Business leaders and investors so far generally love President Trump’s economic proposals, since the tax cuts and deregulation he favors would boost profits and stock prices.
But there’s a murmur of discontent with Trumponomics at this year’s Milken Institute conference, the annual gathering of business and financial elites in Los Angeles. “Trump economics is somewhat akin to the belief that deregulation and tax cuts can lead to higher growth,” legendary fund manager Bill Gross of Janus Capital said on stage at the conference. “Four years from now, I think the economy will grow 2% or less, not the 3% the markets seem to require.”
Trump’s Treasury Secretary, Steven Mnuchin, said earlier in the conference he was confident the economy can reach 3% growth under Trump. That’s a step back from Trump’s campaign rhetoric, when he said he could boost growth to nearly 4%. Mnuchin added a caveat as well, saying he doesn’t think 3% growth will come along for a couple years. The 11% jump in stock prices since Trump won the election suggests markets have faith he’ll deliver.
There are a few prominent skeptics at the Milken conference. Economist Nouriel Roubini of New York University, known as Dr. Doom for his scowling pessimism, chided corporations for jumping on the Trump bandwagon and parroting his rhetoric. “He’s telling the corporate sector what to do and where to hire. It’s like a communist economy,” Roubini said. “When Trump says ‘do this’ to corporations, they all shut up and they’re all sycophants. If Obama had said one-tenth of the things Trump says, he’d be called a Bolshevik socialist.”
Roubini’s specific gripes with Trump policies: Putting limits on migration will reduce the supply of labor when it’s already shrinking due to an aging population. Tax cuts that mushroom the national debt will hike the value of the dollar and interest rates, and slow exports. That could force the Fed to tighten monetary policy too fast. And above all, Trump’s grand promises are creating unrealistic expectations. “Markets are overestimating what’s going to get done, and underestimating the negative fiscal expansion,” he said.
Jim McGaughan, CEO of Principal Global Advisors, points out that there’s already a shortage of some blue-collar laborers, such as construction workers, yet Trump insists the nation needs millions more such jobs. “We’ve got a national phenomenon of these jobs that can’t be filled,” McGaughan said. “Yet you’ve got all this talk about bringing the jobs back. Who’s going to do them?”
The big concern is that Trump, who has an undeniable knack for channeling the frustrations of workers who feel they’re falling behind, has misdiagnosed the problem and is therefore prescribing the wrong solutions. “Trump economics won’t work because the problems in the global and US economy are more structural in nature,” Gross said. “Older demographics. Too much debt. The displacing of labor by technology, which Trump dogma has done nothing to address.” Trump still has time, of course, to listen to his detractors among the 1%.
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Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman.