There's an interesting test of Donald Trump's presidency coming up tonight: does Wall Street think he has any credibility?
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On Friday in the US, Trump promised "a big announcement on Wednesday having to do with tax reform", a promise repeated on Twitter in the wee small hours of Saturday, not untypically.
Big TAX REFORM AND TAX REDUCTION will be announced next Wednesday.??? Donald J. Trump (@realDonaldTrump) April 22, 2017
How or if Wall Street reacts to that promise tonight our time will be an indication of whether the big money still cares, or if the random and sometimes contradictory nature of the presidency means Wall Street no longer takes him seriously.
Trump's tax campaign promises were very attractive indeed - if you were a rich American or just one of the anti-government, anti-tax ideologues that now characterise the right wing of politics.
Among other things, Trump proposed deep cuts in tax rates for individuals and corporations, repeal of the estate tax and an offshore profits repatriation tax holiday for multinationals - all music to the ears of someone like, well, Trump, most of his cabinet and the rest of the 0.1 per cent.
That he's tweeting to reduce tax fits with the Republican Party's commitment to the idea of "trickle-down economics" - that making the rich richer means the less well-off will eventually benefit, too. The same theory exists on the right of Australian politics, relentlessly pushed by the likes of the Institute of Public Affairs, a think tank that tends to be funded by the very well-off.
Unfortunately, "trickle-down" remains more a matter of faith than facts. Five tweets by Nobel Prize-winning economist and dogged Trump critic Professor Paul Krugman summarised the outlook:
So it seems that the Trumpkins are going to promise huge growth due to tax cuts for the rich. Reminder: this is pure derp 1/??? Paul Krugman (@paulkrugman) April 22, 2017
Taxes on the rich have gone up and down quite a lot: down under Reagan, up under Clinton, down under W, up under Obama 2/ pic.twitter.com/D6bPLS7TdU??? Paul Krugman (@paulkrugman) April 22, 2017
Here's the growth performance, from 1st quarter of president to 1st of next (truncating Obama at 2016IV) 3/ pic.twitter.com/cEtcq7JM4Z??? Paul Krugman (@paulkrugman) April 22, 2017
Not the slightest hint in this history that cutting taxes increases growth, or raising them hurts it. And don't forget Kansas/California 4/??? Paul Krugman (@paulkrugman) April 22, 2017
So why do we still hear supply-side derp? Difficult 2 get a man to understand something when his paycheck depends on not understanding it 5/??? Paul Krugman (@paulkrugman) April 22, 2017
The reference to "Kansas/California" is the case of the two extremes of American state policy. Kansas has gone Republican hard right with a low-tax, low-regulation, low-wage regime. California is the opposite. Kansas is sliding while California is doing very nicely indeed.
Krugman is scathing of economists who perpetrate the "supply side" trickle-down theory, accusing them of running the line for the money that flows to them from rich right.
American investors have been excited about tax cuts before. The reaction to the Trump tweeting will indicate how much that excitement has worn off.
