Once the team is in place, its members will need to figure out how to make Trump’s plans work for an economy that has – by necessity, not choice – been excessively reliant on unconventional monetary policies. The plan must recognize that, during this protracted period of monetary expansion, both financial markets and resource-allocation have been distorted, worsening wealth inequality.
The good news is that the incoming administration can draw on measures that were formulated during Obama’s tenure, but which gained little traction because of the highly polarized and dysfunctional congressional politics that characterized most of Obama’s eight years in office. Such measures address imperatives such as infrastructure investment, tax reform, and job creation.
But, of course, the US does not exist in a vacuum. External challenges must also be overcome – or, at least, contained – if the president-elect is to fulfill markets’ expectations. Developments in Europe, which faces a series of potentially destabilizing political events in the next few months, will be particularly consequential.
Italy is about to hold a constitutional referendum that could result in the fall of Prime Minister Matteo Renzi’s government. The United Kingdom has to produce a plan to guide a credible and orderly Brexit process. In France, the far-right National Front’s Marine Le Pen will attempt to turn the upcoming presidential election into another anti-establishment upset. And, in Germany, Chancellor Angela Merkel will try to position herself to win another term next fall, in an environment that has been tripping up traditional politicians.
Notwithstanding the risk of instability in Europe, Trump is in a position not just to help boost growth in the US, but also to make it more inclusive. By pursuing a Congress-supported pivot toward a more comprehensive economic-policy stance, his administration’s policy surge could also spur the private sector to begin using its large amounts of cash not for short-term financial engineering, but for growth-enhancing investments in plant, equipment, and people. If the economic frustration that drove so many Americans to vote for Trump is to be dissipated during his presidency, and if the market gains are to be validated and augmented, this prospect must become a reality.
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