We live in a time when political decision-making has become a major source of uncertainty. A crucial question is how far politics will go in putting pressure on the economy. According to the theory of constraints, politicians only make decisions within the boundaries of what the economy and the financial system can bear. The “TACO” meme (“Trump Always Chickens Out”) illustrates this clearly: as soon as tariffs threaten to cause too much damage, the US government pulls back; once sentiment improves, it feels free again to take extreme measures.
Yet, in the past five years, the United States has increasingly enacted policies that were once considered unthinkable precisely because they would strain the economy. Examples include large budget deficits without war or recession, government subsidies for autarky, the highest tariffs in nearly a century, deportation programs for immigrants, and attempts to reduce the independence of the central bank. Politics is constrained by economic limits, but it can also stretch them.
According to the theory of mental frameworks (also known as the Overton Window), politicians are not only constrained by economic reality but also by what society considers acceptable. Since these frameworks can shift, economic limits can be stretched as long as society accepts them.
The influence of politics on the economy is layered. It goes beyond merely respecting or breaking economic limits, as the TACO meme suggests. Over the past five years, politics has contributed to upward pressure on long-term US interest rates, a geographic shift of capital toward Europe, and the revaluation of the defense sector.
When politics stretches economic limits, the damage may only become visible later. Consider the consequences of tariffs or immigration restrictions. These effects accumulate gradually and often become apparent only at a later stage, for example through unstable inflation or disruptions to business models.
As long as radical ideas remain on the political agenda, uncertainty will remain high. In recent Republican legislation, a proposed tax on foreign buyers of US Treasuries was scrapped at the last moment, alarming investors. At the same time, the new Democratic mayoral candidate in New York is calling for measures such as rent freezes, government supermarkets, and free public transportation.
