Can political chaos coexist with economic success? We know that political paralysis does not seem to matter much, at least in the short run. Look at Germany. It has just had six months with only a caretaker government and the economy cantered on just fine. But chaos?
In the US chaos has doubled, redoubled – and in spades. In the past few days Donald Trump has sacked his Secretary of State Rex Tillerson. He has enthused about the firing of the former deputy director of the FBI, Andrew McCabe (Trump tweeted: “a great day for democracy”). And most recently he has instructed his lawyers to sue Stephanie Clifford, professionally known as Stormy Daniels, for $20m for allegedly breaching a non-disclosure agreement after they had an affair.
You can make an argument that Tillerson has not been an effective secretary of state, though the manner of his dismissal was unpleasant. You could argue that McCabe has some serious questions to answer, though his sacking by Attorney General Jeff Sessions just two days before he was due to retire has a horrid smell about it. But trying to sue Daniels is absurd. Though she has had a successful career in adult movies, she is not by all accounts particularly wealthy. So she will have to crowdfund her defence, giving further publicity to the case. As for the sum sought, the damage that Trump might have suffered from her disclosures is either much larger than $20m, if the case really does undermine his presidency, or the damage may be nothing at all.
Whether you are a Trump supporter or not – and I personally hated the characterisation of half his supporters as “a basket of deplorables” – this is a very rum way for a serving president of the United States to behave.
Yet the financial markets don’t care one jot.
If you take equity prices as a measure of economic confidence, they have recovered two-thirds of the correction they had at the end of January, and seem reasonably upbeat about the forthcoming increase in interest rates. Other measures of confidence such as consumer sales are OK. The dollar is off a bit this year but it is still higher than it was during most of the Obama presidency. And many commentators expect growth this year to meet the President’s target of 3 per cent.
This confidence continues despite the threat of a trade war, a threat that ratcheted up a bit in the past few days with the European response to the steel and aluminium tariffs, and the possibility of a European tax on the activities of the US high-tech multinationals such as Facebook and Google.
Why? We are too close to be able to analyse properly but I suspect that when we can the answer will come in three parts.
One is that what the President says no longer matters, in the sense that people have learned to aim off. He may tweet something, but that is a top-of-the-head reaction that may change. We are used to the idea of every word of a political leader being calculated, discussed with colleagues, checked by an army of staff and carefully distributed through official channels. With Donald Trump, what is important is the general direction of what he is trying to say, not the detail of what he does say. And in any case he changes his mind.
Second, US economic policy is not so negative in its aims and effects as its critics suggest. Take the rhetoric of a “trade war”. For the US to attack Canada for running a surplus is barmy, for the balance is the other way round. But to attack Europe, and particularly Germany, for running up huge surpluses has some reason to it. Angela Merkel has just defended Germany’s trade surpluses, saying that these were narrowing due to rising domestic demand, and the government would continue to try to support that trend.
She is right. They are narrowing. But they are still the largest in the world. As for the government supporting that trend, well, it is running a fiscal surplus instead of using that strength to try to boost demand further.
And the third is that the global economy is doing just fine. The world economy is vastly bigger than the politicians who happen to be in office in the various countries. The US economy will be the world’s largest long after Donald Trump has left office. The high-tech US giants will go on transforming the way we all live and work. China will continue to increase its weight in the world. Europe will have a smaller economy in relative terms, with or without Brexit. And Russia will have a much smaller one, and so on. There will be a cyclical downturn in the economy at some stage, but there is nothing on the near horizon akin to the great financial crash of 2008.
I am not advocating political chaos. But I am comforted that having such an unusual US president does not make a lot of difference to global prosperity either way.