Donald Trump has given Paul Krugman a ‘Fake News Award’ – but did the economist really get it so wrong?

Krugman’s prediction was just that: a prediction. If it was reported, then it should have been reported with the usual caveats attached to all economic forecasts, predictions and received bits of wisdom

Sean O'Grady@_seanogrady
Thursday 18 January 2018 15:21
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Krugman predicted that the stock market would crash on a Trump victory
Krugman predicted that the stock market would crash on a Trump victory

Without wishing to tax your mind unduly, I wonder if Donald Trump’s Fake News Awards aren’t in fact an exercise in Fake News themselves, as some of the fact-checking exercises on them have already demonstrated (unless they, too, are “Fake Fact Checking”, in which case we could all spend the rest of our lives in this seventh circle of hellishness).

I have no doubt, for example, that the top Fake News “Oscar” – maybe we should call it a Trumpscar? – that went to the distinguished economist Paul Krugman was a “fake” award. Krugman, it is perfectly true, predicted that the stock market would crash on a Trump victory. In fact it is up about 30 per cent in the year since Trump took over, one of its better performances in history. Still, Krugman’s prediction was just that: a prediction. If it was reported, then it should have been reported with the usual caveats attached to all economic forecasts, predictions and received bits of wisdom. Of these, by the way, my favourite is the wisecrack that “economists have predicted 10 out of the last three recessions”, or variations thereof. The deflationary effect of that on any professional economist’s ego is usually entertaining to behold.

Krugman himself, professor, Nobel prize winner and brilliant mind, took to Twitter, appropriately, to make light of it and indulge in a little satire of his own; “I get a ‘fake news award’ for a bad market call, retracted 3 days later, from 2000-lie man, who still won’t admit he lost the popular vote. Sad!”

Donald Trump has announced the winners of his ‘Fake News’ awards

It is worth mentioning a couple of other economicsy things. First, the US stock market and Donald Trump are not what an economist would term “independent variables”. By which I mean the fact is that President Trump’s words, policies and actions can actually move the stock market – and indeed they have. The Trump tax reforms basically mean a bonanza for corporate America as profits previously parked offshore anywhere from the Cayman Islands to Switzerland for fear of the US Internal Revenue Service can now be “repatriated”. Only this week, Apple for example announced the cashing out of $250bn (£180bn) from its overseas tax havens.

When such funds do get back to America a fair slice will be paid out to shareholders in those big companies, maybe via some juicy special dividends, and the anticipation of that that makes those shares more attractive and pushes their price higher. Plus Trump has a more pro-business approach generally than his predecessor.

Second, Trump’s decision to let rip on oil exploration and ditch all the green stuff has been excellent news for shares in energy firms.

Third, we have the expansionary effect of the (even) bigger budget deficits the US will probably run under the Trump administration which – in true Keynesian style, as Professor Krugman would well understand – will boost economic growth and thus corporate revenues and profitability.

Last, no one should rely on stock market indices as evidence of very much at all. For the stock market will, sooner or later, “correct” itself (that is a safer prediction than most, by the way, as it always does). That doesn’t mean capitalism is finished or that the US economy is suddenly busted. It does mean that those who use the Dow Jones, the Nasdaq or any other index as their sole guide to the health or otherwise of the US economy – as Donald Trump so often does now – are rather foolish, because it is a rather capricious beast and you can end up looking very silly if it moves in the “wrong” direction. In that respect, if no other, the stable genius Professor Krugman and the fake stable genius President Trump have one genuine mistake in common.

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