The recent 800 point drop in the Dow, largest 2019 decline in both point and percentage terms, was enough to get Wall Street’s attention. For the American public, it was enough to even briefly eclipse massacres of innocent people with weapons of war, and multiple foreign policy issues. It was even enough to make the obscure “yield curve” part of the popular vocabulary.

Although recovering somewhat, the ominous gyrations in financial markets draws attention to the fragility of this economy, and with it, the faulty economic assumptions by, and about, President Trump.

Trump has made much of the high-flying financial markets during his term of office, having us believe that he is solely responsible for this phenomenon. He assumes that the stock market is the economy.

A major assumption by Trump’s supporters is that a rich businessman, by definition, is an authority on the macro economy — an authority that lesser persons do not have the credibility to question. A corollary to this assumption is that, as a rich businessman, he must be the “great negotiator” he professes to be. Therefore, doesn’t it make sense to put a businessman in place to apply these “business principles” to work for the government?

 Right? No, wrong and very wrong. Let’s take a closer look at the above.

While financial markets reflect elements of the real economy, they are not the real economy, and they are absolutely no indicator of how the majority of citizens are faring in this economy.

Eighty four percent of stocks are owned by ten percent of the wealthiest Americans. While many retirees own some stocks, and some middle-class workers own stocks through contributions to retirement funds, the gains reaped through financial markets since recovery from the Great Recession have accrued mainly to a small percentage of our wealthiest citizens. To the extent that presidents merit responsibility for financial markets, these gains were through eight years of the Obama Administration relative to three years of the Trump administration.

While it is better for the nation that financial markets are healthy rather than anemic, the stock market is not the real economy. The stock market is related to real economic factors such as corporate profits and interest rates. But much of this is as much psychological as economic.

With apologies for getting overly technical, to the extent that any of this is rational, stock prices reflect the present value of future returns consisting of anticipated dividends plus capital appreciation. This, in turn, depends on tolerance for risk and the discount factor applied. In other words, at the risk of oversimplification, financial markets are about future expectations. Precipitous plunges in stock prices reflect fear of the economic future.

 What about Trump’s business persona, and promised application of his “business principles” and “negotiating skills” to the economy?

Trump inherited a pot of money from his wealthy father and was a millionaire before reaching maturity. OK, fair enough, other kids inherit money. But it gives the lie to the proposition that he is a “self-made” millionaire.

But what if he used that pot of dough to make more dough? Doesn’t that make him a “financial genius?” 

Due to the opaqueness of his financial and tax records, we may never know. But the multiple times he was ostensibly bailed out of financial jams by his tolerant father, and his multiple bankruptcies, raise legitimate questions of his financial and business competence. Of particular concern is the source of funds that enabled his escape from financial schemes that brought on his financial jams. What about the tangled web of his foreign involvements? Was money laundering involved? What was the role of Deutsch Bank in this tangled web?

How about his self-professed “negotiating skills?” During his real estate negotiations, Trump always held the cards — the money and the power. He never had to deal with equals, just as he never had to report to those of higher power, or satisfy multiple constituencies. He never had to work his way to the top — he was born on top and, with help of his wealthy father, has always exercised power from the top — never having to satisfy anyone but himself. On the world stage, he identifies with dictators who hold the power.

Which brings us to his limitations as President in a representative democracy, and his identification of the U.S. Government as a “for-profit business?”

For the first time in his life, Trump has to negotiate with those with real power — those in Congress, powerful senators, foreign heads of state. And to the extent that he and his Republicans have not already stacked the courts, he can still be stymied by unfriendly court decisions.

China’s President Xi and North Korea’s President Kim are certainly holding their own with Trump. He doesn’t even recognize an effective deal when he sees it, such as the Nuclear Deal with Iran. Even military advisors who complained that the deal was “not perfect,” advised him to leave it in place. It was working, and was buying valuable time to negotiate remaining issues with Iran. 

Trump chose to denigrate it because it was “Obama’s deal,” therefore bad. He thinks he can make a better deal. Not likely — on an even playing field, those Iranian descendants of Persian carpet merchants could put Trump out of business.

There is little comparison between running a private business and presiding over the American macro economy, except that a president needs to understand some basics, such as, American tariffs on foreign goods are paid by Americans, not foreigners. To the extent that macroeconomics is different in many ways from microeconomics, and that a president must satisfy multiple constituencies, a president must rely on economic advisors. 

To retain status as a Trump appointee, one has to be a fawning sycophant, obsequious to the max. This has pertained to all his appointees, including appointees to key economic positions, Larry Kudlow and Peter Navarro.

Next week: Trump’s obsequious economic team and the economy.

— John Waelti of Monroe, a retired professor of economics, can be reached at jjwaelti1@tds.net. His column appears Saturdays in the Monroe Times.