Donald Trump knows little about public policy. He has zero governing experience. And his recent meeting with President Obama suggests scant understanding about what it means to occupy the Oval Office. To be honest, the self-described billionaire looked a little freaked out afterward.
Not that any of this would probably shock many Trump voters. If they cared much about such traditional, "elite" qualifications, they would have voted for Hillary Clinton.
Instead, much like Britain's Brexit voters, they decided to take a risk. Which is okay in the abstract. Willingness to take risks, to "give it a go," is a critical part of American exceptionalism. Indeed, former casino operator Trump encouraged such a gambling mindset, telling voters to ask themselves, "What the hell do you have to lose?" Then there was the viral, pro-Trump "Flight 93" essay — a reference to the hijacked 9/11 flight — which declared "a Hillary Clinton presidency is Russian Roulette with a semi-auto. With Trump, at least you can spin the cylinder and take your chances."
But here's the thing: Things in America aren't nearly bad enough to take risks like this.
Sure, we just weathered eight years of financial crisis, recession, and anemic recovery. That was not good! But America has many deep strengths and advantages that pessimists often ignore. We remain a fabulously wealthy superpower on the bleeding edge of the technological frontier.
As such, I've long argued that Americans had far too much to lose by gambling on Trump. If you're going to take a historic risk with the American presidency, there needs to be tremendous potential upside. If you're going to try and roll the hard six, there better be a fat payoff for success.
Unfortunately, it's hard to see how the Trump gamble pays off "big league," as the president-elect might put it. For instance, Trump has promised Appalachian voters to "bring back the coal industry 100 percent." But even looser regulations won't offset the fossil fuel's price disadvantage versus cheap natural gas. And while Trump promised other working-class Americans that he would bring back manufacturing jobs, he totally neglects how many were sent to Robot Land, not Asia. Automation doesn't care about tariffs or presidential strong-arming.
Now, super fast economic growth under President Trump would represent a pretty big payoff. During the campaign, Trump promised his economic plan would produce 6 percent GDP growth, twice the U.S. economy's historical average. This is the sort of growth experienced during the 1960s, an era Trump has identified as when America really was great.
But would the risk of electing a political novice with a radical agenda be worth it if things only improved a smidgen? That is the exact scenario Goldman Sachs outlines. The Wall Street bank, using the Federal Reserve's macroeconomic model, looked at the combined potential impact of Trump's tax, infrastructure, immigration, and trade policies — and how the Federal Reserve might react to them.
Now obviously, there is much guesstimation here, especially as to the exact shape of Trumponomics. Goldman assumes Trump's fiscal policies — the tax cuts, the road-and-bridge building — would be scaled back somewhat. There would be more trade restrictions, "but not by nearly as much as discussed. " And the Fed, worrying about higher inflation from stimulus to an economy already at potential, would raise interest rates faster than expected.
The results: Goldman finds growth a bit higher next year, and then a bit slower afterward. Unemployment is also a bit lower, and then gradually trends above where it might have been otherwise.
If you don't currently believe America is great, expect to be disappointed.
Of course, the model could be wrong. And it doesn't take into account the long-term impacts of tax reform or improved infrastructure. But it could take a while for those to show up. For instance: Team Trump touts his tax cuts as the biggest since Ronald Reagan's in the 1980s. But even though Reagan's reductions were supposed to make America more productive, the data don't show any improvement until the mid-1990s.
This is very much like Brexit, where advocates promised greater prosperity by shedding "the European yoke" and sweeping away "the burdens of regulation and tax." But Britain was already a relatively well-run, free-trading, market economy. Voters took a big risk for limited potential upside. And so perhaps have many Trump voters.