Vox Pecuniae, Vox Dei

The markets are okay with Musk and Trump’s big adventure.

Hey fam: Sarah and I will hold a town hall for Founders next Tuesday night. Details below. I’m thinking this will be the most fun group therapy session, ever. —JVL

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(Composite / Photos: GettyImages / Shutterstock)

1. ACH and Chill

The markets have spoken: Yesterday the S&P 500 finished down 45 points, a negligible loss. The NASDAQ was down a bit more, but nothing serious.

Even Tesla’s stock held pretty well, despite the fact that the company’s majority owner had just exposed himself to massive criminal liabilities:

Let me do some translating for you:

• On Sunday night the futures markets projected a sharp drop, suggesting that they believed Trump’s tariffs might be real.

• By Monday mid-morning we got word from the president of Mexico that she had negotiated a great deal with Trump.

• The markets decided that none of the tariffs would actually be implemented and reverted to business as usual.

• There was no signal that the markets see any risk in either the decapitation of the FBI or Musk’s hostile takeover of the the Treasury payments system.

Now: Maybe the markets are right? Markets are not infallible—market errors happen all the time. But you shouldn’t dismiss market signals out of hand. So what if the markets are correctly diagnosing the current situation as:

1. Trump declares some emergency.

2. Trump proposes a dangerous “solution” to said emergency.

3. Everyone freaks out.

4. At the last minute Trump announces that his powerful negotiating skills have solved the emergency and won a great victory for America without needing to impose the dangerous solution.

5. The status quo remains stable.

6. Repeat.

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There is some question about whether or not, over time, this mode of operation creates deleterious economic effects. Yesterday on the pod Scott Lincicome argued that it will: If we keep shaking down your allies over nonsense, then eventually they’re going to put some economic distance between themselves and America. Which create inefficiency, which leads to less dynamism.

I agree that this is how things should work.

But what if they don’t? What if markets aren’t fundamentally rational? Or rather, what if markets are so rational that they are capable of pricing in systemic irrationality?

I know how that sounds. So take a walk with me.

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2. Trump Being Trump

In a rational world, markets would see Trump’s mode of operation and deduce that, in the long run, it will hurt economic growth.