Trump’s bonanza of the century

Unlock the White House Watch newsletter for free

A rising tide is lifting all megayachts. As growing net worth goes, however, Elon Musk is in a category of one. Since Donald Trump won re-election on November 5, Musk’s wealth has leapt by roughly two-thirds to $440bn. At this rate, he will comfortably become a trillionaire during Trump’s presidency. Laggards, such as Meta founder Mark Zuckerberg and Amazon’s Jeff Bezos, are getting in on the act. Both have given $1mn to Trump’s inauguration committee, a traditional way of currying favour with an incoming administration. Their wealth has also jumped. America is going through the biggest deregulatory play in history.

Will this rising tide also lift the smaller boats — the blue-collar Americans who voted Trump back into office? That is what Trump promises will happen. A key reason that he won so many working-class votes was that blue-collar America recalled his first term when real median income grew before the pandemic hit. But macroeconomic conditions have altered sharply since then. Trump inherited a zero-interest rate world in 2017. This time, the monetary straitjacket is on. The inflationary effects of a renewal of Trump tax cuts will be rapid. Blue-collar America is likely to be disappointed.

The same will not apply to high net worth America — especially those with stakes in AI and crypto, Trump’s two most enthusiastic industry backers. The scale of Musk’s conflicts of interest as co-head of Trump’s misnamed department of government efficiency (Doge) is unprecedented. Much like the Holy Roman Empire, which was neither Roman, nor an empire, nor holy, Doge is neither a government department, nor is efficiency its true purpose. Musk says his goal is to cut $2tn from the budget — roughly a third of federal spending. But that will be impossible without slashing the US defence budget, as well as social security and Medicare, which Trump has pledged to increase and preserve respectively.

That leaves the domestic discretionary budget — education, food stamps, infrastructure and so on — which comes to less than a trillion dollars. My bet is that Musk will fail to persuade Congress to give up its power of the purse. But Congress will enact Trump’s tax cuts. The net result will be a growing US budget deficit, which at 6.4 per cent of GDP in 2024 is already high. The growing fiscal deficit will lead to a higher cost of borrowing. That will hit the middle class twice over: in the greater share of the US budget eaten up by debt servicing; and the hit to their personal bottom line through higher real interest rates.

But Musk’s true goal with Doge is deregulation. The market’s expectation that he will succeed in scrapping regulations has fuelled his soaring net worth. From the rising valuation of Dogecoin, in which Musk has a stake, to Tesla, SpaceX, Neuralink and xAI, all of Musk’s companies are booming. Given the range and complexity of Musk’s interests, it will be hard for the media, Congress and other oversight bodies to keep check on the multiple plays at stake. The obvious ones include a relaxation on Tesla’s liability for its autonomous driving system, a boom in SpaceX’s Pentagon contracts, which are mostly classified, and all manner of green lights for Musk’s AI and brain chip investments.

Musk is first among equals. But others from his original “PayPal mafia” that launched the online payments company, notably Peter Thiel and David Sacks, are also benefiting. The share price of Palantir Technologies, Thiel’s data analytics company that has large Pentagon contracts (also mostly classified), has grown by about a quarter since November 5. Palantir is now worth more than Lockheed Martin, the old-world exemplar of America’s defence industrial complex.

Trump has also appointed Sacks as his cryptocurrency tsar. One of Trump’s campaign promises was that the Federal Reserve would add cryptocurrency to its balance sheet. If that goes ahead, the US central bank would essentially be backstopping what many economists see as a Ponzi scheme. It is no surprise that the value of Bitcoin has soared above $100,000 since Trump’s victory. “You’re welcome,” Trump posted on Truth Social, his social media platform, when Bitcoin crossed that milestone.

It is often remarked that in the US, corruption is legal. Nobody is alleging that Musk or indeed Trump is breaking any laws with these conflicts of interest. The real judge is politics. With just under half the national vote, Trump presides over an evenly divided nation yet is claiming a sweeping mandate to remake America. The winners are already reaping unimaginable rewards. All this is taking place before Trump is even in office.

edward.luce@ft.com

Read the full article here