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Economics and Expectations (with a Trump point)

Economics and Expectations (with a Trump point)

    When I was studying economics in college, the most surprising thing I learned is that economics is what happens when you combine psychology with resources. I had assumed economics was more of a math/formula sort of discipline. There is plenty of that too, but the core of economics is human psychology.

    Let’s talk about that.

    The reason I say economics is psychology plus resources is that every transaction is based on human expectations. Businesses will invest heavily today if they believe customers are optimistic and likely to spend. If the mood is pessimism, and people are saving their pennies, those expectations stifle business investment. 

    I could go on for an hour about how your expectations are what creates value in this world. For example, you only make deals with people that you expect to perform. You only hire people you expect to do the job well. You only spend money if you expect to someday make more. You only buy a home when you expect real estate values to be strong in the future. And so on.

    Economies run on expectations. And expectations are the result of our complex human psychology.

    Consider Donald Trump’s deal-making skills. One of the clever things he has done over his lifetime is build up a set of expectations around his personality and operating style. When he enters a negotiation, you expect him to keep hammering until he wins. But you also expect a lot of energy and attention when it comes to a Trump deal, so your odds of making money with a Trump deal are good even if you are not the “winner” of the negotiations. 

    Now imagine a President Trump – a deal-making, super-optimist with a reputation for making money. What does that do to an economy? It probably super-charges it in a way no one has ever seen. The expectations under a Trump presidency would be similar to a Reagan vibe in the sense that people would assume the economy was going to trend up, so investment would follow that expectation.

    Economics is a self-fulfilling system in the sense that optimism and expectations create money where there was none before.

    Let me say that again. You can’t hear this too much. Optimism and positive expectations create money where there was none before.

    Now let me take this down to the small.

    Inside Donald’s Trump’s skull is a moist, wrinkly, grey object that weighs about three pounds. That thing is glowing with optimism. If it gets into the Oval Office, a billion souls will change their expectation about the economy of the planet. And not one of them will be adjusting their expectations downward.

    If you were to put a dollar value on the wrinkly, grey, three-pound object in Trump’s skull, what would it be?

    My estimate is around a trillion dollars. That’s what an optimist-president (who is also a deal-maker) can add to an economy over eight years. Because economics is psychology. 

    I remind you that I am not smart enough to know who would be the best president. And I’m not a fan of Trump’s stand on some social issues. But objectively speaking, a trillion dollars goes a long way toward helping people who need it.

    If you don’t want a Trump presidency, I certainly understand that. We all have different priorities. But before you make your final decision, you should have an estimate for what it would cost to pick a candidate who does not have a positive impact on the psychology of the economy.

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