Those of us who diligently follow financial forecasts know that the go-to place for mapping out the course of the economy over the coming 12 months is Davos, Switzerland, the host city of the annual World Economic Forum every January.
Rule of thumb: Listen closely to what the gathered business and political leaders predict, then take the other side. Or as the American economist Kenneth Rogoff said in 2020:
“No matter how improbable, the event most likely to happen is the opposite of whatever the Davos consensus is.”
It’s hard to find a single explanation for the long history of Davos attendees missing the signs of impending world recessions or confidently forecasting recessions that never arrive (among other errors).
But an interview of Jamie Dimon, the chair and chief executive of JPMorgan Chase & Co., aired Wednesday morning on CNBC offers a clue: The potentates and plutocrats come to Davos without the slightest clue of what they’re talking about.
As he basked in the limelight of a CNBC kiosk with snow-flecked Davos evergreens behind him and earnest, parka-garbed CNBC anchors in front of him, Dimon unburdened himself of some remarkably delusional judgments of current affairs and recent politics.
Dimon’s general take on politics was that Donald Trump wasn’t that bad as a president, and therefore Democrats should be more careful about attacking him and his supporters. “I think this negative talk about MAGA is going to hurt Biden’s electoral campaign,” he said.
Dimon attempted to get into the minds of MAGA supporters. “I don’t think they’re voting for Trump ’cause it’s family values,” he said.
“Be honest,” he said. Trump is “kinda right about NATO. Kinda right about immigration. He grew the economy quite well. Tax reform worked. … I don’t like how he said things about Mexico, but he wasn’t wrong about some of these critical issues, and that’s why they’re voting for him.”
We’ll have to unpack some of this ourselves, because Dimon’s CNBC interlocutors sat by silently as he spouted off. If they bestirred themselves to ask “how is he right?” those questions and his answers didn’t make it into the broadcast. So let’s begin.
Is Trump “kinda right about NATO”? While he was president, he told European Commission members (at Davos!), that “if Europe is under attack we will never come to help you and to support you,” according to Thierry Breton, a French commissioner. He said Trump added: “By the way, NATO is dead, and we will leave, we will quit NATO.”
Trump’s repeated promise to withdraw from NATO prompted Congress to insert a provision in the annual Defense Appropriations Act barring any president from quitting NATO without the approval of two-thirds of the Senate. The act, including that provision, was signed into law by President Biden in December.
If Dimon was referring to Trump’s withdrawal promise or his denigration of the mutual defense provision of the NATO treaty, which commits all NATO members to defending against an attack on any of them, then Dimon’s assertion contradicts his own opinion of the necessity of supporting Ukraine against Russia in the CNBC interview.
That battle “is about freedom and democracy for the free world,” Dimon said, urging American political leaders to explain to voters why supporting Ukraine is necessary. Ukraine “may be about whether the world is free and safe for democracy for a hundred years.” Ukraine isn’t a member of NATO, but supporting a European country under attack is obviously incompatible with quitting NATO.
Immigration? Trump’s most recent notable comment on this topic is that immigrants are “poisoning the blood of our country,” uttered at a Dec. 17 rally in New Hampshire. Was he “kinda right” about that?
The Trump administration’s immigration policy encompassed the outstandingly inhumane practice of family separation, under which thousands of children were forcibly removed from their families on this side of the southern border; as many as 1,000 children are still missing. Was that “kinda right”?
In October, the Biden administration settled a lawsuit over the policy by allowing families to remain in the U.S. while they search for their children and committed to ceasing family separations for eight years.
Dimon stated during the interview that securing the border is imperative. He wasn’t asked about, and didn’t mention, who’s responsible for blocking a sensible immigration policy. It’s Trump’s party: The House GOP caucus is refusing to accept a deal on immigration unless it includes draconian provisions that would ban almost all asylum and mandate the construction of a border wall — something that Trump was unable to accomplish himself during his four years in office.
Did tax reform work? No doubt the 2017 tax reform worked for taxpayers in Dimon’s class and corporations like his. But there’s is no discernible evidence that it achieved what its GOP sponsors claimed were its goals, growing the economy and raising so much government revenue that it would “pay for itself.”
As a share of gross domestic product, federal tax receipts plummeted after the 2017 tax cuts to 16% in 2020 from 17.4% in 2016. Nor did the tax cuts have any noticeable effect on wages, despite promises from Trump officials that average wages would be pumped up by $3,000 to $7,000 per worker.
The study that predicted such an outcome, observed Republican economist Bruce R. Bartlett in Senate testimony last May, was “more of a public relations document than a serious analysis; once its purpose was served and the legislation enacted, it was forgotten.”
The tax cuts did have a noticeable effect in the world Dimon occupies, however. The average tax rate paid by his corporation, JPMorgan Chase & Co., fell to 24.5% of net income in the five years since the cuts from 38.6% in the five years before their enactment.
It may be true or at least arguable, as Dimon said, that Trump “grew the economy quite well.” But there’s no question that in many respects his record pales in comparison to his successor’s.
In the first three years of his term — leaving aside the pandemic year of 2020, when employment cratered — Trump achieved average annual job growth of about 289,000. In the latest two years of Biden’s term — leaving aside the post-pandemic year of 2021, when jobs recovered strongly from the previous year’s losses — jobs grew by an average 481,000 a year.
One can only speculate about the source of Dimon’s view about MAGA politics. He’s a highly intelligent and accomplished executive; no one without his ability and perspicacity could have remained CEO of the nation’s largest bank company for 18 years and its chairman for 17. Much of what he has had to say over that period has been well worth hearing, especially when it concerns business, economics and finance.
Yet in issuing political proclamations, he sounds like someone out of his lane. It’s hardly unusual for someone so accomplished in one field and so rich to feel the impulse to stray into topics well beyond his field of expertise, especially when his opinions are sought by sycophantic interviewers in public. Who could resist?
That’s also why the cocksure predictions issuing from Davos year after year are so risibly unreliable, the vision of the future so clouded.
In 2022, for instance, the then-president of FTX.US, the cryptocurrency firm’s American unit, told attendees that the firm was in a “very good spot” and had so much capital it would soon be looking for acquisitions. The following year, its founder, Sam Bankman-Fried, was charged with fraud and the firm collapsed. That same year, Davos was certain that a recession in Europe was inevitable; it still hasn’t happened.
In 2008, no one at Davos noticed that the subprime crisis was erupting and therefore that it would produce a major recession. In 2016, no one at Davos expected Trump to win the election or the U.K. to stage Brexit, its departure from the European Union. The following year, the Davos organizers were so mortified that they actually scheduled a session on why the assembled pundits got so much so wrong.
The fact is that bringing together a host of successful but self-important luminaries to forecast the future is a mug’s game. They’re wrapped up in their own worlds and insulated from what’s happening on the ground.
Nor are they accustomed to being challenged in public. One such uncommon moment occurred during a panel at the 2019 meeting, discussing a proposal by Rep. Alexandria Ocasio-Cortez (D-N.Y.) for a 70% tax rate on income over $10 million.
Panelist Michael Dell, the computer entrepreneur, scoffed. “Name a country where that’s worked, ever,” he said.
Dell’s fellow panelist, economist Erik Brynjolfsson (then of MIT, now of Stanford), jumped right in. “The United States,” he said. “From about the 1930s through about the 1960s. … And those were actually pretty good years for growth. … There’s actually a lot of economics that suggests that it’s not necessarily going to hurt growth.”
Dell had nothing to say. The panel moderator, Heather Long of the Washington Post, did, however. The top tax rate exceeded 70% only “briefly, in the 1980s,” she said.
Not so. The top tax rate in the U.S., as Brynjolfsson said, exceeded 70% from 1936 until 1982, peaking at 94% in 1944-1945. And those decades encompassed some of America’s most prosperous periods.
But getting something so fundamental so wrong? Over the World Economic Forum’s 53-year history, that’s become a tradition.