Miran's Case for Lower Rates: Did Trump-Era Policies Truly Deliver?
Stephen Miran, a voice often heard in discussions about monetary policy, has recently made a compelling case for lower interest rates, tying his argument directly to the structural changes purportedly ushered in by the Trump administration. It’s an interesting perspective, certainly worth exploring, but as we dive into the specifics, one can't help but wonder if the changes he cites truly delivered as promised, or if their long-term effects are a bit more nuanced than a simple justification for cheaper money.
Miran's argument, as I understand it, hinges on the idea that the Trump administration's policy shifts—think tax cuts, deregulation, and a more assertive trade stance—fundamentally altered the U.S. economic landscape. The premise is that these actions either boosted productivity, reduced inflationary pressures, or lowered the natural rate of interest (r-star), thereby allowing the Federal Reserve to maintain a looser monetary policy without overheating the economy. It’s a clean narrative, but the real-world outcomes often tell a more complex story.
Let's start with the Tax Cuts and Jobs Act of 2017 (TCJA). Proponents, including Miran presumably, argued that slashing the corporate tax rate from 35% to 21% would unleash a wave of business investment, leading to higher productivity and wages. The theory was that companies would reinvest their newfound capital, creating a more efficient, supply-side driven economy less prone to inflation. Yet, what we largely observed was a significant uptick in stock buybacks and dividend payouts. While corporate profits certainly swelled, the expected surge in capital expenditure, while present, didn't quite materialize to the degree that fundamentally reshaped the U.S. economy's productive capacity in a lasting way. What's more interesting is that the tax cuts also ballooned the national debt, which some argue could put upward pressure on long-term interest rates, not downward.
Then there's the deregulation push. The Trump administration made a concerted effort to roll back various environmental, financial, and labor regulations, arguing that these rules stifled business growth and innovation. The promise was a leaner, more agile corporate sector, unburdened by red tape. And yes, some businesses likely saw immediate cost savings. However, the broader economic impact on productivity or the neutral interest rate is difficult to isolate. Many of the benefits, if any, were often sector-specific, and the potential for increased risk in areas like environmental protection or financial stability sometimes came as an unspoken side effect. Did this truly create a structural shift that warrants perpetually lower rates, or did it merely offer a temporary fillip to corporate balance sheets?
Perhaps the most contentious area, and one that Miran might also reference, involves the administration's trade policies. The imposition of tariffs on goods from China and other countries was intended to protect American industries and bring manufacturing jobs back home. From Miran's perspective, perhaps he sees this as a way to re-shore critical supply chains, making the U.S. economy more resilient and less susceptible to external shocks, thereby justifying lower domestic rates. However, the reality for many businesses was an increase in input costs, supply chain disruptions, and heightened uncertainty. These factors, if anything, would typically be seen as inflationary or as a drag on efficiency, potentially pushing rates higher to compensate for increased risk or costs, rather than lower. The promised re-shoring of manufacturing also proved to be a more incremental, complex process than often portrayed.
Ultimately, while the Trump administration certainly implemented significant policy changes, the direct, unambiguous link between these changes and a permanently lower natural rate of interest is not as clear-cut as Miran’s argument might suggest. The economic landscape is rarely a simple cause-and-effect equation. Many of these policies came with unintended consequences or side effects that complicate the picture. Increased national debt, supply chain volatility, and a focus on financial engineering over broad capital investment mean that the structural benefits Miran cites as justification for lower rates don't necessarily deliver on their original promise without a closer examination of the full economic picture. For policymakers at the Fed, distinguishing between cyclical fluctuations and genuine, long-term structural shifts remains one of their toughest challenges, and Miran's framework, while thought-provoking, certainly invites a healthy dose of skepticism.
