Many years ago, when dinosaurs roamed the earth and some Republicans still talked sense, the Reagan administration pursued a policy of tax cuts and military buildup even as the Fed was tightening monetary policy to fight inflation. This policy mix bore some obvious resemblance to Trumponomics. And two things happened at more or less the same time: for the first time ever, the U.S. began running large peacetime full-employment budget deficits, and we began running large, sustained trade deficits.

At the time, Martin Feldstein famously linked the two, calling them “twin deficits.” While this oversimplified matters – in the late 1990s we ran both budget surpluses and trade deficits, thanks to booming investment – the logic made sense. Fiscal stimulus directly raised trade deficits by boosting overall spending, and the fiscal-monetary collision raised interest rates, pushing up the dollar and shifting spending from U.S. to foreign goods.

Now the always interesting Brad Setser suggests that a similar story might be unfolding now, with tax cuts feeding a rising trade deficit – an irony given Trump’s obsession with trade deficits as the root of all economic evil. His post is well worth a read, but I have a few suggestions/modifications to make.

One is simply to note that so far we’ve seen only modest increases in interest rates and no rise at all in the dollar. So this doesn’t look much like Reaganomics yet. Maybe it’s still something that will happen; or maybe the Trump tax cuts won’t deliver much fiscal stimulus, just pile up in retained earnings or get used for stock buybacks that don’t do much for consumer spending. Or maybe, as Setser implicitly suggests, we need to do a “but for”: but for the tax cut other factors, like the very real strengthening in the European economy, would be driving the dollar sharply lower.