The American Working Class and Donald Trump

In the 1960s, American workers constituted a labor aristocracy on a global scale. The United States led all other countries in global manufacturing. Productivity levels and thus wages were higher in the US than in other leading economies. Even without a high school degree, male workers could make a middle-class income in an auto or steel plant. Income inequality was at an historic low after half a century of decline and social mobility was high. Roughly one in three workers was a union member.

How things have changed. Consider, for instance, the automobile industry. As the chart below illustrates, US auto production dwarfed that of any other country in the 1950s and 1960s. Today, however, US-based auto production remains about where it was six decades ago while production elsewhere around the globe has skyrocketed. China now produces twice as many vehicles as the United States. It is similar in other industries.

Once lucrative manufacturing jobs have disappeared not only due to the shift of production overseas but also due to automation and rising worker productivity.

Yet since the 1970s, productivity gains have been captured not by American workers, but by the owners of capital.

Real wages and income have therefore stagnated for most workers.

This is especially true for men. While female income has continued to rise – thus gradually reducing the gender pay gap – average male earnings have actually declined over the past half century.

Changes in the fortunes of men and women are also evident in trends in labor force participation. Fewer men are entering the workforce while the opposite is true for women.

Meanwhile, virtually all of the income gains of recent decades have gone to those at the top of the income distribution, thus widening the inequality gap and reducing social mobility.

The chart below shows that the income of males without college degrees has fallen sharply over the past quarter century while the biggest winners have been women with a bachelor’s degree or higher.

The current level of income inequality rivals that of the 1920s and far exceeds the relatively equitable distribution of the middle of the 20th century.

The declining share of income that goes to the middle class has been closely correlated with a declining union membership rate.

In a sign of growing social distress, the death rate among middle-aged white males in the US has risen over the past decade, in contrast with the usual pattern of falling death rates (see red line in chart below).

All of these trends help us understand the success of Donald Trump. Trump draws his strongest support among middle-aged white males who are less affluent and less educated – precisely those Americans who have suffered a loss of relative economic and social status over the past half century. This same demographic group was, relatively speaking, prospering in the 1950s and 1960s. But the manufacturing jobs that supported this prosperity have either moved overseas (Chinese imports alone may have cost 2.4 million American jobs between 1999 and 2011) or been eliminated through productivity-enhancing technological change. The latter trend might have led to rising incomes for those who managed to maintain jobs in the manufacturing sector, except that the returns to capital have risen sharply relative to the returns to labor. At the bottom of the income distribution, an influx of low-skilled immigrants over the past several decades combined with the failure of minimum wage rates to keep up with inflation have depressed wages for the least educated. What few gains workers have been able to eek out have gone mostly to women, who have joined the workforce in higher numbers while also managing modest improvements in compensation (though the gender wage gap nonetheless persists). Globalization has also allowed capital to seek out cheaper labor and higher returns in developing regions, thus undermining the bargaining position of North American and European workers. As a result, private sector unions have practically disappeared in the US. Without unions to provide some direction for working class discontent, a populist figure such as Donald Trump can harness this anger by bashing immigrants and imports.

On a global scale, the following chart situates the American working class within the global income distribution. The income of those at the top – the owners of capital – has grown rapidly as globalization has provided capital with access to cheap labor outside of Europe and North America. Incomes have also grown rapidly in emerging economies – such as China – where previously impoverished workers have gained access to the kind of factory jobs that Americans enjoyed in decades past. The group that has experienced no gains are the workers of North America and Europe. While this group remains well off in both absolute and relative terms, it has fallen behind, over time, in comparison with the highly educated global elite and the rising working class of the developing world.

The brand of populism and nativism that Trump offers working class American males provides no real solutions to the downward mobility that this group has experienced. But until mainstream politicians and parties address the real grievances of American workers, one can expect more disruptive politics.

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The Political Economy of Trump

An unprecedented number of GOP establishment figures have either renounced (e.g., Jeb Bush, Mitt Romney) their party’s presumptive nominee, offered painfully reluctant endorsements (e.g., Mitch McConnell, Paul Ryan, Marco Rubio) or remained on the sidelines (e.g., John Kasich). Criticism of Donald Trump by Republic stalwarts has often focused on his racist and intolerant statements about Muslims, Hispanics and blacks.

But it is not Trump’s racism that rankles the Republican establishment. After all, congressional Republicans opposed George W. Bush’s plan for immigration reform and rejected extension of the Voting Rights Act while at the state level Republican-controlled legislatures have passed voter identification laws that represent transparent efforts to suppress the minority vote.

So while it is politically expedient to distance themselves from Trump’s crude rants, it is not racial sensitivity that is driving the discomfort that Republican insiders feel about Donald Trump. Instead, the problem lies with Trump’s preferred policies toward trade, taxes and spending and debt. In short, Trump is out of sync with the corporate and investor interests that lie at the center of the Republican coalition.

The GOP brand is associated with lower taxes for the wealthy, smaller government, freer trade and tight money. These policies fit the preferences of corporate political backers such as the Koch brothers.

Trump, of course, is a businessman himself. But as a real estate developer, Trump’s interests differ from those of Wall St. or big manufacturers. Unlike bankers or hedge fund managers, developers are borrowers, not creditors. In contrast with manufacturing firms that export goods, real estate lies in the non-tradable sector of the economy. While many businesses and wealthy individuals prefer low taxes, developers of office buildings, hotels and casinos benefit from the public goods created through government spending. Trump’s business interests and his worldview are thus distinct from the business groups that have long held sway within the Republican Party.

Consider money. On Federal Reserve policy, bankers and creditors prefer tight monetary policies that push up interest rates, keep inflation low and strengthen the dollar. Debtors, on the other hand, prefer easy money, low interest rates and moderate inflation, which allows borrowers to pay back loans with cheaper money.

Trump has declared that “I am the king of debt. I love debt.” In contrast with Paul Ryan, Ted Cruz and John Kasich, all of whom have castigated Fed Chair Janet Yellen for keeping interest rates low, Trump has mostly offered praise for Yellen and indicated sympathy for a loose monetary policy.

Indeed, Trump has suggested that this would be a good time for the Federal government to borrow money to fund infrastructure spending because interest rates are so low. More controversially, he indicated that, as President, he would be prepared to cut the Federal debt by negotiating reduced payments to holders of Treasury bills. This is, of course, how Trump himself escaped debt obligations numerous times under the cover of bankruptcy proceedings. Even the suggestion that the United States government might renege on some of its obligations to creditors set off alarm bells among investors who have large holdings of Federal bonds.

Trump’s views on taxes and the size of government are also worrying to Republican leaders and their business friends. While Trump proposes reduced income tax rates – a perennial Republican mantra – he has waffled on whether the wealthy might have to pay more in taxes. In sharp contrast with Paul Ryan, Trump rejects cuts to social security and Medicare. He also calls for increased military spending and, as mentioned above, growing public infrastructure investment. All of Trump’s proposed spending cuts would focus, implausibly, on the relatively small portion of the Federal budget devoted to discretionary spending. Combining Trump’s various tax and spending pledges, the Tax Policy Center estimates that his proposals would produce falling revenues and ballooning budget deficits. In short, Trump is a fiscal Keynesian.

Perhaps the most glaring area where Trump defies Republican orthodoxy is international trade. Calling NAFTA a “disaster,” Trump has promised: “We will either renegotiate it, or we will break it.” Similarly, Trump has called the TransPacific Partnership agreement “insanity.”

Trump’s own business investments lie mostly in the domestic, non-tradable sector of the economy. Trade and foreign investment are tangential to Trump’s principal businesses. This frees Trump to make a protectionist pitch appealing to working class Americans who feel threatened by imports (and immigration). This places him closer to the interests of a significant, but otherwise poorly represented, segment of the Republican base whose economic interests are misaligned with those of the party’s globalized business elite funders.

Among Republicans, a voter’s position on trade is a powerful indicator of their attitude toward Trump’s presidential bid. The force of Trump’s anti-trade appeal is evident in the finding that 89 of the 100 US counties most exposed to Chinese imports voted for Trump in the Republican primaries, while Trump won only 28 of the 100 countries least exposed to Chinese imports.

A recent PEW survey found that while 51% of Americans overall view trade deals as good for the United States, two thirds of registered Republicans who support Donald Trump consider trade deals bad for the country. Democrats are now more supportive of free trade than Republicans, a reversal of patterns dating back to the 1970s. Republican pro-free trade politicians and business must now confront the possibility that Trump has shifted the party’s center of gravity toward a protectionist stance among the base.

Trump voters vary from traditional Republicans in significant ways, as is evident from recent PEW polling.

Trump supporters differ from other GOP voters on immigration, other issues

Donald Trump’s fusion of nationalism, protectionism and right-wing populism has tapped a politically rich vein that will be available for others to mine long after Trump’s own presidential ambitions have been squashed. The political economy of Trump represents a potent challenge to long-standing political alignments, especially, though not exclusively, within the Republican Party.

 

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Current Echoes of Jimmy Carter’s Diplomatic Legacy

(appeared in US News and World Report, October 5, 2015: http://www.usnews.com/opinion/blogs/world-report/2015/10/05/obamas-jimmy-carter-like-foreign-policies-are-his-most-successful)

Barack Obama’s critics have often invoked unflattering comparisons between his foreign policy record and former President Jimmy Carter’s perceived failures. In reality, however, Carter’s diplomatic achievements while in office stand among the most impressive of any American president. As the sad news of Carter’s cancer diagnosis prompts reflection upon his life’s work, the recent nuclear agreement with Iran should remind us of the most important legacy of Carter’s presidency: the lesson that diplomacy works. After all, Obama’s foreign policies have met with the greatest success precisely where he has most closely emulated Carter.

Both presidents rode the White House on a wave of popular revulsion at the costs and failures associated with recent or ongoing wars—Vietnam in Carter’s case; Iraq and Afghanistan in Obama’s case. Both understood that any exit from America’s debilitating and seemingly unending record of military quagmires required a foreign policy that dispensed with threat-mongering and placed diplomacy—even with adversaries—at its center.

Carter and Obama each faced the challenge of developing proportional responses to what had previously been treated as Manichean struggles; against communism in Carter’s era and against terrorism during Obama’s era. Each president sought to make room on the foreign policy agenda for a broader range of issues that engaged American values and interests, including, in both cases, human rights, arms proliferation, energy and relations with emerging powers.

Both stressed diplomacy as an alternative to military intervention and unending conflict. Neither relied upon negotiation alone and both encountered problems that could not ultimately be resolved at the bargaining table. Yet each found success in tackling conflicts long considered irresolvable.

Carter’s record is the more impressive. The SALT II agreement with the Soviet Union capped a dangerous and costly nuclear arms race (while never ratified by the United States Senate, both countries independently abided by the terms of the accord). The Panama Canal Treaty removed potential threats to the Canal’s security, while eliminating a constant irritant in U.S. relations with Latin America. The full normalization of relations with China set the stage for China’s growing integration with the existing global political and economic order over the past 35 years. The Camp David Accords removed Egypt and Jordan as military threats to Israel’s security and the transition to majority black-rule in Zimbabwe, brokered by the United States and Great Britain, brought to an end to a bloody civil war there. The successful conclusion of the Tokyo Round trade negotiations sustained progress toward a more open global economy. It is difficult to think of another president who used diplomacy to better effect in serving major American interests.

In Obama’s case, diplomacy has enabled destruction of Syria’s stockpile of chemical weapons while blocking Iran’s path to a nuclear weapon for at least 15 years. The opening to Cuba creates new opportunities for the Cuban people while enhancing America’s image across Latin America. A successful conclusion of the upcoming global climate change negotiations appears more likely in the wake of the recent joint U.S.-China declaration setting national goals for reducing greenhouse gas emissions. The recently completed Trans-Pacific Partnership trade agreement caps an already solid record of diplomatic accomplishments during the Obama years.

For both Carter and Obama, the bigger obstacles to diplomacy often arose at home rather than abroad. Carter faced massive, well organized and heavily funded campaigns against both the Panama Canal and SALT II treaties, as well as a drum-beat of right-wing accusations that his policies left America unprepared to meet a (mostly mythical) Soviet military buildup. The Iranian revolution and the ensuring hostage crisis sullied Carter’s reputation and may have cost him his presidency, despite the fact that the hostages were safely returned.

Obama has likewise faced heavy domestic constraints, including the Senate’s rejection of his proposed cap-and-trade energy legislation and opposition to the Iranian nuclear accord.

Diplomacy, of course, cannot solve all problems. But it served American interests remarkably well during Jimmy Carter’s brief presidency. All the more puzzling then that our memories of the Carter years are so distorted and his diplomatic achievements have gone so undervalued.

It is to Obama’s credit that he has in important ways drawn upon the positive lessons of Carter’s foreign policy legacy. And as the clock ticks down on Carter’s own remarkable life, it is well that we set aside the unkind myths that have obscured his accomplishments in office and give credit to a diplomatic groundbreaker.

David Skidmore is a Professor of Political Science at Drake University in Des Moines, Iowa and author of Reversing Course: Carter’s Foreign Policy, Domestic Politics and the Failure of Reform, Vanderbilt University Press, 1996.

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Too Many Pigs at the Trough

Chinese President Xi Jinping has made the fight against official corruption a cornerstone of his reign. The Chinese Communist Party disciplined 300,000 officials for corruption in 2015. Hundreds of high-level leaders have been caught up by the campaign.

Among the Chinese people, Xi is enormously popular and his anti-corruption efforts have won widespread applause. Yet Xi’s crackdown has little to do with good government. In The Dictator’s Handbook, Bueno de Mesquito and Alastair Smith point out that dictators survive by channeling private rewards to a coalition of supporters who are essential to maintaining power. Over time, the number of individuals attached to the ruling coalition tends to grow, as does the price coalition members demand for support. We might call this the “too many pigs at the trough” problem.

This may be sustainable if the economy is rapidly growing, but becomes more problematic once growth slows. Because the rents extracted by corrupt officials in fact serve as dead weight from an economic perspective, corruption itself can become a source of worsening economic performance. The costs of paying off a bloated coalition of greedy supporters are considerable: a reduced take for the dictator himself, lagging revenue growth and declining popular legitimacy, the latter necessitating increasingly costly repression.

All of this explains why newly installed leaders move quickly to cull the number of pigs at the trough. By retargeting private rewards only to those whose support is truly essential and reducing the size of payoffs to the minimum necessary to avert defection, the dictator thereby shores up his power position with a smaller and more manageable ruling coalition. Of course, culling the herd means more than simply cutting rewards to non-essential coalition members. They must be jailed or otherwise rendered incapable of retaliating. Ruthlessness toward those unlucky enough to be targeted also sends a salutary message to the remaining essentials should the latter have ideas about combining against the dictator.

Xi’s campaign is reshaping the size and composition of the ruling coalition and the size of the payoffs to remaining members. But as long as China’s political order remains a single party dictatorship, a system for funneling private rewards to member of the ruling coalition will remain essential to its functioning.

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Sex Ratio Imbalance and Chinese Economic Reform

China’s economy is choking on overinvestment in infrastructure, construction and heavy industry (such as steel and autos, both of which suffer from overcapacity). Both Chinese and Western economists argue that China needs to shift resources into the service sector, which remains underdeveloped. Indeed, this reallocation of resources is a central plank of China’s own economic reform plans.

Yet implementation has been slow. Why has Beijing been reluctant to close down surplus steel factories, cut off funding for the construction of “ghost cities,” or slow down the expansion of high-speed rail and other expensive infrastructure projects?

While there are no doubt many factors that play into such decisions, there is one that deserves more attention that it has received: China’s leaders fear the consequences of high unemployment among so-called “bare branches” or young, low-status men who lack good marriage prospects.

China has one of the most skewed sex ratios in the world. For the population under age 15, there are roughly 117 males for every 100 females (the natural rate should be no higher than 105-100). This is a result of extreme gender discrimination favoring males. Female fetuses (identified through ultrasound) are aborted. And young girls are more likely to die of illness or neglect.

With so many more men than women, a large number of men will never find marriage partners. Those least likely to marry are low-income, less educated, low status males. These same men are poorly integrated into communities and make up a large proportion of the internal migrant population that relocates from rural areas to cities in search of work. These males are called “bare branches” in China because they represent endpoints on the family tree.

Research by Valerie Hudson and Andrea den Boer establishes that societies with large and growing numbers of bare branches are at risk of rising crime and civil unrest. This is especially true if inadequate employment opportunities are available for unmarried young men.

How does this relate to China’s slowness to carry out economic reform? Males are overrepresented among Chinese factory and construction workers. Indeed, the proportion of female workers in these sectors is actually declining. On the other hand, females make up a disproportionate share of workers in the service sector.

Some economists believe that China’s official unemployment rate understates the true reality. The rate of unemployment is politically sensitive since unemployed workers are more likely to engage in civil unrest and other anti-regime activities. China’s growth model has actually exacerbated the unemployment problem because infrastructure, construction and heavy industry are relatively capital-intensive, meaning that a given level of investment produces fewer jobs than would be the case were the same investment devoted to service sectors (which are relatively labor intensive). In other words, a greater emphasis on services would soak up more labor overall and reduce dangerous levels of unemployment.

The problem, however, is that the gender distribution of unemployment would shift in ways that heighten the risk of unrest, especially during the transitional period. Most of the jobs added as a result of expansion of services would be taken up by women while most of the jobs lost by curtailing investment in construction, infrastructure and heavy industry would be those currently occupied by males – and especially bare branch males.

Rising employment could nevertheless be accompanied by growing civil and political unrest if the proportion of bare branch males among those who remain unemployed also rises. Alongside other factors, this may help explain why Chinese authorities have been slow to implement economic reforms that they themselves acknowledge are needed for the overall health of the Chinese economy.

 

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Rethinking the Inevitability Thesis about Tiananmen Square

Rethinking the Inevitability Thesis about Tiananmen Square.

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Brief Comment on Study of Variance in Social Mobility Among U.S. States

A recent study shows that social mobility was never has high in the U.S. as perceived, but, on the other hand, mobility has not declined in most states, contrary to common belief. Instead, declining mobility is concentrated among a cluster of states in the U.S. South. This sort of empirical analysis is crucial to sorting out the realities of social and economic inequality in America and devising effective responses.

For example, one thing the study highlights is that low-income children raised in stable, two-parent households have a better chance of upward social mobility. Marriage rates are low among low-income black households; i.e., many single moms. Some people use such data to condemn young black males as poor fathers. Other data, however, show that a big reason black males are not present is that our radicalized system of mass incarceration ensnares a high percentage of young black males, locking them up for long periods in prison, stunting their educational opportunities, limiting their employment prospects after prison and rendering them unable to sustain stable long-term family commitments. As Michelle Alexander demonstrates, this is not because black males are more likely to commit crimes than their white counterparts at similar socio-economic levels, but because of the discriminatory ways in which drug laws (and sentencing) are used to target minority youth. Ditch the drug war and reform the criminal justice system, and one would see major changes (for the better) in rates of marriage and family stability. Leading to greater social mobility, etc. etc. Finally, politicians are waking up to the need for reforms to the criminal justice system, including sentencing (here, here, here).

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