Tuesday, January 17th, 2017 1:31 pm

Trump and Share Prices

Question A: US share prices have risen since Donald Trump’s election victory at least partly because the policies he seems poised to implement are likely to increase US after-tax corporate profits.

Responses
 

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Responses weighted by each expert's confidence

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Question B: US share prices have risen since Donald Trump’s election victory at least partly because the policies he seems poised to implement are likely to increase US real GDP growth.

Responses
 

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Responses weighted by each expert's confidence

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Question A Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Uncertain 6
They are more likely to increase the corporate profits of listed firms than all firms, and also in the short/medium run rather than long run
Bio/Vote History
         
Alesina Alberto Alesina Harvard Did Not Answer
Bio/Vote History
         
Altonji Joseph Altonji Yale Agree 2
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley Agree 6
Bio/Vote History
         
Autor David Autor MIT Agree 7
Bio/Vote History
         
Baicker Katherine Baicker Harvard Uncertain 1
Bio/Vote History
         
Banerjee Abhijit Banerjee MIT Strongly Agree 6
Bio/Vote History
         
Bertrand Marianne Bertrand Chicago Uncertain 4
Bio/Vote History
         
Brunnermeier Markus Brunnermeier Princeton Agree 8
Bio/Vote History
         
Chetty Raj Chetty Stanford Uncertain 5
Bio/Vote History
         
Chevalier Judith Chevalier Yale Agree 6
The after-tax part is crucial.
Bio/Vote History
         
Cutler David Cutler Harvard Agree 3
Bio/Vote History
         
Deaton Angus Deaton Princeton Agree 7
Bio/Vote History
         
Duffie Darrell Duffie Stanford Strongly Agree 8
Even if there is no impact on before-tax profits, stock market investors generally believe that corporate tax rates will drop a lot.
Bio/Vote History
         
Edlin Aaron Edlin Berkeley Agree 7
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Strongly Agree 6
Bio/Vote History
         
Einav Liran Einav Stanford Agree 2
Bio/Vote History
         
Fair Ray Fair Yale No Opinion
Changes in stock prices are largely unpredictable. No real way to identify the increase in stock prices to Trump.
Bio/Vote History
         
Finkelstein Amy Finkelstein MIT Did Not Answer
Bio/Vote History
         
Goldberg Pinelopi Goldberg Yale Did Not Answer
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Agree 9
companies like tax cuts
Bio/Vote History
         
Greenstone Michael Greenstone Chicago Did Not Answer
Bio/Vote History
         
Hall Robert Hall Stanford Uncertain 5
Two forces in the universe are really hard to predict or understand: Trump and the stock market.
Bio/Vote History
         
Hart Oliver Hart Harvard Strongly Agree 10
People, probably correctly, expect lower corporate taxes and fewer regulations. Go figure.
Bio/Vote History
         
Holmström Bengt Holmström MIT Agree 6
Bio/Vote History
         
Hoxby Caroline Hoxby Stanford No Opinion
Pure Animal Spirits would seem to be the best explanation.
Bio/Vote History
         
Hoynes Hilary Hoynes Berkeley Agree 6
Bio/Vote History
         
Judd Kenneth Judd Stanford Uncertain 6
The rise in prices could be due to a reduction in uncertainty, not to a change in expectations.
Bio/Vote History
         
Kaplan Steven Kaplan Chicago Agree 10
Enthusiasm driven by the expectation of regulatory relief and concomitant investment, growth and profits.
Bio/Vote History
         
Kashyap Anil Kashyap Chicago Uncertain 3
Can't be proven one way or another, this is plausible but no way to know for sure
Bio/Vote History
         
Klenow Pete Klenow Stanford Strongly Agree 10
Trump + Republican Congress = lower tax rate on corporate profits.
Bio/Vote History
         
Levin Jonathan Levin Stanford Did Not Answer
Bio/Vote History
         
Maskin Eric Maskin Harvard Did Not Answer
Bio/Vote History
         
Nordhaus William Nordhaus Yale Agree 9
Hard to separate the different causes. The impact of tax policies seems the most important reason, particularly the cut in business taxes.
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Strongly Agree 7
Bio/Vote History
         
Samuelson Larry Samuelson Yale Agree 8
There is too much uncertainty about his policies to know for sure, but they appear to auger well for corporate profits.
Bio/Vote History
         
Scheinkman José Scheinkman Princeton Agree 8
More precisely, most market participants believe Trump's policies are likely to increase corporate profits
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT Strongly Agree 8
Hard to imagine what else it could be.
Bio/Vote History
         
Shapiro Carl Shapiro Berkeley Did Not Answer
Bio/Vote History
         
Shimer Robert Shimer Chicago Agree 6
Bio/Vote History
         
Thaler Richard Thaler Chicago Agree 1
Explaining any short term movement in stock prices is a fools game, but this explanation is a plausible one.
Bio/Vote History
         
Udry Christopher Udry Yale Agree 6
Corporate tax cuts and defense / some infrastructure spending may happen with a unified government.
Bio/Vote History
         

Question B Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Disagree 7
They are much more likely to be disastrous for the economy and the US political system. The economic policies we know about are shambles.
Bio/Vote History
         
Alesina Alberto Alesina Harvard Did Not Answer
Bio/Vote History
         
Altonji Joseph Altonji Yale Uncertain 2
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley Uncertain 5
Bio/Vote History
         
Autor David Autor MIT Uncertain 4
Some policies likely to boost growth, at least temporarily. Others likely to suppress it. Hard to say!
Bio/Vote History
         
Baicker Katherine Baicker Harvard Disagree 1
Bio/Vote History
         
Banerjee Abhijit Banerjee MIT Uncertain 6
Bio/Vote History
         
Bertrand Marianne Bertrand Chicago Disagree 4
Bio/Vote History
         
Brunnermeier Markus Brunnermeier Princeton Uncertain 3
Bio/Vote History
         
Chetty Raj Chetty Stanford Uncertain 5
Bio/Vote History
         
Chevalier Judith Chevalier Yale Uncertain 4
Uncertain because real winners and losers.
Bio/Vote History
         
Cutler David Cutler Harvard Disagree 6
Bio/Vote History
         
Deaton Angus Deaton Princeton Disagree 3
Bio/Vote History
         
Duffie Darrell Duffie Stanford Agree 7
Yes, investors do seem to perceive this, from commentary. The degree to which it will happen cannot be predicted with as much confidence.
Bio/Vote History
         
Edlin Aaron Edlin Berkeley Agree 4
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Disagree 5
Bio/Vote History
         
Einav Liran Einav Stanford Disagree 2
Bio/Vote History
         
Fair Ray Fair Yale No Opinion
Maybe would have risen also if Clinton had been elected.
Bio/Vote History
         
Finkelstein Amy Finkelstein MIT Did Not Answer
Bio/Vote History
         
Goldberg Pinelopi Goldberg Yale Did Not Answer
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Disagree 7
High income tax cuts aren't stimulative and infrastructure takes years
Bio/Vote History
         
Greenstone Michael Greenstone Chicago Did Not Answer
Bio/Vote History
         
Hall Robert Hall Stanford Uncertain 5
see above
Bio/Vote History
         
Hart Oliver Hart Harvard Disagree 7
I see no reason to think that growth will be higher because of Trump's policies, which are probably bad for the economy overall.
Bio/Vote History
         
Holmström Bengt Holmström MIT Uncertain 4
Bio/Vote History
         
Hoxby Caroline Hoxby Stanford No Opinion
Bio/Vote History
         
Hoynes Hilary Hoynes Berkeley Uncertain 9
Bio/Vote History
         
Judd Kenneth Judd Stanford Disagree 7
I do not agree with the premise that his policies are likely to increase growth in the long run.
Bio/Vote History
         
Kaplan Steven Kaplan Chicago Agree 8
Again, regulatory relief expected to drive investment and growth.
Bio/Vote History
         
Kashyap Anil Kashyap Chicago Uncertain 7
also impossible to know and the horizon that matters for stocks is longer term growth and after tax earnings
Bio/Vote History
         
Klenow Pete Klenow Stanford Uncertain 10
Depends on the weight put on a trade war vs. stimulative fiscal policy -- and the Fed's response.
-see background information here
Bio/Vote History
         
Levin Jonathan Levin Stanford Did Not Answer
Bio/Vote History
         
Maskin Eric Maskin Harvard Did Not Answer
Bio/Vote History
         
Nordhaus William Nordhaus Yale Agree 9
Here, the Keynesian impact of tax cuts on output is partly offset by likely higher real interest rates.
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Disagree 4
Bio/Vote History
         
Samuelson Larry Samuelson Yale Disagree 6
Despite bold claims about growth, the new administration has not described an effective policy to increase GDP growth.
Bio/Vote History
         
Scheinkman José Scheinkman Princeton Disagree 8
Stock returns are poor predictors of future changes in output (see e.g. Stock and Watson 2003 Journal of Economic Literature)
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT Uncertain 6
Share prices depend on profits, not GDP. Tax cuts plus more spending may increase GDP in the short run. but profits are what matter .
Bio/Vote History
         
Shapiro Carl Shapiro Berkeley Did Not Answer
Bio/Vote History
         
Shimer Robert Shimer Chicago Uncertain 5
Bio/Vote History
         
Thaler Richard Thaler Chicago Disagree 1
It is hard to know what Trump's policies will be since he contradicts himself repeatedly, but he shows no signs of understanding economics.
Bio/Vote History
         
Udry Christopher Udry Yale Uncertain 7
In the short run, which dominates, fiscal stimulus or barriers to trade? The longer run looks bad for many reasons.
Bio/Vote History
         

10 New Economic Experts join the IGM Panel


For the past two years, our expert panelists have been informing the public about the extent to which economists agree or disagree on important public policy issues. This week, we are delighted to announce that we are expanding the IGM Economic Experts Panel to add ten new distinguished economists. Like our other experts, these new panelists have impeccable qualifications to speak on public policy matters, and their names will be familiar to other economists and the media.

To give the public a broad sense of their views on policy issues, each new expert has responded to a selection of 16 statements that our panel had previously addressed. We chose these 16 statements, which cover a wide range of important policy areas, because the original panelists' responses to them were analyzed in a paper comparing the views of our economic experts with those of the American public. You can find that paper, by Paola Sapienza and Luigi Zingales, here. The paper, along with other analyses of the experts' views, was discussed during the American Economic Association annual meetings, and the video can be found here.

The new panelists' responses to these statements can be seen on their individual voting history pages. Our ten new economic experts are:

Abhijit Banerjee (MIT)
Markus K. Brunnermeier (Princeton)
Liran Einav (Stanford)
Amy Finkelstein (MIT)
Oliver Hart (Harvard)
Hilary Hoynes (Berkeley)
Steven N. Kaplan (Chicago)
Larry Samuelson (Yale)
Carl Shapiro (Berkeley)
Robert Shimer (Chicago)


Please note that, for the 16 previous topics on which these new panelists have voted, we left the charts showing the distribution of responses unchanged. Those charts reflect the responses that our original panelists gave at the time, and we have not altered them to reflect the views of the new experts.

We have also taken this opportunity to ask our original panelists whether they would vote differently on any of the statements we have asked about in the past. Several experts chose to highlight statements to which they would currently respond differently. In such cases, you will see this "revote" below the panelist's original vote. We think you will enjoy seeing examples of statements on which some experts have reconsidered.

As with the 16 previous statements voted on by new panelists, these "revote" responses are not reflected in the chart that we display showing the distribution of views for that topic: all the charts for previous questions reflect the distribution of views that the experts expressed when the statement was originally posed.

About the IGM Economic Experts Panel

This panel explores the extent to which economists agree or disagree on major public policy issues. To assess such beliefs we assembled this panel of expert economists. Statistics teaches that a sample of (say) 40 opinions will be adequate to reflect a broader population if the sample is representative of that population.

To that end, our panel was chosen to include distinguished experts with a keen interest in public policy from the major areas of economics, to be geographically diverse, and to include Democrats, Republicans and Independents as well as older and younger scholars. The panel members are all senior faculty at the most elite research universities in the United States. The panel includes Nobel Laureates, John Bates Clark Medalists, fellows of the Econometric society, past Presidents of both the American Economics Association and American Finance Association, past Democratic and Republican members of the President's Council of Economics, and past and current editors of the leading journals in the profession. This selection process has the advantage of not only providing a set of panelists whose names will be familiar to other economists and the media, but also delivers a group with impeccable qualifications to speak on public policy matters.

Finally, it is important to explain one aspect of our voting process. In some instances a panelist may neither agree nor disagree with a statement, and there can be two very different reasons for this. One case occurs when an economist is an expert on a topic and yet sees the evidence on the exact claim at hand as ambiguous. In such cases our panelists vote "uncertain". A second case relates to statements on topics so far removed from the economist's expertise that he or she feels unqualified to vote. In this case, our panelists vote "no opinion".

The Economic Experts Panel questions are emailed individually to the members of the panel, and each responds electronically at his or her convenience. Panelists may consult whatever resources they like before answering.

Members of the public are free to suggest questions (see link below), and the panelists suggest many themselves. Members of the IGM faculty are responsible for deciding the final version of each week’s question. We usually send a draft of the question to the panel in advance, and invite them to point out problems with the wording if they see any. In response, we typically receive a handful of suggested clarifications from individual experts. This process helps us to spot inconsistencies, and to reduce vagueness or problems of interpretation.

The panel data are copyrighted by the Initiative on Global Markets and are being analyzed for an article to appear in a leading peer-reviewed journal.

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