Presidential Elections Mean Wall Street Talking Heads Slip into Denial

by Ray Keating

The Keating Files – February 24, 2020

Well, 2020, of course, is a presidential election year, so get ready for some ridiculous political analysis courtesy of various Wall Street, business, and even on occasion, free-market analysts. Many will be in denial regarding what candidates pledge to do on assorted policy issues.

And given that the race for the White House this year will feature a hard-Left Democrat – with socialist Bernie Sanders in front at least for now – against the populist Donald Trump, who exhibits no self-control while on Twitter or near a hot microphone, denial might be ramped up in unprecedented ways. 

Why the denial? As a recent Fox Business article by Randy Swan opened, “Conventional wisdom has long held that investors should dismiss most of what they hear from presidential candidates on the campaign trail.”

Consider a few examples. When Barack Obama ran for president in 2008, assorted business – and even a few free-market – analysts argued that if elected, Obama certainly wouldn’t carry through on his agenda of expanding government’s role in health care, raising taxes, and pushing ahead with protectionist measures on trade – as he most clearly pledged to do on the campaign trail. 

Yet, Obama and Congress imposed ObamaCare; taxes were increased under ObamaCare and at the start of 2013; and while Obama thankfully didn’t push ahead with his protectionist promises, he did largely move the U.S. to the policy sidelines when it came to trade, until his support for the Trans-Pacific Partnership trade accord very late in his administration and to no avail.

So, contrary to widespread assumptions among assorted Wall Street talking heads, Obama pretty much did what he promised to do.

And then there was Donald Trump’s strident anti-free-trade rhetoric on the campaign trail. Many in the chattering class tried to assure investors that Trump wouldn’t go protectionist and/or start a trade war. After all, the argument went, no one would benefit. Well, of course, no one would benefit, yet, Trump shifted U.S. trade policy into a protectionist mode – pulling the U.S. out of the TPP; threatening and imposing higher tariffs on an array of products; attacking our closest trading partners with threats and/or the imposition of costly trade policies; and yes, starting a trade war with China.

So, despite assurances emanating from various “experts,” Trump did exactly what he said he would do on trade.

Go figure.

Why are the carriers of conventional wisdom in denial? Part of it might be a belief that politicians will say anything to get elected, so why believe them? While one is tempted to buy into that, in reality, most people run for the White House for a reason, and even if they seek power, it is power to do something.

More likely, the conventional wisdom-eers actually seem to think that politicians are too smart to do what they’ve promised to do, such as raising taxes, getting government more involved in health care, and engaging in trade wars. Wow, that really is denial!

Politicians have long served up dumb ideas that, for example, fly in the face of sound economics, and they’ll continue doing this, as evidenced by an astounding number of bad ideas being served up by Democrats seeking the White House this year. They, in fact, aren’t smart enough not to believe it. That was the case with Obama and taxes; is the case with Trump and trade; and most certainly is the case with, for example, Bernie Sanders and socialism, and Pete Buttigieg falling in love with seemingly every tax imaginable to man.

Don’t be talked into anything else. In the end, playing the denial game when it comes to politicians willing to do what they promise is highly dangerous. As is often the case with conventional wisdom, it’s dead wrong once again. Investors and everyone else should take what they hear from presidential candidates on the campaign trail very seriously.

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Ray Keating is a columnist, an economist, a novelist (his latest novels are The Traitor: A Pastor Stephen Grant Novel, which is the 12^thbook in the series, and the second edition of Root of All Evil? A Pastor Stephen Grant Novel with a new Author Introduction), a nonfiction author (among his recent works is Free Trade Rocks! 10 Points on International Trade Everyone Should Know), a podcaster, and an entrepreneur. The views expressed here are his own.