Extraordinary Popular Delusions and the Madness of Crowds
Asset Bubbles, "Meme-coins", Donald Trump, and Beliefs
We are living in a time of epic financial bubbles, pervasive misinformation and public figures shifting between heroes and villains in matters of weeks or even days. Charles Mackay wrote “Extraordinary Popular Delusions and the Madness of Crowds” in 1841. Delusion, popular delusion, is an evergreen subject. Delusions are distinguished from say lies, or fraud. The thing about delusions is that, while they are things that are not necessarily true, or even categorically false, some number of people believe them.
Donald Trump was inaugurated president and delivered a doozy of an inaugural speech, so I wanted to examine some of the delusions that are inherent in many of his assertions.
In the first minute of his address, he says “ I will very simply put America first.” Three days before he made this statement he created a legal fiction called a $Trump coin, a “meme coin” or electronic artifact that - if he sold them all for money - could enrich him by as much as $57 billion. Now it is pretty unlikely that he will ever get $57 billion in real money, he might only sell a few hundred million dollars worth. The next day his wife issued a $Melania, also a meme coin. Media figures say she could stand to make $700 million off of the coins if someone were to buy them all. We will probably never know how much money, real money that you can put in a bank, Donald and Melania stand to make. This is not making America great or a “rich nation”. I can state pretty confidently however that people who buy these electronic notions will lose every bit of the money they pay. The Trump family meme coins might even become worthless while he’s in office. This does not sound like putting America first.
The Trumps, or at least Donald, attended church services January 19, also on Inauguration Day, and a Prayer breakfast with Vice President JD, on January 21st. I can’t claim to know what goes through another person’s mind, but I wonder if he was thinking about what he’d asserted in his inaugural speech, “I was saved by God [from an assassin’s bullet] to make America great again.” Somebody in America might believe that but I doubt Trump does. Or perhaps he was thinking how surprised people would be by about the Tuesday after Inauguration Day when the huge grift that he and his wife were able to pull off with the meme coins became more publicized. Making himself and a few cronies rich1 is not making America great; it is making America less than great.
He - perhaps with a magic wand - renamed the Gulf of Mexico to the Gulf of America, and said he was renaming Mt. Denali in Alaska to its previous name, Mt. McKinley. In his speech Trump described William McKinley (of the said mountain) as a president who had “made our country very rich, through tariffs and through talent.” The jury is still out on whether even McKinley’s tariffs were successful. Many other significant things went on that Trump did not mention. The Spanish-American war let the US wrest Cuba and Puerto Rico and the Philippines from war, so McKinley was able to lower the tariffs only on sugar, molasses, and other tropicals goodies. Tariffs on the US’s competitors remained high. The US also acquired Hawaii, and US businesses started selling goods to our new possessions and growing things like pineapples and bananas. Maybe Trump simply admires the empire building of McKinley and has deluded himself into thinking it had something to do with tariffs. Despite America fighting a vicious war against Filipino resistance, America’s expansionism made money for America, not tariffs. In the 19th century, the “American Plan” was to give American industrial companies a home country price advantage. In fact, my earliest hearing of so-called “American Exceptionalism”, was in regard to economic history and tariffs: that the US, was an exception, refused to play by the rules that European industrialized countries competed upon, which was price. These days most Americans, probably even Donald and JD, are too economically and historically illiterate to understand what phrases like American Exceptionalism even meant when they were invented - nothing to do with “Purple Mountains’ Majesty”.2 Exceptionalism must just have a nice ring to Trump’s ear.
Mr. Trump said in his second inauguration he had been tested and challenged over the past eight years more than any president in our 250-year history. Perhaps Mr. Trump is insane in some sense?3 He was called to account in New York for various financial and tort crimes, after a lifetime of white-collar criminality and louche behavior. Maybe he was so accustomed to his awful behavior that he thought it was legal, even customary. He did not face the music for several federal crimes he apparently committed while in and immediately after leaving his first term. But really, he’s had it worse than any president? Given his demonstrated venality with the meme coins just days before taking office, it is certainly not inconceivable that he would have sold or used the classified documents that he stole wholesale, and kept at his Mar-a-Lago hideout after his first term. It is certainly a form of delusion for him to think that he was being persecuted for actions that he clearly set in motion of his own volition. Those of his supporters who genuinely believe he was being groundlessly persecuted could also be described as delusional or a special kind of ignorant.
Tariffs, Taxes, and “liquid gold under our feet”. Tariffs are a form of federal taxes. They are basically a sales tax on imported goods (collected by Customs and Border Protection). The Trump plan, and it is not fleshed out, is to increase basically tariffs on goods from almost all other countries and cut American’s income taxes. The “foreigners” in Trump’s telling, will pay for the tariffs, and we’ll all enjoy lower income taxes (a free lunch!). Oh, and we will drill more oil and gas and sell it abroad and be very rich. I’ll discuss the reality and uncertainty about each of these ideas:
Tariffs - The effect of a tariff is to increase the price of importing a good. A 25% tariff on a $400 washing machine means somebody has to pay another $100. The question is, who pays that money the (foreign) exporter of the US consumer or vendor. This is a branch of real-world economics call “tax incidence” - whose pocket does a tax actually come out of. Suppose all these oligopolist companies like Home Depot, Lowes, Wal-Mart - companies who sell hundreds of $billions of foreign goods - wanted to eat some the cost of the tariff, they’d absorb $20 of the cost and pass along $80 of the new cost to the consumer. In this case, 100% of the tariff is borne by US persons (the store and the buyers). Mr. Trump and his advisor hope that the exporter (foreigner) will eat - pay - the $100 tariff in order to stay on the good side of Home Depot. In Trump’s first term, he played around with tariffs, perhaps to punish countries4, or to try to raise revenue. Biden kept most of Trump’s tariffs against various Chinese goods in place. As of now, Trump’s tariffs are a mishmash of statements and tweets, some of which might be bargaining maneuvers.Again, who knows what he really thinks, probably not even he does.
Taxes - The Congress will have to pass something to replace the Tax Cuts and Jobs Act (TCJA) that was a Trump initiative in 2017 and that expires in 2025. Otherwise we’ll revert to higher tax rates if the law is not replaced. Most economists would probably agree that higher rates will usually slow personal spending and GDP growth down a little, but we have big budget deficits and debts at the Federal level. More tax revenue will help. Trump & Co believe they can reduce government spending by $1 or $2 billion without raising taxes. This latter thing, that one or two billion could be reduced from the federal budget from efficiency, is clearly delusional! There is not even $1 billion of discretionary non-defense spending in each year’s budget and most of that is for very basic social spending. Much like tariffs, there is a lot of disagreement (based on real world data) about how people react to changes in their taxes and how Federal revenues will react. Some people go so far as to say that large cuts in federal income taxes are so stimulative that they pay for themselves, meaning they create so much new income it doesn’t matter that tax rates are lower, the government takes in just as much or more money than before. There has never been any good evidence of this but it is a good story.
America as an Oil Exporter - Another thing Mr. Trump claimed is that we will be “a rich nation again” because we will export oil and natural gas. Now, Trump is correct that we have vast holdings of hydrocarbons and in both the Obama and Biden administrations we were expanding oil and gas exploration. America is already an oil exporter! Since Russia invaded Ukraine, and before, we have expanded out exports of liquified natural gas. These things however are competitive markets. Besides the environmental downsides of pushing to use gas (he also revoked the electronic vehicle mandate), Mr. Trump has to realize that these are competitive markets. Lots of countries have oil and gas to sell. India and China buy on the sly from Russia. Does Trump plan to undercut Russia? The only way we can expand is to compete on price, which means we sell cheap. Why are we in a hurry to sell our oil cheap? The future will belong to electric cars. The world is not going to stop for Donald Trump or Elon Musk. Trump said “The future’s ours. And our golden age has just begun.” How does he know? He is quite simply a delusional old man. That is not a criticism. He is a very, very flawed man, so being old and delusional are perhaps among the least of his faults; but he is so obviously out of his depth and is making things up as he goes along. Perhaps there is nothing in his inaugural address that will come to fruition. Even if Elon Musk’s SpaceX sends a mission to Mars they would not be back in time before the end of Trump’s term.
Donald Trump’s inaugural address tells us more about the workings of Trump’s ego than it tells us anything close to reality. Maybe all we’ll end up doing is renaming Mt. McKinley again. I hope he doesn’t do too much damage but if this is the vision of Mr. Trump it is smoke, mirrors, and fog.
There is an “emoluments” clause in the US Constitution that prohibits US officials from getting rich from foreign gifts. Since the world of “crypto” is, by definition, hard to trace, particularly meme-coins, any foreign government or individual could be channelling money to the Trumps.
Like the song says.
Paranoia and delusional thinking are significant signs of dementia.
Over the weekend of January 24, 2025, the government of the South American nation of Colombia complained sharply about the alleged poor treatment of Colombian citizens on two deportation flights from the US. The Trump administration threatened to slap a 25% tariff on all exports from “Columbia”, a university in New York. If, in reality, Trump were to place tariffs on Colombia, expect the price of coffee for consumers to rise by at least as much as the rate of the tariff. Coffee is a good that has few substitutes, and environmental factors (global warming induced drought) have caused coffee production to fall worldwide.