The Trump Financial Panic

There’s a lot to pay attention to these days, what with new polling results popping up every five minutes and possibly the best damn World Series Game 7 ever. So you have a perfectly good excuse if you haven’t been watching the markets grow increasingly nervous as the prospects of a Donald Trump victory next Tuesday have risen from impossible to—well, possible.

Consider: The Dow dropped 150 points in the few minutes after news of FBI chief James Comey’s letter to Congress became public last Friday. The VIX—short for Volatility Index, which measures financial traders’ anticipation of market instability—rose by 5.4 percent in the same brief period. “Wall Street’s bet against fear,” The Wall Street Journal reported on Monday, “is starting to wane.”

And that’s just a foreshock of the 9-point quake that would follow in the event of a Trump victory. “The conventional wisdom,” The New York Times’ Andrew Ross Sorkin wrote the same day, “is that, right off the bat, the market would fall precipitously.” Sorkin quoted MIT economist Simon Johnson saying that Trump’s antipathy to trade deals would cause financial panics in Europe, weakening already feeble European banks. A Trump victory, Johnson told Sorkin, would “likely cause the stock market to crash and plunge the world into recession.”

Grim though that sounds, I think it understates the number and kinds of insecurity that a Trump victory would inflict on an already nervous planet. To the rest of the world, a Trump triumph would mean that the global hegemon and order-keeper (for better or worse) had lost its marbles. The United States would be changing not just administrations but regimes, and just possibly systems of government, to one of rule by the whim of a capricious, narcissistic, sadistic ignoramus. The world could endure Argentina under Juan Peron or Italy under Silvio Berlusconi (though Mussolini was more problematic). But to have the global hegemon ruled by unstable thug—well, when was the last time that happened? Rome under Caligula? Anyone capable of making Chris Christie his transition chief can be fairly compared to a Caesar who made his horse a proconsul. And in all fairness to Caligula, he didn’t have the option of starting a nuclear war.

So the threat of a Trump presidency goes well beyond the economic, as the nation’s leading economic players understand only too well. The reason that not a single one of the CEOs at the nation’s hundred largest publicly traded corporations has donated to Trump’s campaign (a goose egg first reported by the Journal) isn’t just that his economic plans make no sense and that he seems to have no reputable economic advisers of any known ideology. It’s that a whole raft of his policies—from his pledge to throw out immigrants to his views on women, the press, blacks, Latinos, Jews, and empiricism—could destabilize the known world in ways we can only begin to imagine. To say that markets hate uncertainty is to say that markets hate Trump. Confronted with uncertainty, banks and corporations don’t invest. Confronted with the ongoing mega-uncertainty of a Trump presidency, they likely wouldn’t even think of investing. Nor would the Republican Congress, whose hold on legislative power would likely be renewed in the event of a Trump victory, want to increase public investment by so much as a nickel. (That would be a sin against Ayn Rand.) The result—even independent of European bank failures and a curtailment of trade—would be one whale of a recession.

This may be one reason why Federal Reserve Chair Janet Yellen has opposed raising interest rates before the election: She probably understands that a Trump victory would be the economic equivalent of the sky falling, in which case higher interest rates would only make things worse. Should Clinton win, it appears that the Fed may raise rates in December. Should Trump win, it wouldn’t be surprising if the Fed felt the sudden systemic risks precluded such a move. (Of course, if the markets will have already plunged, raising rates won’t even be discussed.)

It’s always possible that Trump will follow the path taken by Theresa May, the UK’s new prime minister, who has wisely sought to balance the shock that Brexit is inflicting on the British economy by tossing Tory economics overboard and embracing a Keynesian policy of stimulus and social spending. But even if Trump opts for such economic policies, he will likely undo so much of the American social contract by his hostility to minorities and immigrants, among many others, that he could set American against American in ways that shatter what civic peace we have left. That wouldn’t work wonders for the economy, either.

Obsessed by the horserace and the sheer spectacle that Trump makes of himself on a daily basis, the media haven’t done much reporting on the economic consequences of a Trump victory. (Predictably, the Journal editorialists don’t even appear to have read their own paper’s reporting on the manifest fear that the prospect of a Trump victory has instilled in investors and corporate executives—the very people for whom, presumably, the paper is published. This may confirm the theories of close textual analysts and logicians who long have argued that Journal editorialists actually can’t read.) But the fear of a downturn and broader social chaos, among sentient elites, like the fear among the sentient masses, is real, and can only be dispelled by a Trump defeat on Tuesday.