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National Politics |By Charlie Cook, March 7, 2017
This story was originally published on nationaljournal.com on March 3, 2017

New York Fed Pres­id­ent Wil­li­am Dud­ley told CNN on Tues­day that “there’s no ques­tion that an­im­al spir­its have been un­leashed a bit post the elec­tion,” a ref­er­ence to a term that eco­nom­ist John Maynard Keynes coined to de­scribe people ex­hib­it­ing op­tim­ism—of­ten about the mar­kets—that is not ne­ces­sar­ily groun­ded in facts. Dud­ley’s use of the term is re­min­is­cent of then-Fed­er­al Re­serve Chair­man Alan Green­span us­ing “ir­ra­tion­al ex­uber­ance” two dec­ades ago to de­scribe stock-mar­ket be­ha­vi­or at the time, now re­membered as the tech bubble.

The stock mar­ket has been on fire since Don­ald Trump’s elec­tion. Pres­id­ent Trump’s well-re­ceived ad­dress to Con­gress on Tues­day night sent the Dow soar­ing above 21,000 for the first time, and pushed the S&P 500 in­dex to a re­cord level, over 2,300 and with­in sight of 2,500. The Con­fer­ence Board’s Con­sumer Con­fid­ence In­dex is at a 15-year high while the Uni­versity of Michigan’s Con­sumer Sen­ti­ment In­dex is just barely be­low the dec­ade peak hit in Janu­ary. The latest Na­tion­al Fed­er­a­tion of In­de­pend­ent Busi­ness sur­vey, which came out in the middle of Feb­ru­ary, shows small-busi­ness own­ers more op­tim­ist­ic than they’ve been since Decem­ber 2004.

In­vestors and small-busi­ness own­ers are fo­cused on their own ver­sion of hope and change—prom­ises by Trump of the biggest tax cuts in his­tory as part of a ma­jor re­form pack­age, a 10 per­cent in­crease in de­fense spend­ing, a tril­lion-dol­lar in­fra­struc­ture pro­gram, and re­lief from the reg­u­lat­ory bur­dens on busi­ness. Then there is the feel­ing that now that Re­pub­lic­ans are in charge, they will wave a ma­gic wand and bad parts of the Af­ford­able Care Act will go away, leav­ing only the good parts be­hind.

But is such un­di­luted op­tim­ism jus­ti­fied? The truth is that there are plenty of reas­ons to doubt that any of these hopes will be­come real­ity any­time soon. Moreover, there are oth­er threats in Wash­ing­ton and around the world that should give Amer­ic­ans cause for ser­i­ous con­cern. It would seem that there is a con­sid­er­able amount of se­lect­ive per­cep­tion tak­ing place, with people fo­cus­ing ex­clus­ively on the po­ten­tial for pos­it­ive de­vel­op­ments while stu­di­ously ig­nor­ing the risks that are equally sig­ni­fic­ant.

Treas­ury Sec­ret­ary Steve Mnuchin has pre­dicted that tax re­form will be done by Au­gust, but it’s highly un­likely that any­thing ap­proach­ing Trump’s pre­dic­tion of “his­tor­ic” tax re­form will be done by then or even this year. First keep in mind that the last ma­jor tax-re­form bill en­acted in­to law was in 1986, dur­ing Ron­ald Re­agan’s pres­id­ency, and in the four post-Re­agan ad­min­is­tra­tions, there have been nu­mer­ous pre­dic­tions of an­oth­er big re­form pack­age, but none have comes to pass.

Here’s a sober­ing fact, ac­cord­ing to the Tax Found­a­tion: The U.S. tax code has gone from few­er than 30,000 pages in 1986 to over 70,000 pages today. Tax re­form is really hard un­der the best of cir­cum­stances, and these are not the best of cir­cum­stances. The Re­pub­lic­an ma­jor­ity in the Sen­ate is just 52-48, the GOP ma­jor­ity in the House is not much big­ger, and the pres­id­ent and Treas­ury sec­ret­ary have no gov­ern­ment ex­per­i­ence. A corner­stone of the pack­age that Speak­er Paul Ry­an is push­ing is a Bor­der Ad­just­ment Tax, which would im­pose a 20 per­cent charge on im­ports and has even di­vided Re­pub­lic­ans. A new “Ox­iClean”-style in­fomer­cial aired this week by the Na­tion­al Re­tail Fed­er­a­tion is just a pre­view of com­ing at­trac­tions.

Then there is the broad­er ques­tion: How do you sub­stan­tially cut taxes while in­creas­ing de­fense spend­ing by about 10 per­cent to $54 bil­lion, build a bor­der wall, spend $1 tril­lion on in­fra­struc­ture, and leave So­cial Se­cur­ity or Medi­care un­touched? Does any­one think the State De­part­ment budget is really go­ing to be cut by 27 per­cent? In­fra­struc­ture up­grades are badly needed, but it’s pretty clear they will be pushed back be­hind health care and tax re­form. Trump’s dreams have broad ap­peal, but his math doesn’t add up.

While it is true that the reg­u­lat­ory bur­den is chok­ing our eco­nomy and only got worse over the past eight years, prun­ing reg­u­la­tions will re­quire hand-to-hand com­bat in the courts with pro­ponents of the rules. Amer­ica-first trade policies are apt to cause dis­putes of a mag­nitude we have not seen for dec­ades, and could well raise the prices that people pay for goods. Toss in re­peal­ing and re­pla­cing Obama­care and the need to raise the debt ceil­ing by Au­gust or Septem­ber, and it’s easy to see how Trump’s agenda could be sty­mied by le­gis­lat­ive grid­lock.

Then look around the world. To our west we see troubles with North Korea (think Sea of Ja­pan) and China (think man-made is­lands with mil­it­ary in­stall­a­tions in dis­puted areas of the South China Sea). If we look east, we see an ad­ven­ture­some Rus­sia, par­tic­u­larly in the Ukraine. Then there is Ir­an and the Middle East, and the po­ten­tial for prob­lems in Afgh­anistan, Ir­aq, In­dia, and Pakistan. And don’t for­get Tur­key.

Mean­while, ex­perts say the Dayton Peace Ac­cord is slowly com­ing apart with the po­ten­tial for prob­lems in Bos­nia, Ser­bia, Mace­do­nia, and Kosovo. On the Afric­an con­tin­ent there are prob­lems in Somalia, Ye­men, and Su­dan. Up­com­ing elec­tions in Europe are caus­ing con­cern, not just about the rise of ul­tra-na­tion­al­ism and ex­treme pop­u­lism but also about Rus­si­an in­ter­fer­ence. In less than two weeks we have elec­tions in the Neth­er­lands; the French vote in late April; Ir­an and Kenya go to the polls in May, and Italy may do the same this sum­mer. Of great im­port­ance is the Ger­man elec­tion in Septem­ber with Chan­cel­lor An­gela Merkel, the most im­port­ant lead­er in Europe, in danger of be­ing un­seated. Then there is the threat of ter­ror­ism. Do you think Trump prop­er­ties around the world are beef­ing up se­cur­ity?

So between the Wash­ing­ton policy front, where things are not nearly as rosy as they may ap­pear to Main Street or Wall Street, and a pleth­ora of trouble spots around the world that are keep­ing for­eign policy ex­perts awake at nights, it would be risky to bet that the an­im­al spir­its will be frol­ick­ing for long.