Wall Street thinks the real estate mogul’s presidency may look a lot like the actor’s presidency.
In a number of research reports, Wall Street analysts have drawn the comparison between President-elect Donald Trump and former President Ronald Reagan.
Reagan enacted a large fiscal stimulus plan; Trump plans to do the same. Reagan cut taxes and advocated the idea as an economic boon; Trump’s nominee for Treasury Secretary said their tax plan would be the largest “since Reagan.”
Unfortunately for this comparison, the economic circumstances are totally different.
“Although I admit there are similarities between the Carter — Reagan transition to the Obama — Trump hand-off, the fundamental economy Reagan confronted is decidedly different from that which the Trump team faces,” said Steven Ricchiuto, chief economist at Mizuho.
Let’s break down where we are in 2016 compared to 1980.
For one thing, we do not seem to be perilously near a recession.
Within months of Reagan taking office, the US economy plunged into a recession and unemployment (which was already higher than it is now) soared, necessitating a large fiscal stimulus. Reagan than delivered on that stimulus, as most economists agree a government should do.
Meanwhile, Trump takes over with an unemployment rate of 4.6% and an overall strong economy. This makes a large infrastructure plan less needed and it may even be damaging to the economy.
“Trump’s plan to follow the Reagan stimulus plan suggests a lack of understanding among policymakers as to the nature of the problem that needs to be addressed,” wrote Ricchiuto. “This implies that it is very likely that the investment incentives expected by the markets will simply drive up equity valuations and further exacerbate the income inequality that lead to the Trump victory.”
Additionally, inflation and the backlog of inventory in the economy nowadays are much different than during Reagan’s era. Here’s Ricchiuto from his note:
“President Reagan was elected when the global economy was skewed towards excess demand; whereas the domestic economy is now confronting excess supply. Excess demand had dominated since the end of WWII and had pushed inflation into double-digit territory, and the Reagan tax cut was designed to boost the supply side of the economy. In contrast, excess supply has been building since the early-1990’s and exploded following China’s entry into the World Trade Organisation.”
Finally, Reagan for his part, was also an advocate of free trade. “I recognise … the inescapable conclusion that all of history has taught: The freer the flow of world trade, the stronger the tides of human progress and peace among nations,” Reagan said in 1986.
Trump, on the other hand, has been much more sceptical of free trade. He has advocated for possible tariffs and “ripping up” trade agreements such as the North American Free Trade Agreement. In fact, one of the biggest fears of Trump’s platform is that it could lead to a damaging trade war.
So yes, there are similarities between Reagan and Trump, but just as much sets them apart as keeps them together.
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