CONSCIOUSLY LIBERAL | The End of Trumpflation?

On November 9, the day after the US Presidential Election, I wrote a blogpost regarding market responses to the surprising Trump victory. It was an extraordinary day for markets as portfolio managers, institutional investors, traders, etc. scrambled for dividend-yielding stocks after pulling out of safe-haven investments. That marked the first day of Trumpflation, which famously led the DOW (DIA) and S&P 500 (SPX) to a 109-day streak without a decline of at least 1%. Both indexes were able to continue their streak even after the Feds raised interest rates to 0.75–1.00%.


If I told you that there are no constraints on federal government spending, you’d probably think I’m a radical deficit hawk and thus fiscally irresponsible beyond conventional liberal economics. Even Paul Krugman, the personification of liberal economics, doesn’t take it that far and assumes that adequate revenue is necessary for a proper budget (i.e. since borrowing costs are low, the government should run an affordable deficit and spend to offset the lack of private investment). Moreover, the spectrum of the national dialogue on public spending is limited between those who believe that deficit spending and the resulting higher quantity of money in the money supply would cause dangerous levels of inflation, and others (as evidenced by Krugman’s position) who believe that deficit spending can be responsible as long as borrowing is cheap and eventually financed by proper levels of taxation. Yet, Modern Monetary Theory (“MMT”) insists that the fiscal policy positions within that spectrum are all assuming an unnecessary constraint in public spending. In a soon-to-be published paper, Cornell Law School professors Robert Hockett and Saule Omarova undermine the notion of capital being mostly private, hard to come by, and flight-prone, and advance the fact that capital is mostly publicly supplied and “indefinitely extensible[.]”[1] One implication regards the relationship of banks with the economy and the central reserve (a discussion we will bookmark for my next post), but another is that the US can continuously borrow and never go bankrupt.

CONSCIOUSLY LIBERAL | Market Response to Trump Win


November 9, 2016

Markets were disturbed when it dawned on investors that Trump became the frontrunner for the presidency. The shuffling and rumble were the manifestation of adjustments in market expectation of a Clinton presidency. Paul Krugman, when apparently asked about the markets and its trouble at the time, glibly stated that the markets would be down forever because of the uncertainty and incompetence Trump represents and will reflect in his policies. Although the elections last night were disturbing, has the US market been fundamentally damaged? In the beginning, around 9-10 p.m. ET when Clinton was losing Michigan, Wisconsin, North Carolina and Florida, Trump became the favorite to win and uncertainty riveted the markets (the Mexican peso went down, safe-haven investments went up like gold and U.S. Treasury bonds, etc.).

SENSE AND SENSIBILITY | The Conscience of A Liberal

Awhile ago, Paul Krugman ran an op-ed piece titled “Plutocrats and Prejudice”, in which he observes the division between Bernie Sanders and Hillary Clinton during the primaries as a division between what change is best. Senator Sanders says he, along with the people, will revolutionize politics, while Secretary Clinton says she will implement progressive reforms. The question of revolution or reform was discussed previously in Western Europe and pre-Soviet Russia in the 19th and early 20th centuries. Scholars discussed this question in the context of what is the proper interpretation of Marx’s work. To achieve socialism, do we implement reform or do we need revolution? In the present, the goal hasn’t changed.

CONSCIOUSLY LIBERAL | On Fiscal Policy For the People

Two weeks ago I explained that the Central Bank has the ability to bypass Congressional gridlock and should conduct monetary activities that can help assuage market troubles. In this post, I will explain what Congress should do if able to act. If total spending is total income, and if a small percentage of people are getting too huge of an income that does not go to the real economy, then aggregate demand is implicated. Since both those premises are economic realities, I propose several policy recommendations for the politicians to resolve this issue. This post is divided into Revenue and Government Spending.