Here is a headline from this morning’s New York Times:
Over the course of the day, I’ve heard three different radio commenters riffing on this theme, mocking the former president for not realizing that presidents don’t control monetary policy.
The mockers are wrong. They’re even obviously wrong. If interest rates are determined by monetary policy and nothing else, then what determines interest rates in an economy without money, where people still borrow and lend?
Interest rates are largely determined by the difference between prosperity now and expected prosperity in the future. If everyone expects to be a lot richer in ten years, they’ll try to borrow more now and drive interest rates up. If everyone expects to be a lot poorer in ten years, they’ll try to save more now and drive interest rates down. And pretty much everything a president does affects both current and future prosperity, so pretty much everything a president does affects interest rates.
Trump’s promise to bring down interest rates is an implicit promise to adopt policies that either a) make us more prosperous today, but only temporarily and/or b) make us less prosperous in the future. In other words, he’s promising to adopt policies that many of us would describe as short-sighted. The New York Times notwithstanding, he’s perfectly capable of fulfilling that promise. He can, for example, appoint a lot of short-sighted people to influential policy positions.
And we know who some of those people are! The New York Times and the radio commentators completely missed the boat on this one. They thought Trump was promising the impossible, but failed to realize that there’s nothing impossible about filling the Cabinet with childless cat ladies.
As a non-economist I assumed the monetary policy explanation so this is an interesting perspective. But what did Trump mean by his remark? How does he think he can lower interest rates? Surely not by the mechanism that you illuminate here, right?
Mark Ettinger: I think that with Trump the safe assumption is always that a) he didn’t mean anything at all and b) it never occurred to him that words are supposed to mean anything at all.
Perhaps he is an Austrian and believes that his election will lead to lower time preference in the USA?
@2
I think Trump’s logic goes like this:
1.) Trump is planning on doing good things.
2.) Good things lead to other good things.
3.) Lowering interest rates is a good thing.
4.) Trump will therefore lower interest rates.
!Trump’s promise to bring down interest rates is an implicit promise to adopt policies that either a) make us more prosperous today, but only temporarily and/or b) make us less prosperous in the future”
Trump of course has no idea of any implication of any “policy” he says.
Trump believes that we can make everyone in USA richer by imposing tariffs on imports.
Trump economic theory was superseded in about 1850. He is a mercantilist.
All policy that Trump will impose will be based on a very poor understanding of economics. A very poor understanding of centuries old economics.