The most grounded fears about a Donald Trump presidency have always involved incompetence rather than malevolence, the perils of a catastrophically weak presidency rather than the prospect of a near-dictatorship.
But we didn’t fear a flailing Trump administration for its own sake. We feared the second-order consequences — global instability, domestic unrest, constant economic jitters.
There are hints of the first in North Korea’s missile test and various Russian maneuvers, signs of the second in the spasms of anti-Trump protest since Election Day.
But the third is nowhere to be seen. While political journalists and Washington hands freak out daily over the Trump presidency, the stock market keeps acting like everything is fine, or better than fine, or even (if you will) just great again.
A growing economy is compatible with creeping authoritarianism, of course, as Trump’s most alarmist critics are fond of pointing out. But is it compatible with outrageous presidential incompetence, with a White House that can’t hit a target with a Super Soaker from 6 inches away?
That’s what we’ll find out. In effect, the Trump era is pitting the wisdom of one elite crowd against the wisdom of another — the crowd of D.C. politicos against the herd of brokers and analysts and financiers just an Acela ride away. It’s the experts who failed to predict the rise of Trump against the experts who managed to miss the biggest financial meltdown since the Great Depression.
The best case for the Wall Street perspective runs as follows: Most presidents have less power over the economy than one might assume. If this is true of administrations whose carefully calibrated economic programs have all the weight of wonkery behind them, why shouldn’t it be true of administrations that find themselves unable to accomplish much of anything? If what matters is the fundamentals, and his White House is more likely to be balked and baffled than frenetically transformative, why not just bet those fundamentals and assume you’ll win?
There is historical support for this proposition, in the sense that the link between political and economic crises is more uncertain than direct. The financial crisis struck at a low ebb in George W. Bush’s effectiveness, but the Great Depression hit with a popular and (at that point) famously competent Herbert Hoover at the helm. The political turmoil of the late 1960s coincided with low unemployment rates and strong GDP growth. Watergate was rough on the stock market, but the Clinton impeachment, not so much, and markets mostly weathered the gridlock and debt-ceiling brinkmanship of the Obama years. If Trump is impotent or if he’s impeached, there is precedent for the markets simply shrugging, for the economy to keep chugging right along.
However: This argument assumes that Trump’s level of incompetence stays within at least hailing distance of normal bounds and/or that no crisis comes unlooked-for that the Trump White House fumbles into something much, much worse. Gridlock in Washington need not damage the economy, but a botched response to terrorism, a mismanagement of the next Ebola, or a buffoonish response to financial hiccups could be a different matter. So, too, with a Watergate-level constitutional crisis, a civilian-military conflict, and so on down a list of all-too-plausible Trump-era tests.
It is possible we will pass four years without such a test. (Eight is tougher, but let’s not get ahead of ourselves.) And the investor class’ bet, right now, is that if you combine the chances of avoiding a major test entirely, the chances of the Trump White House somehow finding its footing, and the chances that Trump semi-accidentally handles his biggest test OK, you get a probability high enough to justify betting on continued prosperity and growth instead of freaking out about the daily White House meltdowns.
Except probably it’s not really that rational and calculated; it’s animal spirits and all that. But then again, irrationality cuts both ways: As the economist and columnist Tyler Cowen likes to point out, if political observers were really so confident in our alarm, we would all be dumping our portfolios (or at least buying put options, or trying to set up a big Trump short).
If you’re a Trump-panicked reader with a nest egg and you haven’t done that, ask yourself why not. As long as you don’t, your mind may be with the panicked political class, but your money is with the Zen of Wall Street.
Follow Mr. Douthat on Twitter @DouthatNYT.