And of course, the collapse of the rule of law. All of these things should be terrible for the U.S. economy, especially in the long term. And yet to date, the stock market has seemingly shrugged it all off. In fact, markets look somewhat ebullient. In 2025, the S&P 500 grew a solid 16 percent—far better than the average year, and better than many forecasts, particularly in the wake of Trump’s Liberation Day tariffs.So what’s going on? Why aren’t investors pricing in all these risks?
Some of it may be that they believe there’s a huge, sustainable Trump boom just around the corner. It didn’t come by the end of 2025, but perhaps it’ll arrive this quarter . . . or next quarter . . . or the end of 2026, per the latest goalpost-moving forecasts from Commerce Secretary Howard Lutnick. But there are other ways to interpret what’s going on. None of them are particularly assuring:
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U.S. markets actually aren’t doing that great, when compared to our global competitors.
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The lion’s share of growth here in the United States—in both financial markets and hard economic data—is driven by a single sector: A.I . . .
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. . . which looks an awful lot like a bubble right now.
I find these explanations to be more persuasive than the hope that a new economic golden age is about to dawn. And to understand why, it’s worth recapping why you should worry about the long-term damage from Trump’s policies in the first place. LET’S START WITH something that should go without saying: Democracy and the rule of law are good for their own sake. But they also matter quite a bit to the U.S. economy. A country that protects property rights; that has free capital markets; that has a stable and predictable regulatory regime; where all citizens are equal before the law; where individuals don’t fear being expropriated by the state without cause; and where private contracts can be enforced regardless of political connections is generally a better place to do business. All these features are among the reasons the United States has long been the richest country on earth. It’s also why we have attracted so much foreign capital. When property rights aren’t protected and the justice system operates to reward friends and punish enemies, doing business is harder. People don’t have the certainty they need to invest here, or study here, or start businesses here. “If businesses can’t predict what the law will be next year or even next month they will pause,” Nick Bloom, an economics professor at Stanford, told me. “No firm wants to invest to suddenly discover the government is now taxing you twice as much or has banned your product.”
In fact, there was a Nobel Memorial Economics Prize awarded in 2024 on “how institutions are formed and affect prosperity.” Here’s how the Nobel committee, in press materials released with the award, summarized the laureates’ findings: “Institutions that were created to exploit the masses are bad for long-run growth, while ones that establish fundamental economic freedoms and the rule of law are good for it.” Much of that prize-winning research looks at developing countries. But lately we have plenty of cautionary tales here in the United States.Today, companies must fritter away precious resources finding ways to bribe appease a mercurial president, via gilded trophies, fake accolades and unpopular movie sequels. Or they waste their energy scheduling and canceling and then uncanceling shipments of imported goods, depending on Trump’s latest tariff tweets. Or maybe they’re holding off on investment entirely, because there’s too much uncertainty. This affects even the sectors Trump is ostensibly trying to help, such as energy.
“With all the changing regulations a bunch of wind-farm investments are massively lossmaking and all investment has stopped,” Bloom said. “This will not only damage wind farms, but other energy investments as related industries fear being next. If you are thinking of building a big coal station, sure the Trump administration is in your corner today. But maybe next month Trump decides he prefers oil or gas, or the next administration thinks you should be taxed twice as much. So not surprisingly even coal plants are not rushing to invest.” THE HARD ECONOMIC DATA are somewhat dated and backward-looking, especially right now due to the recent government shutdown. What data we do have are not super encouraging, given that three of the past six months saw job losses. But we do have real-time data from stock markets, which are supposed to be forward-looking. The White House has been quite eager to tout that data because U.S. markets appear to be up—a fair bit. Aides often crow about new market highs. And Trump often claims that the United States is “the hottest country anywhere in the world,” and that all foreign leaders admit it.
But the numbers appear less impressive when you look a little closer. In reality, U.S. markets have been relatively laggard since Trump took office, when compared to the rest of the world. As you can see, non-U.S. markets grew by nearly twice as much as U.S. markets did last year, according to data from the financial services company MSCI. By other metrics, too, the United States has been losing its premium against other countries. The dollar is slumping against other currencies, and in 2025 had its biggest decline since 2017 (the first year of Trump’s prior term). As Bloomberg’s Robert Burgess pointed out, every major currency appreciated against the U.S. dollar in 2025.
The American economy may have entered 2025 as the “envy of the world,” according to The Economist, but it exited somewhat worse for wear. Then there’s the question of what drove growth here in the United States. The answer is, overwhelmingly, artificial intelligence.......read on, there's still more https://www.thebulwark.