Economics and politics - comment and analysis

How it was possible for Trump to win the presidency. Trade and war casualties

In 2016, Flassbeck-economics provided extensive comment and analysis of the caucuses, the primaries and the ultimate presidential election in the USA. Afterwards, I wrote up a long piece trying to explain Trump’s victory. I pointed towards a variety of reasons, the two most important ones were Clinton’s economic program and her pro-war stance. It was arrogance and political blindness of the highest calibre for Clinton to proclaim she would merely continue Obama’s economic policies. The trouble was that Clinton’s proposals – for as much as there was anything tangible – did not make an impression on populations that saw their wages fall for the last 35 or so years – an evolution that Obama did not reverse. Second, there is no doubt that Clinton was widely perceived as the pro-war candidate. I suspected that many Americans, to their credit, were sick and tired of all these wars and that their sentiments played a role in their voting. I am not saying that Trump is anti-war, but this perception undoubtedly existed and Trump was sly enough to promote it.

Since there is no parallel universe in which Clinton won, we will never know what would have happened. Personally, I was less than impressed with Clinton’s intention to implement a no-fly zone in Syria – of course in complete defiance of international law – just imagine that the Russians would not have given in and that the Americans would have shot down some Russian jets. What then?

Anyway, in the meantime there is empirical evidence in support of what I wrote last November. A recent study by Douglas Kriner (professor of political science at Boston University) and Francis Shen (professor of law at the University of Minnesota) suggests that Trump won more votes from communities with high military casualties than from similar communities which suffered fewer casualties (see here). According to them, this factor explains why Trump won the crucial swing-states of Pennsylvania, Wisconsin and Michigan. Comparing the 2012 and 2016 presidential elections, they conclude that regions that had seen high concentrations in casualties over the past 15 years of warfare saw a swing in support towards Trump.

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Figure 1: the role of war casualties in the 2016 election according to Kriner and Shen. 

Kriner and Shen control for all other relevant factors – race, income, education, the percentage of the population living in rural areas (traditionally, these populations are more conservative) and the percentage of the military veteran population (traditionally, they vote for candidates that support the military the most). The number of military casualties was statistically significant, controlling for all these variables. Kriner and Shen conclude that three swing states – Wisconsin, Michigan and Pennsylvania – would have gone to Clinton if their war casualties would have been lower (see here).

The researchers end by suggesting a number of political implications. As they write:

“Currently the Democratic Party is engaging in a period of fitful soul searching in a quest to understand its inability to connect with many working class and rural voters who abandoned the party of Roosevelt for Trump. Much of this introspection has focused on the party’s position on trade policy, economic inequality, and emphasis on identity politics. However, Democrats may also want to re-examine their foreign policy posture if they hope to erase Trump’s electoral gains among constituencies exhausted and alienated by fifteen years of war” (see here).

The populist rebellion thesis

This is an interesting finding, for more than one reason. For one, it shows that some Americans were sick and tired of the bi-partisan pro-war consensus and voted for the candidate that they perceived, rightly or wrongly, as the lesser warmonger. Second, it puts into doubt the populist rebellion thesis that gained so much traction since Trump’s election that it is difficult to find any mainstream journalist who did not embrace it. And let’s not forget an army of academics, bloggers, activists, etc.

I find no polite way of summarising the populist rebellion thesis, so let’s put it this way: Trump became president because a lot of idiots, racists and proto-fascists voted for him. These people are so stupid that they vote against their interests. I never agreed with this ‘thesis’ because it is self-exoneration and self-serving nonsense that explains nothing, even if it is more or less empirically correct: yes, a lot of people voted against their interests which is obviously unintelligent. This non-explanation begs the question where all these ‘idiots’ come from. This study questions, if not invalidates, the idiot-thesis, because if Kriner and Shen are right, people whose communities have been badly affected by constant war abroad made the decision not to vote for the better war candidate. That does sound pretty rational and decidedly non-idiotic.

The losers of globalization, trade and technology

Exactly the same argument can be made with regards to economic policy: some of those who have been on the losing end of globalization, ever increasing privatisation, the capital bias in technology (a more important driver for unemployment than trade), unemployment, poverty, destitution, poverty and racism choose not to vote for a candidate who promised more of the same. Unquestionably, this was not the finest of judgments, but what would you have done?

Before you loudly protest, proclaiming that you would never vote for Trump (I would never do it either), ask yourself what you would do if your wages fall for 35 years in a row, if you have no food to put on the table for your children before they go to school – if they go to school – if you have not enough money to pay the rent, or perhaps you live in a trailer already, if you have no healthcare or otherwise you have access to some defunct scheme that does not help you when you need it, if you know very well that, whatever you do, your children, regards of their capabilities, will never see the inside of a college or a university. I am not saying that voting for Trump was a good decision. Voting for Trump was a bad decision. But it is an understandable one and that this is what we should be explaining, instead of calling people ‘idiots.’

Much against our arrogant self-righteousness, the truth is that things are not so simple. The proof is that, until today, serious economists continue to discuss the merits and fallacies of the economic programs of both candidates. When Trump is saying that changes in international trade are warranted and that Germany needs to change its policies, he is right even if he is mistaken in all else. You can of course make the point that you would never vote for Trump because he is a racist and a bigot and much else. This is why I would also never vote for him. Trump the man and his nonsense about the wall with Mexico, the Muslim ban and his war on immigrants make me vomit. But if the choice is between Trump, the racist, and Clinton, who destroyed Libya, I do not want to choose. If you attack Trump for his racism and bigotry, attack the other side too. If those two are the only ones that the political system can produce as presidential candidates, the game is up.

Everybody knows the secret behind the rise of ‘the idiots’ who now – unfortunately – vote for the right and the extreme right, for demagogues, liars, sycophants and psychopaths like Donald Trump and the racists in Europe: it is because the political middle and the left gave up on them. The ‘idiots’ and the ‘losers’ constitute the human cost, the human wreckage, of a failed economic system. This evolution goes back at least 35 years. For decades, the cost of international trade could not even be discussed. Supposedly, there was no such thing. It was impossible to publish on it. It was proof positive that you also were an idiot. It took the mainstream – all geniuses, needless to say – 35 years to repeat what the idiots had told them in a previous life.

In case you doubt this, between 1973 and 1990, real wages of “nonsupervisory employees” (‘blue collar workers’) fell by 17% in the US. Productivity did not fall over this period, it continued to rise, although at a slower pace. After 1972, the trade/GNP ratio moved from its historical level of about 13% to 25% in the 1980s. What did the mainstream say? They proclaimed that free trade benefits everyone by reducing the prices that consumers pay. And they were right, except for the small detail they forgot to mention: that the wages of 80% of the workforce fell faster than prices so that their real incomes fell by 17%. There is no doubt that the remaining 20% of the population did very well. According to Rodrik, for every $1 gain in efficiency (this is stuff we no longer make ourselves, but import at cheaper cost) $50 of income changed hands in the USA. These changes had inter-generational effects. Some never worked again, or only for substantially lower wages, and their children in turn also pay the price of improved efficiency. It took the mainstream a decade or two to come up with a defence: what you are pointing at is a “mere” (sic!) problem of distribution. Very reassuring, except that there was never a real prospect of redistribution and even if there would have been, it would have been unbelievable that the gains of the upper 20% would ever have been enough to compensate for the losses that the lower 80% had suffered.

This story can be read off from every case study that has ever been made. Americans were assured that, with NAFTA, the nation would gain more jobs than it lost because the US exported more to Mexico than it imported. But it was exactly the Mexican current account deficit that caused a flight of both foreign and domestic capital and resulted in a 40% depreciation of the peso relative to the dollar. This depreciation and American outsourcing – perversely called “free trade” (!) – resulted in a trade surplus for Mexico and a reversal of the net job gain argument that was used to sell NAFTA in the first place. Exactly the same story can be told about the capital bias in technology. This is where the “idiots” and the “losers” come from.

The truth of the matter is that during the last 40 years incredibly bad and socially fundamentally unjust policies have been implemented on all possible scales, from the deregulation of capital, trade which left losers behind, de-industrialisation and outsourcing which created losers, dysfunctional mercantilist policies which creates losers all over Europe. The losers were left behind with their falling wages or no wages and without any political representation whatsoever, because no party stood up for them.

This is the historical moment when the extreme right in Europe started to gain votes. As a result, a dichotomy was born between the mainstream – democratic, open, pluralist, progressive, tolerant, decent, rational, serving the common good – and the ugly extreme right fringe. They certainly are very ugly, but the dichotomy did the common man in the street no good, because it spread more political powerlessness and even more contempt and, hence, less understanding, for the losers. It created more political blindness as well. For example, today for some completely incomprehensible and baseless reason, Le Pen is considered a danger to the institutions (which she is), while May is considered a mainstream politician. Frankly, this is incredible.

Well, say the optimists, there may be a kernel of truth in all of this (I am kidding: they would never admit it), but all of this is over now. The world economy and the European economy are growing again, the possibility of a break-up of the euro zone is fading and the extreme right is losing. Wilders did not win in the Netherlands (well, his PVV won another 5 seats and the Dutch still do not have a government). Le Pen did not win in France. Surely, now that the economy is improving, the extreme right will succeed nowhere.

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Figure 2: Highly convincing proof of the European recovery (Source: Brussels Economic Forum). 

Jumping to conclusion is easy, especially when they are the conclusions you want. Trump is making the USA into one big developing country. His toxic agenda will at one point unleash a major crisis. Those interested in the state of the country, can read this excellent article, which gives a broad, terrifying and surreal overview. In Europe, the numbers of jobs are growing, but so does poverty and inequality. The productivity, profitability and investment conundrums have not been solved. Germany still dominates the Union and continues to spread its mercantilist disease. In the UK, both parties are now correctly accusing the other one that they have no Brexit policy. The auditor general has just said that the Brexit plans could fall apart “like a chocolate orange.” One year after a referendum that no one needed, a full year after talking about nothing else, neither the Tories nor Labour have a plan. In the meantime, a chunk of ice, two times the size of Luxembourg, weighing 1 trillion tonne, broke off the South Pole and is now melting (see here). Christina Figueres, the woman ‘whose job it was to save the planet,’ just send a letter around to “stakeholders” (if you did not get it, it is not relevant for you) saying that world has three years left to keep global average temperature rise below 2 degrees C by 2100 (see here). This is, presumably possible, as it probably suffices to bring the global economy to an immediate standstill (see here). A new paper claims that the sixth extinction proceeds much quicker than previously thought and that all sorts of vertebrates are disappearing. The number of individual animals that once lived alongside humans has fallen by as much as 50 percent, meaning that we massacred 50 percent of animal life on earth, mainly by destroying their habitats (see here). The end is not in sight. This seems to concerns few people. The show must go on. Sure, the idiots vote for the wrong people, but, god thank, at least we are so smart.

The question is not whether the crisis is over. The question is when the day of reckoning will arrive.