Shiller: Trump’s Trade War Narratives Could Come Back to Bite Him

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Nobel Laureate economist and Yale professor Robert Shiller says the chances of a recession hitting the U.S. economy before the 2020 elections are about 50-50 and if one were to occur, it would derail the Trump reelection train.

Shiller noted that a recession could occur due to a self-fulfilling prophecy with so much talk about one happening.

The biggest problem President Donald Trump faces, Shiller said, is that a recession would make peoples’ lives worse, and it would ruin the best thing the president has going for him — the economy.

“It won’t be a surprise if it happens,” Shiller said at a recent appearance.

The current expansion began in mid-2009 and is the longest on record, so eventually, it will come to an end. And that’s likely to be sooner than later, especially considering the global slowdown and ongoing trade war between the U.S. and China.

“The real question is, is it going to be happening soon enough that it will embarrass Donald Trump, who speaks as if he’s infallible, in fact he even says that,” Shiller said. “I think if we have a recession before the election in 2020, he would not win because it would be too much of an embarrassment.”

Shiller described Trump as a master storyteller that, while he dislikes his personality and temperament, he respects him. Trump is a great example of the many forces he describes in his new book “Narrative Economics: How Stories Go Viral and Drive Major Economic Events.”

Shiller went on to describe how sometimes recessions can become self-fulfilling prophecies, and economists now recognize the power of stories that shape the world, sometimes to its detriment. Recessions are driven by the behavior of consumers, investors and top executives, which are in turn driven by stories, just like they’re driven by fundamentals like corporate profits and falling wages.

He said the current narrative Trump is spinning most is the trade war, how China is paying the tariffs (it’s not), and how he’s been able to gain support for it from people who are actually being hurt by his tariffs (like U.S. farmers).

“He says it will bring prosperity and will save the industrial base of this country,” Shiller said. “They believe it for now, but that could change.”

And those people could eventually turn on Trump if things go south economically because of the trade war.

“I’m thinking that if we have a major recession, that it might be blamed on that,” Shiller said. “We’ll see what he comes up with. He’s a genius at narratives, he might think of something.”

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