Tuesday, February 02, 2016

One Plausible Scenario in which Trump Wins

I expect Trump to win the Republican nomination (he's got a HUGE lead), but until this morning had not seriously considered the possibility that he might win the presidency.  After all, polling shows him to be pretty much unelectable:
We’ve got an unpopular set of presidential candidates this year– Bernie Sanders is the only candidate in either party with a net-positive favorability rating — but Trump is the most unpopular of all. His favorability rating is 33 percent, as compared with an unfavorable rating of 58 percent, for a net rating of -25 percentage points. By comparison Hillary Clinton, whose favorability ratings are notoriously poor, has a 42 percent favorable rating against a 50 percent unfavorable rating, for a net of -8 points. [fivethirtyeight.com]
While the book I am currently reading may be affecting my judgment, it occurs to me that Trump's favorability, as an extreme outsider, could rise dramatically if the U.S. economy slump dramatically.  Suppose, for example, that Hillary wins the Dem nomination and then the economy crashes in the summer or fall, as it did before the 2008 election.  In that case Trump the extreme outsider looks much better against Hillary the veteran insider.

Where the book I'm reading (Railroading Economics) comes into play is in its description of the Great Depression.  I see a lot of similarities between the economy in the 1920's and that of the current U.S. / global economy. Here are a few:
  1. Increasing wealth inequality leading to more investment and less consumption (as a proportion of total income)
  2. Overinvestment leading to decreased returns on productive investment and increasing amounts of questionable financial investment.
    1. stock markets in bubble territory -- now at 89th percentile, comparable to 1929, 2000, and 2007, and propped up by loans financing stock buybacks.
    2. junk bonds of questionable value
  3. An establishment that considers a depression pretty much impossible, and tries to maintain prosperity with the power of positive thinking as opposed to realistic action.
As was the case in 2008 when the U.S. / world plunged into the Great Recession, the overwhelming majority of economists, business, and political leaders view a recession in 2016 as a remote possibility.  I have been putting my money against every mainstream economist and beating them all in recent years.  Please see:
The latest I've seen is that less than 5% of economists see a greater than 50% chance of recession over the next year.  [Financial Times survey of 51 economists]

In the late 1920s and early 1930s, there was a similar sanguinity regarding the possibility of the economy falling into depression.  The 1920s was an era of welfare capitalism, and the conventional wisdom was that a depression would not happen because corporate America wouldn't let it.  This is what I learned from reading Railroading Economics (linked above),
Hoover  believed that the provision of adequate information would suffice for enlightened business leaders to ward off business cycles. (page 165)
The Hoover administration became apostles of the...doctrine that high wages are a guarantee and an essential of prosperity.  At the beginning of the depression, Hoover pledged industry not to cut wages, and for a long time large-scale industry adhered to this pledge.
In today's economy, employers have been reluctant to lay off employees, despite the sluggish economy, shrinking profits, and soaring inventory levels (although this is not due to presidential jawboning).
During the Depression...the major welfare capitalists quickly realized that the collapse was overwhelming their ability to maintain their commitment to their expressed ideals...The welfare capitalists saw the momentum of the Depression build up.  In the face of these pressures, their attempts at carrying out the supposed mandate of welfare capitalism vanished.  By the fall of 1931 major corporate employers could no longer refrain from aggressively cutting wages.  When push came to shove, unrelenting market forces compelled major firms to renounce all pretenses to the ideals of welfare capitalism. [page 160]
Ultimately welfare capitalism was doomed to failure from the very beginning.  Business was incapable of overcoming the tendency of markets to careen out of control.  Once the Great Depression struck, people realized that the rhetoric of welfare capitalism was hollow.  Most people understood that they could not count on business to protect them from harsh market forces--a lesson that has continued to fade over the subsequent decades.  [page 168] 
Every morning when I watch Bloomberg TV, I am bombarded by optimistic businesspersons and commentators.   Mainstream Republicans and Democrats alike are certain that the economy is doing just fine.  As noted elsewhere in this blog, I believe the facts point otherwise.  And apparently, I am not alone.  Just as in the early 1930s, fascist and socialist politicians are popular as people crave an alternative to the status quo.

Railroading Economics explains that the welfare capitalism of the 1920s was an outgrowth of the successful combination of government and business in World War I, and that fascism had a somewhat similar perspective:
Welfare capitalism had the capacity to transform itself into fascism without too much difficulty.  It already contained a heavy measure of nationalism and racism.  It was more than willing to cede more power to the state, provided that the state would act in the interest of the welfare capitalists.  [page 164]
The similarities to the Republican party of recent years and the Trump phenomenon are clear.  If the economy does slip dramatically this year, then the prospects for the fascists and socialists will be dramatically improved.

I'm a big fan of Bernie Sanders and his brand of democratic socialism.  On the other hand, Trump is just the current incarnation of a strong fascist undercurrent running through the electorate.  The good news is that Sanders and his socialist platform are far more popular among today's youth.   We older Democrats would be wise to consider momentum for change.  As John Cassidy notes today in the New Yorker with reference to Bernie Sanders' overwhelming success amongst the younger voters in Iowa:
It is often easier to inspire people, particularly young people, with an uplifting theme than with a resumé. This, of course, was also the problem that Clinton faced in 2008, when Obama ran on a message of hope and the slogan “Yes, we can.” In recent weeks, the Clinton campaign’s response to the Sanders and his promises of ambitious policy actions has sometimes seemed to be “No, we can’t.” In Iowa, at least, that didn’t prove to be a winning message.
I don't actually think that this is fair to Clinton.  But I see Sanders' policy proposals as the more realistic response to the current precarious economic and political situation.  Clinton is offering more of the same, which is certainly better than a descent into fascism, but possibly insufficient to prevent that from happening.   If we avoid depression, Sanders will beat Trump handily given Trumps' limited support at present.  This is my opinion and receives support from polls such as the one referenced at the beginning of this post.  If the economy collapses, Sanders is our best bet to defeat the fascists as he presents a realistic and hopeful alternative to the status quo.


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