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Trump's Money Men
| Wall Street Journal | - |
Financial
markets have been buoyant since Donald Trump's election, and even the
downbeats at the Organization for Economic Cooperation and Development
are now forecasting faster global growth due to Trumponomics.
Trump’s Money Men
An underwhelming pair of nominees to lead Commerce and Treasury.
ENLARGE
US President-elect Donald Trump adviser Steven Mnuchin leaves from the Trump Tower in New York on November 14, 2016.
Photo:
Agence France-Presse/Getty Images
Treasury nominee Steven Mnuchin is a Wall Street denizen who led fundraising for the Trump campaign but is a newcomer to political or policy debates. Like his father he worked at Goldman Sachs, then was a founder of the hedge fund Dune Capital and has made money investing in movie productions like “Avatar” and “American Sniper.”
The good news is that he’s adopted the Trump mantra on economic growth and told CNBC Wednesday that “I think we can absolutely get to sustained three to four percent” GDP growth rates. He added that tax reform is crucial to achieving such growth, and that this includes cutting the federal corporate income tax rate to 15% from 35%. This is encouraging, especially since we’re told he says the same in private.
On the other hand, Mr. Mnuchin seems to suffer from Mitt Romney’s squeamishness when it comes to individual tax cuts that might include high earners. This sometimes happens to people who drove a Porsche in college. If across-the-board rate cuts encourage high earners to create businesses and jobs, there’s no need to apologize. Average workers will be see their incomes rise too.
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Wonder Land Columnist Dan Henninger on why the conservative A-team is flocking to work for Donald Trump. Photo: Getty
The number one problem with Dodd-Frank is that it gave Washington too much power over such questions, while essentially turning banks into public utilities. Mr. Mnuchin should demand that banks hold more capital so they’re less likely to ask for taxpayer assistance, and then liberate them to decide whether to make more or fewer loans, and to whom.
We’re told that Mr. Mnuchin is instinctively a free trader, and he’ll need to be now that Wilbur Ross will be running the Commerce Department. Mr. Ross is a savvy investor who is media-friendly and was for years a major donor to Democrats. This may be because he shares the progressive belief in government industrial policy.
This has certainly worked for him. In 2002 Mr. Ross bet correctly that George W. Bush would slap new tariffs on imported steel, instantly making U.S. steel mills more price-competitive but punishing steel users. The Bush tariffs of up to 30% were announced days after Mr. Ross picked up U.S. mills at a bargain price from bankrupt LTV.
The private-equity titan has a simple but misguided view of global trade. He believes that good trade policy yields a national trade surplus, while bad deals produce trade deficits—as if every country in the world could run a trade surplus. In an August letter to this newspaper, Mr. Ross wrote, “It’s Econ 101 that GDP equals the sum of domestic economic activity plus ‘net exports,’ i.e., exports minus imports. Therefore, when we run massive and chronic trade deficits, it weakens our economy.”
Who taught him that? Imports are subtracted in GDP calculations to avoid overstating domestic production, not because they make us poorer. Many domestic products wouldn’t exist without foreign components.
The Commerce Department is a swamp of crony capitalism, and Mr. Ross is unlikely to drain it. The agency will probably become even more welcoming for CEOs who don’t like competition and want the government to use its various tools to punish foreign competitors—and their U.S. customers.
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The Mnuchin and Ross selections reveal the contradiction at the heart of Trumponomics. The President-elect realizes that faster growth requires lower taxes, less regulation and less government meddling—except for traded goods. There he doesn’t mind taxes in the form of tariffs and political intervention to favor some companies over others.The irony is that if Mr. Trump succeeds in unleashing faster growth, the U.S. demand for imports will naturally increase. As capital returns to the U.S., the trade deficit will also grow. The race is on to see if Mr. Trump’s pro-growth policies can create jobs and lift incomes fast enough for the President-elect to realize that trade deficits don’t matter.