“The only certain thing that can be said about Donald Trump today is that he is a highly variable character. What he will actually do no one knows yet and it is impossible to predict. It depends on where the pendulum will stop. If things go badly, a tough protectionist policy like the American one will arrive, which caused enormous disasters in the XNUMXs and XNUMXs, and if, on the contrary, it goes well, a sort of new Reaganomics, based on tax cuts and the relaunch of investments in infrastructure, which will certainly raise growth but with significant deficit and debt problems. A lot will depend on which team Trump wants to surround himself with." The speaker is a very special economist like Michele Fratianni, Florentine by birth but American by adoption, who lives and teaches for six months of the year in Italy, at the Marche Polytechnic in Ancona, and for another six months in the United States, where he is professor emeritus at the Indiana University Kelley School of Business. But Fratianni, who has written countless books and articles in international journals, is also special for another reason, and that is for having been part of President Ronald Reagan's team of economic advisers in the White House in the XNUMXs. Few know American economics and politics like him and that's why FIRSTonline interviewed him.
Professor, did you expect Trump's victory in the presidential elections?
“Honestly, I have to say no or, at least, not to that extent. I had sensed that Trump might be close to the finish line and that, in the final heads-up, it would have an advantage that Clinton didn't attract much sympathy even in traditional Democratic feuds, but I didn't think Trump could really pull it off. In the days leading up to it, a limited success for Hillary seemed more probable to me who, compared to an outsider like Trump, could count on her long experience, but in the end the spirit of revenge against the establishment and against the Washington policy that rewarded the scrapper capable of speaking more to the belly and heart than to the head of the States”.
But is the real Trump the pyrotechnic and unpresentable one of the ferocious electoral campaign or the conciliatory one of the first speech as future president?
“You'd have to be in his head to know that but I'm not his psychologist. At present we can only say that Trump is a highly variable character. We know what he has done so far: he has been a real estate developer like Berlusconi of the origins and went bankrupt, he has had a constant presence on American TV, he is no stranger to politics and, precisely for this reason, he has led an electoral campaign as a very aggressive and very impulsive. What he will do as President is impossible to predict ”.
There are those who say that Trump could repeat the political parable of Ronald Reagan, of which you were one of the economic advisers in the White House, but there are also those like Enrico Letta who are convinced that this time the metamorphosis cannot take place: you who what do you think?
“As I said before, Trump is a highly variable character and therefore he can be everything and the opposite of everything. I find myself quite in agreement with Enrico Letta because Reagan had been Governor of California before becoming President of the United States, while Trump is ignorant of politics, and moreover Letta is perfectly right in pointing out the importance of the team that Reagan was able to set up and which included the likes of James Baker and Regan. Once again the team will be fundamental for the fate of the new US president, but who will Trump choose? Of course, his daughter Ivanka seems very skilled, as well as important characters are Rudy Giuliani and Vice President Pence, but in the end it will be necessary to see if Trump will prefer to surround himself with yesmen or characters of great depth. Let us not forget that checks and balances really work in the United States and therefore Trump, despite having great powers, will not be able to be a dictator. He will have to come to terms with Congress which, despite having a Republican majority, will not guarantee him automatic consent. He will have to convince and persuade, an art in which Reagan was a master ”.
The greatest concern of Europe and the rest of the world is that, to indulge the anger of the American middle class and its fears about globalization and immigration, Trump will lead the US along a protectionist and isolationist drift: how real is this danger and what effects would a protectionist America have on Europe and Italy?
“As things stand, all options are open to the Trump presidency. At the negative end there is the risk of a tough protectionist policy based on high tariffs like the one that aggravated the Great Depression of '29 by choking international trade. It would be a disaster but it is an extreme hypothesis, the costs and benefits of which Trump and his collaborators will have to carefully evaluate, without forgetting that the markets will also want to have their say. More than the introduction of exorbitant tariff bulwarks, it seems likely to imagine a renegotiation of NAFTA and other trade agreements. But certainly the path of protectionism is a hypothesis that remains in the field and that presents many risks because, once this path is taken, the reactions and retaliations of other countries, which perhaps are waiting for nothing else, will not be long in coming. ”.
Instead, let's try to test our optimism: what do you see at the positive end of the various options facing the Trump presidency?
“The positive hypothesis and my personal hope is that Trump, despite the concerns I expressed earlier, ends up resembling a sort of Reagan 2.0, that is, a President who manages to transform himself from a scrap metal into a very pragmatic and inclusive politician. Reagan, for example, was adamant on two or three points but was very forthcoming on the rest. I cite two examples that explain Reagan's style of government much better than many words.
Please, professor.
“When I was part of the team of economic advisers at the White House I remember very well that President Reagan was very concrete and very essential and that on the economic issues that interested him he asked us every time for a memo of no more than 10-15 lines. But there is another aspect that speaks volumes about his inclusive ability: Reagan used to invite almost every month to the White House his fiercest opponent, Tip O'Neill, a "liberal Democrat" and group leader of the Democrats in the House . In their periodic meetings, Reagan would begin by offering Tip some candy, then tell him a joke (which inevitably made the surly Tip smile), and finally get down to business, knowing full well that Tip didn't think like him about many things. But the President's strategy was to find common ground as long as it didn't affect the few fundamental Reaganians. In other words, both of them knew they could not give up the hard core of their preferences, but they remained open to dialogue and sought an agreement on aspects where preferences were less defined”.
What economic policy do you expect from Trump? In his first speech after the presidential victory, Trump said he wanted to double growth by focusing above all on investments in infrastructure which, combined with the promise of reducing taxes, could cause the debt to explode: or not?
“I hope that Trump practices a renewed Reaganomics, which in fact translates into a Keynesian policy on public investments and that, unlike the first Reaganomics, he is willing to partially revise the promises made during the election campaign on tax rate reductions. The ideal is to find the right mix between tax reduction and support for investment in infrastructure. Of course, as with Reagan, the risk of widening the deficit and debt is certainly there”.
Beyond that, what could Trump do to pander to the middle class that brought him to the White House without wrecking everything and leaving an unsustainable legacy?
“A certain dose of protectionism could favor the redistribution of income to the advantage of the middle class, but there is the risk of seeing capital flee abroad and making the financing of the public debt more expensive. We are certainly dealing with high-risk bets. What seems probable to me is that Obamacare will be radically changed or even canceled, which in Italy is seen very differently than in the USA, where the American middle class is called upon to pay exorbitant and subject to increases for health care insurance premiums annual percentages above the double digits. Another possible novelty of Trump's economic policy will be the reduction of regulation in general and financial regulation in particular: in short, fewer snares and snares to reinvigorate economic activity”.
Will the Fed's monetary policy change and will central bank independence remain a staple or be challenged?
“Certainly Trump doesn't have much sympathy for Yellen who he believes has been too accommodating with Clinton. He would not be surprised if the Fed chairman changes even before the natural end of his mandate to make room for a figure closer to the White House such as Vice President Stanley Fischer could be. But this is entirely hypothetical, because in fact it will be necessary to ascertain whether it is really advantageous for Trump to replace Yellen with a character who is more aggressive, both in terms of timing and quantity, on raising interest rates”.
Will rates go up as early as December?
"It's not entirely clear but, if they go up, I don't think they will go up by much."
In conclusion, will the Trump presidency be more of a risk or more of an opportunity for Italy and for Europe?
“Today it seems more of a risk than an advantage, because Italy (and Europe), in a global vision, look more like an earthenware vase than an iron vase. But the game is on and what seems plausible today can be turned upside down tomorrow. Certainly the Trump presidency will not be characterized by continuity”.
