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Waelti: On stock markets, political promises and tailwinds
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The uncritical media continue to praise President Donald Trump over buoyant financial markets since the election. The Dow Jones industrial average has risen some 10 percent since the election, including some 5 percent for first quarter of 2017 - all due to Donald Trump's genius, we are led to believe.

Financial professionals and economists pay more attention to the S&P 500, consisting of the 500 largest American publicly-held corporations, than to the Dow, consisting of only 30 corporations. But as the media are fixated on the Dow, and its performance is partially correlated with the S&P, we can use the Dow as a proxy for the stock market.

As observed in an earlier column (March 17, 2017), Wall Street money managers and corporate CEOs react like a pack of Pavlov's dogs, salivating at the mere mention of tax cuts and deregulation. It doesn't matter that these are merely promises yet to be delivered. Or, more significantly, whether even if delivered, tax cuts and deregulation would result in higher stock prices, increased economic output, and increased prosperity for working people. But as with much in life, anticipation of goodies can be more satisfying than actual result.

Meanwhile, Trump's apologists and media enablers continue to reinforce each other's ignorance and sing the praises of the Dow reaching the 21,000 benchmark with a run of record highs for 12 successive days in February.

Prudence suggests that some rain on the parade is in order.

The gushing media clones totally neglect that it was the Obama Administration that did the heavy lifting to get the economy out of the lingering Great Recession. The Dow rose from a low of 6,443 during the trough of the Bush Recession to 18,332 on Election Day 2016. With the anticipation of Trump's promised tax cuts and deregulation, it hit a closing high of 21,115 on March 1. Since then, the Dow's performance is more sobering.

The 21,000 level was short lived. One week after that 12-day run of successive highs, the Dow fell eight days in a row, the first eight-day losing streak since 2011. Although still over 20,000, the market outlook is, at best, mixed, for several reasons.

Trump, House Speaker Paul Ryan, and the Republicans started with "the easy one," repealing the detested Affordable Healthcare Act (ACA). Congressional Republicans had previously attempted to repeal it over 60 times, only to be frustrated by the Democrat in the White House. But now, Republicans had absolute, total control of the executive and legislative branches of government. Finally, with the president in control, it would be a cinch, a slam-dunk, to get rid of Obamacare.

Surprise. It didn't work that way. Much to the shock of Republican politicians and their media enablers, some folks outside of Washington actually benefited from the ACA. Trump, the "deal-maker," and Ryan, the "policy wonk," failed to cobble a deal that would even be brought to a vote. After confessing that healthcare was more complicated than anticipated, Trump abruptly abandoned healthcare and informed the world that he is moving on to something simpler - tax reform.

The Trump/Ryan failure to replace Obamacare with Trump/RyanCare, the anticipated slam-dunk, appears to have given Wall Street pause. If the Republican cabal, now engaged in internecine warfare, couldn't deliver on that, maybe the rest of their program is more wishful thinking than future result.

Tax reform is seen by Trump and Ryan as being "simpler?" What are they smoking? First, we should distinguish "tax cuts," which everyone claims to favor, from "tax reform." A net cut in taxes, especially if combined with increased expenditures on defense and infrastructure, including an ill-advised costly "wall," would increase the annual federal deficit, which Republicans claim to oppose.

Tax reform, consisting of decreases in some taxes and increases in others to make it "revenue neutral," results in winners and losers. Good luck with that. Trump's "deal-making ability" will be put to the test.

Whenever tax reform is discussed, we hear a lot of idle babble from politicians and media nitwits about "tax simplification." Such "simplification" usually includes reducing the number of marginal brackets. This is just plain eyewash, and a Trojan horse for reducing taxes for high income taxpayers.

Actual "tax simplification" has absolutely nothing to do with multiple marginal brackets. It has to do with the difficulty of computing taxable income, due to the myriad of complexities of the tax code. That's why taxpayers engage accountants to assist with computation of taxable income. Once taxable income is computed, it requires no specialized skill to glance at the tax tables to see how much is owed. Complexity has nada, zero, zilch to do with multiple brackets.

The numerous tax deductions, credits, and exemptions responsible for complexity of the tax code are there for reasons, however questionable. These include inducements to achieve broader policy objectives and/or that special interests lobbied strenuously to put them there to benefit individuals or interest groups. Even with the most serious effort on tax reform, the reasons, and the lobbyists pushing for these exemptions, will remain. "Tax reform" is more likely to be a matter of smoke and mirrors than something that will benefit Mr. and Mrs. America.

Then there is the matter of Trump's contentious federal budget. As legislators like to remind us, "The president proposes, but the legislature disposes." Trump's own Republicans claim his budget to be "dead on arrival." Even if Trump gets his way, his budget would likely not produce the promised and anticipated rosy results.

With financial markets flirting with all-time highs - attributable to Obama Administration tail winds and Pollyannaish Trump euphoria - will they continue to rise, or go into a "Trump Slump?" Economists can't predict the future, but neither can anyone else.

In the short run, markets are based as much on emotion as on economic reality. In the long run, markets will depend less on promises made than on results achieved.

- John Waelti of Monroe, a retired professor of economics, can be reached at His column appears Fridays in The Monroe Times.