The Trump Phenomenon

Surprising Success

We were wondering a while if there was anything we could say about the highly entertaining real estate mogul who has successfully hijacked the Republican nomination process – apart from the fact that he is sporting a haircut that looks a bit like a helicopter landing pad, endowing him with instant recognizability:

Teflon-Donald Trump, the unlikely front-runner with the interesting haircut

Photo credit: Dominick Reuter / Reuters

Of course there is far more to the man and his unexpected impact. For one thing, he is what one would generally describe as a “populist” – i.e., he is prone to saying controversial things other politicians would rather not mention, at least not in as blunt a fashion, for reasons of political correctness. Evidently they resonate with many voters though (or at least a large part of the Republican base).

We certainly find his success interesting from a sociological perspective. Elliott Wave International analysts Steven Hochberg and Robert Kendall regard him as a typical bull market personality – this is to say, his popularity tends to rise and peak with bull markets, and decline during bear markets – along with his personal fortune. They conclude that he has become “Teflon Don” – the man who simply cannot be damaged by what are supposedly damaging assertions – because the market has been so strong in recent years.

His competition and the nation’s media are positively indignant about this unique characteristic of the Donald. “He can’t win a war against Fox News!” intones Nate Silver. “GOP leaders say erratic attacks hurt Trump”, the Washington Post informs us. This strikes us as nothing but wishful thinking so far.

Said assertions have ranged from his highly non-PC statements about Mexican immigrants to his remarks about John McCain. The latter’s war hero status is absolutely central to his personality and image, and has been deemed sacrosanct hitherto. That Trump has seemingly gotten away with disparaging it is quite astonishing (Trump is not the first person to cast aspersions on McCain’s image, but surely he’s the first man running as a Republican to do so). It seems Trump is a well-versed equal opportunity offender, which makes him very likable in our opinion.

It may be true that Trump’s popularity is to some extent tied to the fate of the stock market and the economy (Hochberg and Kendall remind us that he already once toyed with a presidential bid, right before the year 2000 market peak), but there is probably more to it than that. We happen to think that his success actually reflects an undercurrent of dissatisfaction in the population.

This dissatisfaction is in striking contrast to the stock market boom precisely because the boom has been entirely artificial. Would stocks trade at current levels if the Federal Reserve hadn’t more than doubled the US money supply since 2008? Definitely not. And yet, this extreme monetary pumping hasn’t had the desired effects on the economy. This should be no surprise, as monetary pumping can only divert wealth into ultimately unprofitable undertakings, but cannot actually create real wealth.
Broad US money supply TMS-2 (black line) and total bank credit (red line) – the gap between the two is indicative of the extent of direct money creation by the Federal Reserve since 2008. The money supply has more than doubled since then, from $5.3 trn. to $11.1 trn.

The lackadaisical response of aggregate economic statistics to all this money creation is a hint that successive credit booms have inflicted enormous structural damage on the economy’s pool of free capital, resp. pool of real funding. The middle class hasn’t seen much benefit however – real personal incomes have declined to levels last seen ages ago, and labor force participation rates have collapsed.

The public’s negative perceptions about the economy and increasingly cynical attitude toward the professional political class strike us actually as more important drivers of Trump’s unexpected success than the rise of the stock market. It is noteworthy in this context that Trump has made an interesting and quite candid remark about the Fed in a recent interview on Bloomberg TV:

“Right now, we have the low rates.  In terms of real estate, if I want to develop … from that standpoint I like low interest rates. From the country’s standpoint, I’m just not sure it’s a very good thing, because I really do believe we’re creating a bubble.”

(emphasis added)

As Joseph Salerno over at the Mises Institute notes to this:

“[…] unlike private equity baron Jeb, who carefully refrains from commenting on an issue that shines a light on his financial interests,  Trump forthrightly declares that his interests are in accord  with a policy that he recognizes gravely damages the U.S. economy.   The establishment  media keep saying – and praying – that Trump is a flash in the pan, but  it is difficult to see why the Republican rank and file would choose a secretive crony capitalist over a plain-speaking populist.”

(emphasis added)

Given this backdrop, we actually don’t necessarily agree with Hochberg’s and Kendall’s conclusion that Trump’s popularity would wane if the stock market were to decline. His personal fortune may come under pressure, but surely popular discontent with the current situation would increase even more and that seems to have a favorable effect with respect to his political ambitions.

Running Government “Like a Business”

Recently, hedge fund manager Carl Icahn let it be known that he would be prepared to serve as treasury secretary in a future Trump administration. This immediately reminded us of an analysis penned by Brian Jacobson at the “Reformed Libertarian”, in which Trump is characterized as the “token business candidate”:

“The token businessman candidate embodies the practical man. The man who can get a deal done. The man who spends his life in the private sector oozing with success only frustrated by the dysfunction he observes in Washington from a distance. He takes it upon himself to roll up his sleeves and enter the hog pen. He will reach across the aisle, he has a goal, and by golly he is going to make Washington work! “Government should be run like a business!”

Jacobson goes on to explain that it is simply not possible to run government like a business. We agree that by its very nature, government cannot be regarded as akin to a business. Its income is derived by coercion, and its services are monopolized – its “customers” have no choice in the matter and must accept whatever they are offered. They can e.g. not choose alternative judicial or policing services if they are unhappy with the existing ones.

Government bureaucrats can only apply economic calculation to an extremely limited extent. In actual practice, they are unable to gauge the opportunity costs of their spending, since they aren’t operating along the lines of the market economy’s profit system. This is by the way not to say that government magically exists somewhere outside of the market economy. It is certainly part of the economy and influences it a great deal – way too much in fact – but it definitely isn’t a “business”. Even the most skilled businessman cannot run a bureaucracy in such a way that it becomes profitable. The moment an entrepreneur is nominated as CEO of a state-owned company, he ceases to be an entrepreneur and becomes a bureaucrat.

Aspiring to the job of treasury secretary: Carl Icahn

Photo credit: Heidi Gutman / Getty Images

If Trump and Icahn themselves believe government can be run like a business (we are not sure what they believe in this respect), they will quickly become frustrated if they actually get a chance to apply themselves to the task.

Brian Jacobson reminds us also of something important Murray Rothbard once said. Rothbard pointed out that we actually don’t want intelligent and efficient people in government. It is far better for all of us if such people remain part of the private sector, where their abilities can be put to good use in producing goods and services consumers actually want. By contrast, we wouldn’t want the mafia uncle to be too smart, would we?

As Rothbard put it:

“Who wants good people in government? Good people should be in the private sector. Helping us out, helping themselves out in the private sector. We want schmoes in government. We want people who can’t find the doorknob. Why waste productive people, as well as looting the taxpayer?”

(emphasis added)

We actually agree. In fact, as we have pointed out in the past, all the belly-aching about the “most unproductive Congress in history” was (and remains) utterly misguided (see: “Good News for the US: Congress is Unproductive” for details). Not only do we want schmoes in government, we want schmoes who do as little as possible. Best of all are schmoes who sleep during work.

The Really Important Thing – Entertainment Value

During our lifetime, the only politician whom we have ever regarded as thoroughly principled and possibly capable of actually bringing about profound positive change if he were elected as president was Ron Paul. Even he would likely have fought a nigh hopeless uphill battle against Leviathan’s established structures, but his commitment to actually shrinking the apparatus of government would no doubt have produced positive effects (even the brief period in which the number of federal regulations declined a little during Reagan’s presidency immediately resulted in strong economic growth, with a sense of optimism pervading the economy).

The “Reagan dip” in federal regulations – for a brief time, the regulatory State actually retreated. Today this time period is remembered as a kind of “mini Golden Age”, at least economically – click to enlarge.

Unless there is a true exception to the rule such as Ron Paul, voters should however mainly be concerned about the entertainment value of politicians. In this department, both Trump and Icahn are definitely scoring quite well. They are both not exactly prone to overly diplomatic pussy-footing (i.e., they are as politically incorrect as they come), with the latter often displaying an acerbic wit that is actually great fun to behold.

Think about what would be better: A president constantly muttering neo-connish platitudes, “getting bloodied” by bombing some defenseless third world country in year two of his presidency at the latest “because that’s what presidents do”, and delivering solemn state of the union addresses brimming with unfulfillable promises? Or a highly entertaining figure like Trump who can be relied upon to say something that sends the establishment media into conniptions at least twice a week? The choice should be clear.

Considering that taxpayers are forced to pay for the services politicians provide (evidently, voters don’t have a very high opinion of these services, see chart below), they should at least insist on being properly entertained.

Congressional job approval rating, via Gallup

Conclusion

We are convinced that the Republican establishment will do everything it can to prevent a Trump nomination. Hypothetically though, if he were to be nominated and were to actually win office, it would probably be too much to hope for any significant change, in spite of his new broom qualities. Let us just say: To be safe, one should keep one’s expectations in this respect as modest as possible (positive surprises are of course always welcome).

However, he would undoubtedly represent a vast improvement in terms of entertainment value, an aspect of politics the importance of which is sadly still widely underestimated.

We don’t get panem – but can we at least have some circenses?

Photo credit: Universal Pictures

Charts by: St. Louis Federal Reserve Research, Competitive Enterprise Institute, Gallup