Sigh, Chaos Continues (3)

I was planning on waiting for the fallout of The Lavrov-Rubio Pact before writing my next article, but so far things remain in flux on that front. Although one could pick up pennies in front of a steamroller by worrying about short-term economic data movements, geopolitical events may wipe out pre-existing tendencies at any time.

Picking Up Pennies…

One could justify worrying about short-term wiggles in the data on an attenuated “nothing ever happens” theory. Although the Trump administration is a continuous source of insane policy proposals, Trump withdraws on strenuous push back, declares victory on social media, and then goes back to golfing. It is entirely possible that it will be “Tariff Week” every week for the next four years (less a month or so).

One could point to the first Trump administration for an example of how the system constrained his impulses. The problem with that comparison is straightforward — nobody around him this term actually wants to moderate him, and the Republicans in Congress appear too craven to do anything other than roll over.

In favour of the “nothing ever happens” theory is the reality is that domestic moves so far have destroyed state capacity without actually reducing government spending to an extent that is effectively measurable when compared to the aggregate U.S. economy. The slashing of grants and uncertainty could easily cause a multiplier effect, but the size of that multiplier is largely guesswork. The damage would show up in projected long-term growth rates, which are largely the work of economic fiction anyway.

… Or Say “Hi!” to the Steamroller

There are number of axes on which the “Something Happens” theory might gain ground.

• An inability to pass a budget resolution. Although the Republicans in Congress appear to be spineless vassals of Trump, they are getting enough blowback that they might discover that they might need to represent whatever platform they said that they were running on when they ran for office. A massive tax cut that is allegedly offset by The Tariff Revenue Fairy might be enough to get a small number of balanced budget radicals to withdraw support.

• The tariff hammer may finally fall on Canada and/or Mexico. Although the effects on the American economy of those alone might be limited (outside the Big Three automakers), they will certainly affect my writing output.

• Although nothing concrete has happened yet, the blatant following of Putin’s wish lists in American rhetoric could lead to the effective demise of NATO (as well as Asian defensive pacts), as well as leading to European policies to de-Americanise their economies and militaries. A tariff war would accentuate this de-Americanisation policy.