What proves Trump’s new club of economic advisers won’t help his policies

ECONOMISTS love to debunk the analogy that is often drawn between the government’s budget and that of a household. (Much of the government’s debt is held by its own taxpayers; households borrow exclusively from outside sources.) But there is another, equally flawed analogy, to which Donald Trump subscribes: that writing economic policy is comparable to making business decisions. Mr Trump’s thirteen-strong team of economic advisers, announced on Friday, is packed full of rich businessmen (and only men). Just three have relevant backgrounds in economics.

Does high-quality economic advice matter? Mr Trump’s ludicrous tax plan which is likely to be revised on August 8th suggests it does. The plan achieved the unlikely feat of being both hugely expensive and yet startlingly inefficient. Instead of combining tax cuts with measures to broaden the tax base, a combination tax-reformers have long called for it shrinks the tax base slightly. And Mr Trump omitted the growth-boosting reforms to the corporation tax that conservative economists favour. The Tax Foundation, a think-tank, found that Mr Trump’s cuts, which cost $12 trillion over a decade before accounting for economic growth, would give only slightly more juice to the economy than Paul Ryan’s plan, which comes at one-fifth of the up-front cost.

Who knows whether the likes of Harold Hamm, an oil magnate on Mr Trump’s team, or Dan DiMicco, a steelmaker, could have written a better plan. But almost any economist could have done. Unfortunately, Mr Trump’s whole campaign is based on the notion that financial success begets policymaking success, regardless of expertise. (Ironically, though, one member of his team is a one-hit-wonder: John Paulson, a hedge-fund manager, made a killing betting against subprime mortgages in the crisis but has performed disappointingly since.)

There are numerous areas in which businessmen may have the flawed intuition about what is desirable for the economy. An obvious example is an anti-trust policy. Many businesses especially successful ones will find competition policy burdensome. It imposes onerous regulatory tests on big companies who want to merge. Yet it is crucial for the economy as a whole that companies do not gain too much market power, as Jason Furman, Barack Obama’s top economist, has recently emphasised. Similarly, a business will do better if it is protected from overseas competition but consumers at large will suffer. Economists are by no means omniscient about economic policy and frequently prove as much. But they are at least trained to think scientifically about what is in the public interest. That is very different to thinking about what will boost companies’ profits.

The result of Mr Trump’s choice of advisors is that his economic policy remains unpredictable because his promises are detached from economic reality. His desired trade barriers will reduce wages rather than raise them. He cannot cut taxes, leave Social Security spending untouched, and reduce the national debt all at once. Nobody knows which of these goals he will prioritise. Erratic policymaking is a particular risk when it comes to monetary policy. Mr Trump has hinted that he favours a gold standard. David Malpass, one of the few trained economists on Mr Trump’s new team, has long called for much tighter monetary policy, in spite of tepid growth and below-target inflation. Were President Trump to appoint a hawkish or eccentric replacement for Janet Yellen at the Federal Reserve, the consequences for the economy could be grave indeed.

One aspect of President Trump’s economic policy is easy to foresee. Businessmen and conservative economists agree that America is over-regulated. They detest the Dodd-Frank Act, which regulates banks, and lament the rulemaking of the Department of Labour and the Environmental Protection Agency. This is such an obvious point of consensus that congressional Republicans have made it the new centrepiece of their economic policy, replacing deficit-reduction (see article). Expect a bonfire of regulations if the Republicans win in November. Everything else will be a confused mess.