About That Stock Market - Policy has gone mad; why aren't stocks down? Paul Krugman [View all]

excerpt:

First, the long version of Samuelson’s quip: Stocks are not now and have never been useful predictors of the business cycle. Even when there were good reasons to be worried about a coming downturn, it’s very hard to find cases in which the stock market gave advance warning.

The way I see it, during any given period the market is driven by a narrative, positive or negative. The current narrative is strongly driven by optimism about AI. And it takes a major shock to change a market narrative. Nothing in history suggests that we should expect a really strong stock market reaction to the kinds of warnings we’re getting so far about Trumponomics.

Speaking of which: While Trump’s tariffs are very bad, there is — as I wrote in Sunday’s primer — a tendency, among both economists and other observers, to exaggerate the damage done by protectionism. Uncertainty about tariffs is definitely depressing business spending in the short run, but in that primer I estimated that Smoot-Hawley 2.0 will reduce long-run U.S. real GDP by 0.4 percent. The Yale Budget Lab, with a more elaborate model, comes up with very similar numbers:

link to full article
https://open.substack.com/pub/paulkrugman/p/about-that-stock-market