Trumpian fans will almost surely say “how could you not see it before?”, but I still believe it’s a reasonable response that when someone says “go and drink this poison–it will taste really good!” we should vehemently disagree. And I still disagree with his rhetoric on tariffs, but there is some small reason for optimism. Let me share the easy ones first.

Deregulation: Trump 2.0’s deregulatory zeal is proceeding at a pace I’ve never seen before. I’ve long argued here at BATG that his laser focus on unchaining the economy was the primary driver to good economic performance in his first term, and all hands are on deck for Trump 2.0. Lee Zeldin at EPA was a fantastic pick, and in combination with Chris Wright at Energy and Doug Bergum at Interior, we have tremendous opportunities. It appears that Mr. Trump’s team is going after the nonsensical Obama rule that CO2 is a pollutant, and that is a key path to ending climate extremism. Reason magazine rightly celebrates his executive order on deregulation, calling it a “”a thermonuke deregulatory warhead”. This is going to pay huge dividends going forward.

Spending reductions. Bereans know that I criticized the president for not caring about spending, and specifically putting off-limits the biggest cause of our fiscal problems, the entitlement state. Yet DOGE is having real impact, and cutting the size of government employees is a key first step. Let me be clear here: how DOGE is doing this is horrible, and the worst possible way to get the spending cuts. Real people–good people–are having their lives completely upended. But the reality is that in our gridlocked environment, it’s the only way. If the congress were responsible, they’d sit down and say we need to make $2T/yr in cuts and proceed to agree and compromise on what the least valuable parts of government are and then make the cuts. But that is precisely what they will not do. The Democratic party has zero constituency for cutting any spending, and the Republicans don’t have much more. But we are $2T/yr deficits forever–this must be done.

Taxes. I can’t imagine that Mr. Trump won’t be able to get his cuts extended. Further, according to Mr. Art Laffer (more below), the revenue we get from tips isn’t worth the cost, so Mr. Trump may be able to give this political bone away to meet his campaign promise. Not taxing overtime is also hugely beneficial to incentivize more work and production on the margin. But the bulk of the relief is simply not raising taxes, so this won’t have much stimulus, but it will provide certainty going forward.

Tariffs. But here is the big one. I’ve written repeatedly about the harmful aspects of tariffs, which most economists, left and right, agree with me on. Likewise the general public; the public is suspicious of tariffs and that’s one of the reasons that consumer confidence and the stock market is going down. So the Trump rhetoric on tariffs (e.g., tariff is the most beautiful word, “trade wars are easy to win”). And while I don’t believe that’s exactly what Mr. Trump believes, I’m always concerned because his supporters and the subordinates may actually believe him. My fear was that Mr. Trump was simply willfully ignorant on the issue, and might stubbornly cause significant harm to the economy without really understanding. However, we were blessed to have Dr. Art Laffer at CU on Tuesday evening (I should have it up on the website next week), and in our discussions (both before and during his presentation), Mr. Laffer insisted that Mr. Trump is very well versed in tariffs and does understand the harm of tariffs. He asserted that Mr. Trump is actually in favor of lower tariffs, and that is his goal, but he simply believes that the only thing other countries will listen to to lead to a lowering of tariffs is the denial of access to our markets. He shared with me his notes from a meeting with Mr. Trump last week, and the depth of what they covered across many economic subjects was impressive. I could never imagine Joe Biden (or Kamala Harris) being able to engage and understand these issues, yet Mr. Laffer assured me he did. I’ve never thought that Mr. Trump was not smart, but given his confidence (shall we say), I was afraid he could act ignorantly in these areas, especially because his public pronouncements are often non-sensical. I always held out that it could be just part of the “art of the deal” negotiation, but I couldn’t be sure. While his supporters always argued this, I couldn’t trust those opinions since Mr. Trump buttered their bread. But I do trust Mr. Laffer’s judgment. I now believe that the things I disagree with vis a vis his public pronouncements are not due to his being ignorant. He may still be wrong and I will still argue against the policy pronouncements, but I can buy the argument he actually does want to reduce tariffs. I’m not completely on board, as beyond the policy pronouncements I disagree with (most of them on trade and industrial policy), he did increase tariffs that were costly and they are still in place. And he does seem to favor steel and aluminum industries–this is not simply rhetoric. And industrial policy is always bad–government’s ability to pick winners and losers is almost always inversely related to success. And my warning a few posts ago that Mr. Trump is risking his 2nd term by doing this now is still on point. But I can see a path that if we don’t hammer the economy now, and the rest of his agenda is allowed to get through, we could see a really robust economy going forward. Let’s hope for this.