot that Obama was willing to engage in fiscal stimulus, and it also mattered a lot, unfortunately, that Republican opposition plus Obama’s own caution meant that the stimulus was much smaller than it should have been. By 2016, however, the aftershocks of the financial crisis had faded away to the point that the usual rules once again applied.

Economic developments in the U.S. during Trump’s first year were remarkably similar to developments in other advanced countries. Europe, in particular, has at least for now emerged from the shadow of the euro crisis, and is steadily growing.

So we’re living in an era of political turmoil and economic calm. Can it last?

My answer is that it probably can’t, because the return to normalcy is fragile. Sooner or later, something will go wrong, and we’re very poorly placed to respond when it does.

The point is that while the major advanced economies are currently doing OK, they’re doing so thanks to very low interest rates by historical standards. That’s not a critique of central bankers. All indications are that for whatever reason, our economies need those low, low rates to achieve anything like full employment. And this in turn means that it would be a terrible, recession-creating mistake to “normalize” rates by raising them to historical levels.

But given that rates are already so low when things are pretty good, it will be hard for central bankers to mount an effective response if and when something not so good happens. What if something goes wrong in China, or a second Iranian revolution disrupts oil supplies, or it turns out that tech stocks really are in a 1999-ish bubble? Or what if Bitcoin actually starts to have some systemic importance before everyone realizes it’s nonsense?

When the next big shock comes, it will probably come from some direction I haven’t thought of. We’ll need an effective, coherent response from officials beyond the world of central banking.

So imagine such an event happening soon. How confident would you feel in the team of Donald Trump and Steve Mnuchin? How much leadership could a weakened Angela Merkel exert in a fragmented Europe?

You might have thought that such concerns would weigh on markets even now. But for whatever reason, investors are currently in what-me-worry mode.

And let’s hope that they’re right — that by the time stuff happens, we’ll actually have nondelusional people in charge.