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Wednesday, November 9, 2016

A Stunning Result, but Wait and See


By Roy C. Smith

It’s a bigger shock than Brexit. The polls had it totally wrong, with bookmakers giving odds of 83% for a Clinton victory a day before the election. A nationwide wave of unseen Republican support appeared unexpectedly and elected the most negatively regarded and controversial candidate to run for the office in modern times.

The result was not only surprising, it turned out to be worse than any of the so-called elite establishment types regarded as their nightmare scenario: Donald Trump not only becomes president, but Republicans retain their majorities in the House of Representatives and the Senate, giving the new administration legislative powers to pass all sorts of controversial measures promised during the campaign.

Markets will go haywire for a while because of the uncertainties. It is hard to guess where economic policies and outcomes might end up, but as often happens when jolts like this occur, markets overdo it. In fact, as unappealing as Mr. Trump may be to some, his actions could be beneficial to the economy and cause markets to give him another look.

First, Mr. Trump’s domestic economic policies are not too different from those offered by Speaker of the House of Representatives Paul Ryan, whose “Better Way” conservative approach to tax reform and other economic measures are essentially reasonable in a Ronald Reagan sort of way. Such policies, like Reagan’s in 1981, might very well provide the boost the slow-growth economy of the Obama years needs. Senate Democrats may try to force a 60% vote to pass these plans, but popular presidents can often find ways to get the few missing votes they need.

Second, Mr. Trump’s promise to undo much of the Obama era regulation by executive order – which has been considerable in energy, environmental, financial and pharmaceutical sectors -- would be very welcome in business sectors.

Third, Mr. Trump’s approach to trade and immigration may not result in the dire outcomes the campaign has led us to expect. He is likely to force a confrontation with Mexico on issues related to NAFTA and “the Wall” (i.e., the border), and with China on imports, but these will lead to negotiations to gain some improvement in the status quo. Richard Nixon did the same when he imposed a 10% tariff on Japanese imports in 1973 that ended in some voluntary quotas and a victory for American workers. Nixon said that being seen as unpredictable increased his bargaining power. Trump supporters believe his proactive negotiating style learned in the take-no-prisoners New York real estate markets is his true comparative advantage. It’s all about deals; if something doesn’t work, try something else.

Mr. Trump is also likely to get his nomination for the vacant Supreme Court position approved, bringing the court back to nine justices. The list of nominees he has already put forward is not really controversial at all. But, Mr. Trump’s intention to “repeal and replace” the Affordable Care Act (Obamacare) is unlikely to happen soon. There is no replacement plan as yet, and the Act is popular enough to make getting the 60 votes in the Senate unlikely.

Of course there is a lot to worry about with Mr. Trump in the most powerful office in the world, starting with who his advisers will be and whether he will listen to them. He likes powerful personalities like Chris Christie, the New Jersey governor who chairs his transition committee, Rudolf Giuliani, a former mayor of New York, and Newt Gingrich, a former Speaker of the House of Representatives. They were all made in the Trump mold – brash, bullying and confrontational, but they are people who got things done. Though Mr. Trump makes a lot of his own decisions without relying on others very much, these largely have to do with managing his own image and persona. He has learned to delegate the rest of what he has to look after to competent, if low visibility associates.

The list of names he has presented so far as potential cabinet members or senior advisers contains very few individuals (beyond the three mentioned) with experience of high level public service. Up until now, many of those with the necessary skills and experience have been reluctant to be associated with Mr. Trump, but having won, he is in a much better position to attract the talent for his administration that he will need.

In the end, Mr. Trump will be confined by the checks and balances of the American constitution, and the standards of presidential conduct that the American public expects. He has been given an opportunity to serve his country that few ever receive, an opportunity that cannot succeed without public support, which he will have to earn the hard way – by delivering results sufficient to retain the support. He has invoked the insatiable gods of populism to get elected, and will have to satisfy them once in office.

At this point neither we nor the gods know what we have got on our hands. Democracies can produce unexpected leaders when electorates are afraid, unhappy or excited.  Some of those leaders came from backgrounds offering no training for Presidential office at all, including Jimmy Carter, Ronald Reagan, Bill Clinton, George W. Bush and Barack Obama and we survived them. Today, we are giving Donald Trump, the first businessman to be elected president since 1928, a chance to see what he can do. So let’s wait and see.














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