November 10, 2016
There are three reasons why uncertainty is far higher than normal during the transition to the new president — and business investing may suffer.
Donald Trump’s stunning win in the U.S. presidential election, together with the election of Republican majorities in both the House and the Senate, has generated a wave of coverage about the deep changes that will surely occur with Obamacare but not nearly as much about what the voting will likely mean for businesses in general and the insurance ecosystem in particular. While there are far more questions than answers, I’ll venture a few observations.
The biggest concern is that Trump brings with him enormous uncertainty that could cause a pause in planning for investments, especially given that we are in the year-end budgeting season. Yes, a transition of power at the presidential level always brings uncertainty, especially when the new president is from the other party, but the uncertainty surrounding Trump will likely last longer than usual — possibly far longer — for three reasons and could cause significant problems for the economy.
First, while companies plan investments based partly on an incoming administration’s policies, it’s not at all clear what Trump’s policies are in many instances. Often, he said something startling during one portion of the campaign, such as that he planned a 45% levy on goods from China that would start a trade war, but then backed off and let the furor die. Will he try to impose that levy; build a wall that would damage relations with Mexico, one of our biggest trading partners; cut taxes so much that he adds $500 billion a year to the federal deficit? Who knows? He likely doesn’t even know at the moment on many issues.
He has expressed some plans consistently. For instance, he expects to lower nominal tax rates on businesses and simplify the tax structure, which businesses will welcome and which congressional Republicans will likely support. Trump plans to invest heavily in infrastructure, which draws mixed reviews among Republicans. He plans to reduce regulation, including defanging a major consumer watchdog group, which businesses generally welcome, though his thinking on regulation could cause consternation on health insurance. (He says he thinks health insurance costs can be driven way down by allowing any policy approved in one state to be sold in other states — an approach that state regulators would surely resist and that would leave many companies in limbo while the fight played out.)
But even when Trump has been thematically consistent, he has been shy on details or even contradictory — his campaign simultaneously cited two different versions of his tax plans that were $1.2 trillion apart in terms of how much revenue they would generate over 10 years.
Even under the best of circumstances, it will take many weeks for Trump’s team to build out the details of the many policies that an incoming administration needs to have — and that most have on Election Day. It could be months before the team even gets to the point of starting to turn the policies into legislation.
Which brings me to the second point about the unusual uncertainty surrounding a Trump administration: He doesn’t have a team.
He needs to build a team numbering in the thousands to take leadership roles in the vast federal bureaucracy, but he just has the core of a team at this point, which is very late in the game as it’s usually played. That core is mostly his family, four politicians and two political operatives. Two of those politicians — former New York City Mayor Rudy Giuliani and former Speaker of the House Newt Gingrich — have experience but have been out of office at least 15 years and don’t bring sizable organizations with them. The two sitting governors on the team — Indiana’s Mike Pence, the vice president-elect, and New Jersey’s Chris Christie — have access to organizations, though Christie may be hampered by the Bridgegate scandal. The two political operatives — campaign Chairwoman Kellyanne Conway and campaign Chief Executive Stephen Bannon — have only modest resources to contribute to a team, and Bannon’s organization, Breitbart News, is toxic to many.
Traditionally, the Republican Party would provide the core of the incoming president’s team, but Trump has been at war with most of the leaders of his party — notably not Chairman Reince Priebus — almost as much as he has with the Democrats. In addition, many politicians will avoid Trump, at least initially, because of the racist, xenophobic and misogynistic things he said during his campaign.
He will surely build a team. The lure of high office will overcome the scruples for many. But the mechanics will likely take longer than normal, and there could be more than the usual sorts of problems getting the people Trump wants in the jobs where he wants them.
My third and final point: Even once Trump builds a team, it’s not clear that he really wants one. He has said that he runs his business pretty much as a solo operator, reserving all key decisions to himself, and he certainly ran his campaign that way. He publicly contradicted his vice presidential nominee on a policy matter related to Russia. Trump and Gingrich reasonably often ventured contradictory opinions in public. Conway has said that she sometimes said things on TV to get Trump’s attention, because she knew he was watching her on TV and couldn’t always get his attention in private.
What will Trump delegate, and which decisions will he keep for himself? Will he be consistent in the division of responsibility? He has said that he trusts his instincts and doesn’t read, so how will he manage a bureaucracy traditionally built on careful analysis, detailed briefings and internal debate? Does he have something entirely different in mind?
Those answers aren’t yet clear, and they need to be as Trump figures out how to delineate policy and work with an enormously large team for the first time in his life.
This list of three reasons for additional uncertainty actually assumes otherwise benign conditions. It assumes that he controls his worst impulses, even though he surely wants to wreak revenge on or at least belittle so very many people at the moment. It assumes that he doesn’t get bogged down in the lawsuits that are either already proceeding (the Trump University fraud trial begins later this month) or that may be filed against him, including by the women who allege he sexually assaulted them. It assumes that no crisis erupts in, say, Syria or in the economy, which could well pose some problems.
For me, the first big test will be whether he can make peace with the congressional leaders of the Republican Party. If he can, then he has the chance of building a team quickly enough to eliminate much of the uncertainty. But that will be tricky. His personal relationships with many of the leaders are awful, and allying with them would mean turning his back on the many supporters who urged him to “drain the swamp” in Washington, by which they meant getting rid of the entire elite, perhaps mainly Democrats but with many Republicans included.
The uncertainty will be with us for a while – and could well cause a pause in investment during a still fragile time for the economy.