Donald has made no mystery of his dream of becoming the new Ronald. His campaign slogan, “Make America Great Again,” which was already used by Reagan himself in 1979 (but also by Bill Clinton in 1992) served as Trump’s banner in his ascent to the White House (after he trademarked it). For Donald the outsider, the pursuit of an evocative investiture as heir of Reagan the outsider was almost mandatory in his astonishing quest to be elected. It is therefore no coincidence that Trump’s agenda is, in many ways, a revised and updated photocopy of Reagan’s. One particular aspect they have in common is the increase in public expenditures. Ronald assigned these investments to defense, whereas Donald wants to allot them to infrastructure.
The question is, can Trumponomics bring back the splendor of Reaganomics once the polish of the election marketing wears off? The answer is not easy, but one thing is certain: The present state of health of the U.S. economy is completely different from what it was on Jan. 20, 1981, the day when the former Hollywood actor was sworn into office.
At the beginning of 1981, the USA was falling back into recession. The Fed, led by Paul Volcker, was fighting inflation with tight monetary policies. Treasury bonds could be bought for insignificant prices; their interest rates almost reached 15 percent. The stock market was also close to a historical low with extremely cheap valuations. For example, the Dow Jones had been struggling for years under 1,000 points, a twentieth of its current value. In short, the beginning of the Reagan presidency coincided with the best conditions for a powerful fiscal stimulus that could brilliantly restart the stock market, which doubled its value in the span of four years.
In the Trump era, the situation is completely different. Treasury bonds are very expensive, as their yield has reached a low point since World War II (1.6 percent, almost a tenth of its return in the Reagan era). Wall Street is at a record high instead of at its lowest. The future is not devoid of uncertainty. Mike Gitlin, Capital Group’s head of fixed income, explains, “In a recent intervention, Fed Chair Janet Yellen stressed that a slowdown caused by a demand shock could impact the workforce with negative, long-term consequences. There is also the risk that harsher financial conditions caused by the rise of interest rates could halt growth. We must remember that we are at the 89th month of an expansion that followed a recession, whereas the average expansion from the post-war period to today has lasted 58 months.”*
Economically speaking, The Donald’s four-year term [will be] more similar to the early 1950s. As Ed Clissold from Ned Davis Research remarks, during World War II the Fed bent to the necessities of war. Therefore, it gave up on raising the rates despite the hyperinflation. After years of financial repression (not unlike the recent years), the U.S. central bank won back its independence in early 1951 and started on a path of raising rates (back then at 2.5 percent, more or less like today) that continued until 1966.
The ’50s were also marked by huge public expenditures in infrastructure, with the building of great highways and the expansion of urban areas, something similar to what Trump dreams of. The stock market obviously increased, just as it is increasing today thanks to the promise of expansionary spending. However, it is unlikely to reach the same peaks as in Reagan’s time. It would just cost too much.
*Editor’s note: The original quotation, accurately translated, could not be verified.
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