Donald and the Deflationists

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U.S. political discussion has been dominated by the issue of Donald Trump’s wall — an issue on which Trump’s irrationality keeps surprising even his critics. So I don’t imagine that many people have heard about Trump’s nomination of David Malpass, currently an under secretary at the Treasury Department, to lead the World Bank. But it’s a story worth following.

For one thing, while the U.S. traditionally gets to choose the World Bank’s president (Europe gets the International Monetary Fund), there will be a lot of opposition to Malpass, who has a history of being hostile to international institutions. Furthermore, the Malpass nomination highlights the remarkable character of Trump’s economic appointments.

Remarkable in what way? Well, remarkably bad. Every economist, yours truly very much included, gets it wrong sometimes. But Trump only seems to choose men who have been wrong about everything.

Beyond that, however, what’s remarkable is the extent to which this president consistently chooses economists whose ideology is at odds with his own professed views on policy.

These days, at least, Trump is an easy-money guy who wants the Fed to keep interest rates low. But he keeps appointing deflationists — men who opposed any attempt to rescue the economy from the financial crisis, who bitterly attacked the Fed for keeping rates low and demanded tight money even when we had very high unemployment.

Why does he do this? I’ll get there in a minute. First, let’s talk about who’s on the Trump team.

At the top of the list is Larry Kudlow, director of the National Economic Council. He has quite a track record; as one commentator put it, he “has elevated flamboyant wrongness into a form of performance art.”

Kudlow may be best known for his unflagging faith, in the teeth of the evidence, in the magic of tax cuts, as well as his dismissal of “bubbleheads” who predicted a housing crash. Less known is his 2008 praise for Bush officials for having the courage not to bail out Lehman Brothers. Just hours after his encomiums, Lehman’s fall had plunged the whole world into financial meltdown.

Kevin Hassett, chairman of the Council of Economic Advisers, is another bubble denier, although his most famous prediction was in his 1999 book “Dow 36,000” (which, adjusted for inflation, would mean roughly Dow 55,000 today). More relevant to current policy, Hassett was among those who kept predicting, wrongly, that Ben Bernanke’s efforts to fight unemployment would cause runaway inflation.

And then there’s David Malpass, also both a bubble denier and a Bernanke-basher. Much press commentary has noted his 2007 insistence, as chief economist at Bear Stearns, that there was no reason to be worried about the financial system. A few months later his own firm imploded.

But I think his most revealing piece of commentary was a 2011 screed against low interest rates and what he considered a “weak dollar” policy. A low rate policy, he declared, hurts the economy because it “discourages thrift,” while the weak dollar was bad for confidence, or something.

This was really bad economics. At the time, America had 9 percent unemployment, entirely because of inadequate private spending; to the extent that low interest rates were discouraging thrift and making people spend rather than save, that would have been a good thing, not a problem. And Malpass’s argument about the dollar was just incoherent.

What’s really striking, however, is that the policies Malpass attacked were precisely the policies Donald Trump now demands: low rates and a weaker dollar. So why would Trump want to promote him, and people like him?

Here’s how I understand it: The first thing Trump looks for in an appointee is someone who shares his values — above all, his absolute lack of compassion for those less fortunate than himself. And if you want an economic official who doesn’t care about the poor or the unlucky, you must perforce go for a right-winger.

But Trump also has another criterion: He wants people who will be personally dependent on him, who don’t have any kind of professional reputation to defend and therefore won’t take a stand on principle. That is, he only wants hacks.

And here’s the thing: Right-wing hack economists are, with hardly any exceptions, hard-money, hyperinflation-is-around-the-corner types. So Trump ends up with officials whose past views are diametrically opposed to what he says now.

Does this mean that the men he has chosen will stand in the way of his policies? No, not at all. They are hacks, after all, and will tell Trump whatever he wants to hear.

But it does mean that Trumpian economic policy is being made by men who, almost by definition, don’t know what they’re doing. To have gotten their jobs, they not only had to have track records of talking nonsense, but to have suddenly started talking completely different nonsense — reversing their long-held positions to curry favor with the Very Stable Genius.

So what will happen if and when this economic team has to deal with real problems, like a global slump? Somehow, I’m not optimistic.

More from Paul Krugman.
Opinion | Paul Krugman
Donald Trump and His Team of Morons

Opinion | Paul Krugman
Bad Faith, Pathos and G.O.P. Economics

Opinion | Paul Krugman
Hard-Money Men, Suddenly Going Soft

Opinion | Paul Krugman
Springtime for Sycophants

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