After his decisive election victory three weeks ago, President Donald Trump has moved fast to fill up his future cabinet. So far, his only official hiccup was the nomination of Representative Matt Gaetz as Attorney General, but that nomination was very likely a political trick played by Trump to help his real candidate, competent but controversial Florida Attorney General Pam Bondi, get confirmed by the Senate.
As for Gaetz, he will probably become a special prosecutor for Trump’s Department of Justice, with the leaders of the January 6 Committee in his crosshairs. Those positions, as the Democrats have told courts at length, do not require Senate confirmation.
After the media attention around Matt Gaetz, Trump’s nominees have received much less attention. Among the ones who have quietly entered Trump’s cabinet list is Scott Bessent, who is nominated to succeed Janet Yellen as Secretary of the Treasury.
Bessent is not an economist, which may surprise many Europeans; it is a tradition in countries like Sweden, Denmark, Britain, and Germany to put the national government’s treasury in the hands of a schooled economist. It does not always happen, but when it does, it brings a much-needed level of competence to the treasury.
At the same time, economists can be fairly conventional in their thinking, and there are times when the job as U.S. Secretary of the Treasury requires more vision and innovation than a systemic understanding of the economy. In this regard, Scott Bessent has a lot to bring to the job; in fact, his ideas of what the U.S. economy needs reveal a broad understanding of macroeconomics.
This understanding will come in handy, especially given the formidable problems that the U.S. economy is facing, from slow growth to out-of-control budget deficits. Scott Bessent may be just the right man to address these problems. Back in June, when his name started popping up in discussions of Trump’s future cabinet, MarketWatch.com had an exhaustive article explaining Bessent’s vision of economic policy:
Hedge-fund manager Scott Bessent—viewed as in the running to become Treasury secretary in a second Trump administration—has offered a three-point economic agenda … “Well, I might … advise him to campaign on three arrows,” Bessent said
The three arrows reveal a surprisingly well-designed fiscal policy plan for the next president and his administration.
The first of Bessent’s arrows is by far the most important one. He wants to return the American economy to 3% real economic growth per year. This number is very important: in my book Industrial Poverty (Gower, 2014) I explain how a nation that does not achieve this level of growth is at risk of becoming economically and socially stagnant. At 2% real annual growth, the economy can only reproduce the standard of living it already has; below 2%, every new generation will grow up to live a life less prosperous than that of their parents.
In short: if we cannot maintain 3% GDP growth over time, we stop evolving as a society. The economic resources created at this healthy growth rate—and ideally higher rates—build the foundation for investments in more productive industrial output, higher-quality goods and services, more advanced health care, better retirement savings, etc.
Not only does Bessent understand the importance of putting the U.S. economy on a long-term 3% growth trajectory, but he also has a set of concise ideas of how to get there. MarketWatch again:
Through more deregulation, more U.S. energy production, slaying inflation and forward guidance on competence for people who make investments—so that the private sector can take over from this bloated government spending.
This short paragraph is a dense package of macroeconomic ingenuity. If Bessent really means what these words say, and if he can convince Trump and Congress to follow his lead, then the following will happen.
Deregulation
The reduction of regulations will reduce the cost for existing businesses to operate, thus allowing them to invest in their current operations and better future products. This will raise industrial productivity and—ultimately—the quality of consumer products. All this will happen without injecting any inflation whatsoever into the U.S. economy; on the contrary, if done on a systemwide scale, deregulation can have a deflationary effect.
As the benefits of deregulation work their way through the economy, raising productivity and quality with zero or negative inflation (deflation), real wages rise across the economy. This will be especially true for lower-income households, whose exposure to inflation and deflation is stronger than for higher-earning households.
Slaying inflation
Since we have left the post-pandemic inflation bubble behind us, Bessent’s point about “slaying inflation” is best interpreted as a desire to prevent it from returning. To be honest, there is not a whole lot the U.S. Treasury can do directly about the root cause of inflation—excessive money printing—but indirectly, as Treasury Secretary, Scott Bessent could do a great deal. By gradually reducing the budget deficit, he could make the threat of deficit monetization, i.e., the printing of money to pay for government borrowing, an increasingly remote possibility.
In a separate point, or “arrow,” Bessent refers to the need to cap the federal budget deficit at 3% of GDP. This is a respectable ambition, but it is not enough to prevent future episodes of deficit monetization. The incoming Trump administration must lead Congress to the conviction that we need structural budget reforms.
Replace government with private sector
It is not clear what Bessent means with this point, but I would not rule out that he foresees the formal privatization of government programs. To make this happen in an orderly fashion, Bessent could have in mind preparing the private sector to take over such functions as
- Retirement savings using private accounts in Social Security;
- Health insurance by returning our insurance system to pre-Obamacare, supplemented with a nationwide market;
- National school choice with private schools working on equal footing with public schools; and
- Private, charitable social care providing for those in need.
I want to emphasize that I have no idea if these are the exact privatization ideas that Scott Bessent has in mind. However, if only one or two of them are on his list, in one form or another, then the Trump administration is well positioned to put America on a path away from the disaster that otherwise will happen: a Greek-style fiscal crisis.
