11/21/2016 GlobalTrumpism

Home>GlobalTrumpism

Tuesday,November15,2016
GlobalTrumpism
WhyTrumpsVictoryWas30YearsintheMakingandWhyItWontStopHere
MarkBlyth

MarkBlythisEastmanProfessorofPoliticalEconomyatBrownUniversity.

Trumpsvictorywaspredictable[1],andwaspredicted[2],butnotbylookingatpolls.Pollinghas
takenabeatingrecentlyhavingfailedtopredictthevictoryofDavidCameronsConservativeParty
intheBritishgeneralelections[3],thenBrexit[4],andnowtheelectionofDonaldTrump[5].Onecan
argueaboutwhatswrongwiththemethodsinvolved,butmorefundamentallywhatpollsdoisto
treatthesephenomenaasisolatedeventswhentheyareinfacttheproductofacommonsetof
causes30yearsinthemaking.

Therearetwoissuesatplayhere.ThefirstisknownasGaltonsproblem,afterSirFrancisGalton,
theinventorofmuchofmodernstatistics.Galtonsproblemisthatwhenwetreatcasesas
independenttheBritishelection,Brexit,theU.S.electiontheymaynotactuallybeindependent.
TheremaybelinksbetweenthecasesthinkofBrexitsNigelFarageshowingupatTrump'srallies
[6]andtherecouldbesubtlercontagion[7]ormimicry[8]effectsinplayasinformationfromone
caseinfectstheother,changingthedynamicsofthesystemasawhole.Couldtherethenbea
highersetofdriversintheglobaleconomy[9]pushingtheworldinadirectionwhereTrumpisreally
justonepartofamoreglobalpatternofevents?

ConsiderthattherearemanyTrumpetsblowingaroundthedevelopedworld,onboththerightand
theleft.Ontheoneside,insurgentrightwingpartiesarebulldozingthevotesharesoftraditional
centristpartiesalloverEurope.Forexample,theFinnsPartyisthesecondlargestpartyinthe
Finnishparliament.InSweden,theSwedishDemocratsarethethirdlargestpartyinparliament.In
Hungary,PrimeMinisterViktorOrbanspoliticalparty,Fidesz,runsthecountryhavingwontwo
elections.MeanwhileinFrance,themostpopularpoliticalpartyistheNationalFront[10],whichinall
scenariosbutone[11]whateversuchexercisesareactuallyworth[12]isexpectedtowinthefirst
roundofvotinginthe2017Frenchpresidentialelection.ButwhenalltheotherpartiesinFrance
closerankstopreventtheNationalFrontfromwinningthesecondround,itshardlyavictoryfor
democracy.Andeveninthatbulwarkofstability,Germany[13],theupstartAlternativeforGermany
[14]beatGermanChancellorAngelaMerkelsChristianDemocraticUnionintosecondplaceinher
ownbackyard[15].

Butthereisalsoaleftwingversionofthisphenomenon.ConsidertheScottishNationalParty(the
clueisinthename),whichhasannihilatedeveryotherpoliticalpartyinScotland,orPodemosin
Spain,whichhaswon69outof350seatsintheSpanishparliament.LeftwingupstartSyrizaruns
Greece[16]evenifitsunderTroikatutelageandDieLinkeinGermanyisyetanotherdrainon
thevoteshareoftheoncedominantSocialDemocrats,whoseownvotesharehasutterlycollapsed
[17].

Thesepartiesofcoursehaveverydifferentpolicystances.Thenewrightfavorsnationalsover
immigrantsandhas,atbest,arathercasualrelationshipwiththeliberalunderstandingofhuman
rights.Thenewleft,incontrast,favorsredistributionfromtoptobottomandinclusiveratherthan
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11/21/2016 GlobalTrumpism

exclusionarygrowthpolicies.Buttheyalsohavemoreincommonthanwethink.Theyareallpro
welfare(forsomepeople,atleast),antiglobalization,andmostinterestingly,prostate,and
althoughtheysayitsottovoceontheright,antifinance[18].Toseewhy,consideroursecondissue.

AttheendofWorldWarII,theUnitedStatesanditsalliesdecidedthatsustainedmass
unemploymentwasanexistentialthreattocapitalismandhadtobeavoidedatallcosts.In
response,governmentseverywheretargetedfullemploymentasthemasterpolicyvariabletrying
togetto,andsustain,anunemploymentrateofroughlyfourpercent.Theproblemwithdoingso,
overtime,isthattargetinganyvariablelongenoughunderminesthevalueofthevariableitselfa
phenomenonknownasGoodhartslaw.

LongbeforeGoodhart,aneconomistnamedMichalKalecki[19]hadalreadyworkedthisout.Backin
1943,hearguedthatonceyoutargetandsustainfullemploymentovertime,itbasicallybecomes
costlessforlabortomovefromjobtojob.Wagesinsuchaworldwillhavetocontinuallyrisetohold
ontolabor,andtheonlywaybusinesscanaccommodatethatistopushupprices.Thismechanism,
costpushinflation[20],wherewagesandpriceschaseeachotherup,emergedinthe1970sand
coincidedwiththeendoftheBrettonWoods[21]regimeandthesubsequentoilshocks[22]to
producehighinflation[23]intherichcountriesoftheWestinthe1970s.Inshort,thesystem
undermineditself,asbothGoodhartandKaleckipredicted.Ascountriestriedharderandharderto
targetfullemployment,themoreinflationshotupwhileprofitsfell.The1970sbecameakindof
debtorsparadise.Asinflationrose,debtsfellinrealterms,andlaborsshare[24]ofnational
incomerosetoanalltimehigh,whilecorporateprofitsremainedlow[25]andwerepummeledby
inflation.Unionswerepowerfulandinequalityplummeted[26].

Butifitwasagreattimetobeadebtor,itwasalousytimetobeacreditor.Inflationactsasatax[27]
onthereturnsoninvestmentandlending.Unsurprisinglyinresponse,employersandcreditors
mobilizedandfundedamarketfriendlyrevolution[28]wherethegoaloffullemploymentwas
jettisonedforanewtargetpricestability,akainflationtorestorethevalueofdebtanddiscipline
laborthroughunemployment[29].Anditworked.Theneworderwascalledneoliberalism.

Overthenextthirtyyearstheworldwastransformedfromadebtorsparadiseintoacreditors
paradise[30]wherecapitalsshareofnationalincomerosetoanalltimehighaslaborssharefellas
wagesstagnated[31].Productivityrose,butthereturns[32]allwenttocapital.Unionswerecrushed
whilelaborsabilitytopushupwagescollapsedduetothetwinshocksofrestrictivelegislationand
theglobalizationofproduction.Parliamentsinturnwerereducedtotweetgeneratingtalkingshops
ascentralbanks[33]andpolicytechnocratswrestedcontroloftheeconomyawayfromthose
electedtogovern.

ButGoodhartslawneverwentaway.Justastargetingfullemploymentundermineditself,sodid
makinginflationthepolicytarget.

Considerthatsincethe2008crisistheworldsmajorcentralbankshavedumpedatleast$12trillion
dollars[34]intotheglobaleconomyandthereisbarelyanyinflationanywhere[35].Almostaquarter
ofallEuropeanbondsnowhavenegativeyields[36].Unsurprisingly,interestratesareonthefloor
[37],andifitwerenotforthemassivepurchasingofassetsintheEurozonebytheEuropeanCentral
Bank,deflationwouldbesystemic[38].Insum,wemayhavecreatedaworldinwhichdeflation,not
inflation,isthenewnormal[39],andthathasseriouspoliticalconsequences,whichbringsusbackto
Trump.

Inaworldofdisinflation,creditbecameverycheapandtheprivatesectorleveredupmassively[40]
withpostcrisishouseholddebtnowstandingat$12.25trillion[41]intheUnitedStates.Thisisa
commonstory[42].Wageearnersnowhavetoomuchdebtinanenvironmentwherewagescannot
risefastenoughtoreducethosedebts.Meanwhile,inadeflation,theoppositeofwhathappensin
aninflationoccurs.Thevalueofdebtincreaseswhiletheabilitytopayoffthosedebtsdecreases.

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11/21/2016 GlobalTrumpism

Seenthisway,whatweseeisareversalofpowerbetweencreditorsanddebtors[43]astheanti
inflationaryregimeofthepast30yearsunderminesitselfwhatwemightcallGoodharts
revenge.Inthisworld,yieldscompressandcreditorsfretabouttheirearnings,demanding
repaymentofdebtatallcosts.Macroeconomically,thismakesthesituationworse:thedebtors
cantpaybutpolitically,andthisiscrucialitempowersdebtorssincetheycantpay,wontpay,
andstillhavetherighttovote.

Thetraditionalpartiesofthecenterleft[44]andcenterright[45],thebuildersofthisantiinflationary
order,getclobberedinsuchaworld,sincetheyarecorrectlyidentifiedbythesedebtorsasthe
politicalbackersofthosedemandingrepaymentinanalreadyunequalsystem,andallfromthose
withtheleastassets.Thisproducesanticreditor,prodebtorcoalitionsinwaitingthatareripefor
thepickingbyinsurgentsoftheleftandtheright,whichisexactlywhathashappened.

Inshort,tounderstandtheelectionofDonaldTrumpweneedtolistentothetrumpetsblowing
everywhereinthehighlyindebteddevelopedcountriesandthepeoplewhovoteforthem.

Theglobalrevoltagainstelitesisnotjustdrivenbyrevulsionandlossandracism.Itsalsodrivenby
theglobaleconomyitself.Thisisaglobalphenomenonthatmarksonethingaboveall.Theeraof
neoliberalismisover.Theeraofneonationalismhasjustbegun.

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SourceURL:https://www.foreignaffairs.com/articles/20161115/globaltrumpism

Links
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[2]https://www.youtube.com/watch?v=nwK0jeJ8wxg
[3]https://www.theguardian.com/politics/2016/jan/19/generalelectionopinionpollfailuredowntonotreachingtoryvoters
[4]http://uk.businessinsider.com/pollstersknowwhytheywerewrongaboutbrexit20167?r=US&ampIR=T
[5]https://mishtalk.com/2016/08/07/nassimtelabblastsnatesilveraboutelectionoddsinseriesoftweets/
[6]https://www.youtube.com/watch?v=oj4K9fr_WgY
[7]https://www.centralbank.ie/publications/Documents/Research%20Technical%20Paper%2003RT16.pdf
[8]https://www.dukeupress.edu/mimesisacrossempires
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[11]http://www.france24.com/en/20160907francehollandewouldlose2017presidentialelectionpollfinds
[12]https://www.ft.com/content/2e43b3e801c711e6ac983c15a1aa2e62
[13]https://www.foreignaffairs.com/articles/europe/20120608/worldwaitsgermany
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[15]http://www.reuters.com/article/usgermanyelectionidUSKCN1190XG
[16]https://www.foreignaffairs.com/articles/greece/20150707/painathens
[17]http://cps.sagepub.com/content/46/7/791
[18]http://www.bloomberg.com/politics/articles/20150901/howdonaldtrumpiswinningoverantiwallstreetrepublicans
[19]http://delong.typepad.com/kalecki43.pdf
[20]https://en.wikipedia.org/wiki/Costpush_inflation
[21]https://history.state.gov/milestones/19691976/nixonshock
[22]https://www.theguardian.com/environment/2011/mar/03/1970soilpriceshock
[23]http://www.federalreservehistory.org/Period/Essay/13
[24]https://en.wikipedia.org/wiki/Wage_share
[25]https://fred.stlouisfed.org/series/CP
[26]http://inequality.org/incomeinequality/
[27]http://www.nber.org/chapters/c11339.pdf
[28]https://www.cambridge.org/core/books/greattransformations/870BE71687305B1E858E49FD3FDD578B
[29]http://www.jstor.org/stable/1804018?seq=1#page_scan_tab_contents
[30]https://www.jacobinmag.com/2015/02/germanyausterityblythspeechspd/
[31]http://www.economist.com/news/briefing/21650086salariesrichcountriesarestagnatingevengrowthreturnsand
politiciansarepaying

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[32]http://www.zerohedge.com/news/20150520/divergencerootmostamericaneconomicproblems
[33]https://www.foreignaffairs.com/articles/unitedstates/20140811/printlesstransfermore
[34]http://www.cnbc.com/2016/06/13/12trillionofqeandthelowestratesin5000yearsforthis.html
[35]https://www.weforum.org/agenda/2015/08/whyisinflationfallingeverywhere/
[36]http://www.bloomberg.com/news/articles/20160720/negativeyieldsinfectingcreditmarketsasinvestorscapitulate
[37]http://www.globalrates.com/interestrates/centralbanks/centralbanks.aspx
[38]http://www.elgaronline.com/view/journals/ejeep/132/ejeep.2016.02.06.xml
[39]http://seekingalpha.com/article/3961697deflationnewnormal
[40]http://data.worldbank.org/indicator/FS.AST.PRVT.GD.ZS
[41]http://www.cnbc.com/2016/05/24/householddebtclimbsto1225trillioninfirstquarter.html
[42]https://data.oecd.org/hha/householddebt.htm
[43]http://scholar.harvard.edu/files/jfrieden/files/frieden2015_jimf.pdf
[44]http://www.economist.com/news/briefing/21695887centreleftsharpdeclineacrosseuroperosethouartsick
[45]https://www.theguardian.com/world/2016/may/25/acrosseuropedistrustofmainstreampoliticalpartiesisontherise

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