Populist Economics and American Politics

Trump, this week:

There is nothing the political establishment will not do, no lie that they won’t tell to hold their prestige and power at your expense. And that's what has been happening. The Washington establishment, and the financial and media corporations that fund it, exist for only one reason, to protect and enrich itself. The establishment has trillions of dollars at stake in this election. . . .

It is a global power structure that is responsible for the economic decisions that have robbed our working class, stripped our country of its wealth and put the money in the pockets of a handful of large corporations and political entities. Just look at what the corrupt establishment has done to our cities like Detroit, Flint, Michigan and rural towns in Pennsylvania, Ohio, North Carolina, and all cross our country. Take a look at what is going on. They've stripped away the towns bare and raided the wealth for themselves and taken our jobs away, out of our country, never to return unless I'm elected president.

Which raises the question: is this true?

Trump is not a serious man, but this is a serious argument, embraced by Bernie Sanders and plenty of others on the left. Are working people struggling because a global elite is taking their money? And if so, what could we do about it?

I think it's worth going back to the 1970s to ask how we got to the situation we are in now, with the owners of capital grabbing a record share of global wealth and workers getting an ever smaller piece. Because things were not going great then. The "stagflation" economy helped bring first Jimmy Carter and then Ronald Reagan into the presidency as reforming outsiders; the phrase "Rust Best" was coined to describe the situation in manufacturing towns from Baltimore to Milwaukee. Japanese companies were in the process of destroying American television and stereo manufacturers with better, cheaper products and had begun their assault on our automobile companies, ship builders and more. The sense of decline was everywhere; the papers were full of articles asking why American innovation was dead, why American companies could no longer compete. So when Reagan called for a different economic approach – lower taxes on the rich and their investments, less regulation, etc. – millions listened. And when Reagan broke the air traffic controllers' union and did all he could to ruin unions in general, millions cheered.

To kill inflation Paul Volcker's Federal Reserve drove interest rates up to 19%, which did tame inflation but helped create a severe recession in 1981-1982. Those were my university years, so I was in college at another time when young people were convinced that the best days of capitalism were behind them, that they would never have good jobs, etc. Reagan and Thatcher were hated on the left with a vitriol I have never seen since. But then the recession ended, as recessions do, the stock market boomed and it turned out that the American economy wasn't finished after all. On the whole, 1983 to 1999 was an optimistic time in America. People seemed to feel that it was better than the 70s, anyway. There was opposition to trade deals like NAFTA, but on the whole most people seemed to think that neoliberalism was working. Americans certainly voted for it with their wallets, making the Honda Accord the top selling car in America and Sony the top TV brand. The late 1990s saw the American economy at a dizzying peak. I remember years when to hire a backhoe in Washington you had to reserve three months in advance; one operator I worked with told me he hadn't had a dry day off in five years.

Since the tech stock bubble burst, and the War on Terror started, things have not been so great in America. And looking back, we have figured out that in certain fundamental ways the 1979-1999 period was not as great as we thought. The wages of working people stagnated or even went down, and all the increase in the median family income came from more women and teenagers working. Billionaires were getting staggeringly rich, inequality rising. In the 1990s trade pacts seemed to be working the way economists said they would, with some people losing jobs but more benefiting from lower prices and the general boom. But since then the number of workers in manufacturing has collapsed, and the towns dependent on factory work have hollowed out; part of the reason is certainly trade with China.

So some people on both the left and the right are pining for the good old days, when a man could earn enough at a factory job to put his whole family in the middle class. The argument made by both Trump and Sanders is that we could do it, if we just broke the power of the international elite. I don't buy it. I remember the 70s, and everything I have read supports my basic intuition that we can't go back to the 1960s economy because it was already failing before Reagan and Thatcher came on the scene. Everything that has happened since then has made manufacturing less important, and manufacturing jobs less plentiful. I wrote here a few months ago about the "Pokemon Go Economy"; compared to, say, bowling, Pokemon Go requires much less labor and no physical stuff beyond your smart phone and a bank of servers. Acquiring more stuff is just a less important part of our economy, which means that even without neoliberalism and Chinese trade manufacturing would be a shrinking piece of the economic pie. Add in constantly improving technology – one steel worker today can make 20 times as much steel as in 1950 – and manufacturing employment was simply bound to decline. Plus I think it is worth remembering that even if global trade has hurt American workers it has been a gigantic boon for the developing world, helping to lift two billion people out of poverty in 25 years.

I could easily come up with a list of things we could do to tilt the playing field back toward ordinary people, starting with repealing the 2005 bankruptcy law – there's a case of bankers and lawmakers conspiring together against the rest of us – and getting rid of expensive toll lanes for Lexus drivers. I would like to see higher taxes on the rich and more spending on infrastructure. But none of that will fundamentally change the world economy. None of that will bring back coal country or small manufacturing towns. I don't have any idea what would, and I don't think Donald Trump or Bernie Sanders does, either.

There is also the strange notion that all of the diverse voices in the American media, which compete constantly against each other, are in a conspiracy together. If what you think is that most reporters and news executives are drawn from the same class, and that they therefore generally share the attitudes of that class, sure. I fought that consensus as hard as I could over Bush's invasion of Iraq, and was profoundly frustrated that most of the press supported that crazy scheme. Anyone interested in socialism, anarchism, libertarianism, or any other out-of-the-mainstream movement has to constantly battle to be taken seriously. The American consensus has its virtues, but imagination is not one of them. Yet to extend that analysis into saying that the media and the government lie to you outright every day – to believe, for example, that the real unemployment rate is 42% – is just plain crazy. If the media were all in alliance against Trump, why would they have given him so much attention? Why would they cover his rallies at all? If what the Elite wants is to hog all the money for themselves, why have they allowed so much reporting on inequality and so many Op-eds against themselves?

There are conspiracies in the world, but the world is not itself a conspiracy. Sometimes you have to dig a little to find truths that nobody is much interested in telling, and you always have to take statements from politicians and pundits with a grain of salt. But the media is the best way to understand the world, if you know how to use it. And the best way to make the world better is to work within the system as it is, rather than fantasizing about a revolution that will sweep it away.