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President Donald Trump: This Chart Tells You Why It’s Possible

Business, Company Strategy, Economics, US
By John Richardson on 07-Oct-2015


By John Richardson

PEOPLE are scratching their heads over the sustained popularity of Donald Trump and Bernie Sanders – the two most-prominent “populist” candidates for presidency of the US.

But nobody should be the slightest bit surprised that Trump and Sanders are doing so well, given the failure of mainstream politicians to provide solutions to the problems faced by the vast majority of American people.

The above chart shows that median US incomes rose from $18,000 in 1971 to a peak of $31,000 in 2000 as the eldest Babyboomer reached 54, whilst the total population rose from 205 million to 280 million. Since then, incomes have plateaued and were still below 2000 levels in 2014.  This once again underlines that the Boomers were the richest and biggest generation in history, and that their spending has yet to be replaced.

And as Edward Luce wrote in Monday’s FT:

Real median household incomes remain stubbornly lower than they were in 2008. In some sectors, such as manufacturing, both jobs and wages are declining. There is little sign of America’s widely forecast manufacturing renaissance.

The official jobless rate has dropped to 5.1%; yet, if the labour force were as big as it was in 2008, the rate would be almost double that.

The widely held assumption is that come 2016, the fundraising ability of establishment candidates such as Hillary Clinton and Jeb Bush – along with their ability to draw in Super Delegate votes during the nomination process – will signal the end of the populists.

But what if by then the US is back in recession, which I think is perfectly possible? This recession may then be followed by the world as a whole being dragged into a new Great Depression as a result of today’s deflationary spiral. We could then end up with a populist candidate actually being installed in the Oval Office – and maybe also in the Elysee Palace following the next French presidential election in 2017.

How do the mainstream politicians avoid this happening in the case of the Oval Office?

They have to first of all get the Fed to abandon even the suggestion of further quantitative easing. This needs to be followed by confronting voters with the reality that the retirement age will have to be raised with, in parallel, implementation of policies that tackle income inequality.

On this latter point, I worry that the establishment candidates would end up losing much of their Wall Street financial support if they even attempted to tackle income inequality. The problem is if course if you even so much as quietly mutter the phrase “income inequality” in the wrong circles, panic ensues about tax increases and closing tax loopholes. This raises a quite plausible Catch 22: Without Wall Street financial support, no establishment candidate can afford to a US election campaign, but with that support, they might end up losing the campaign anyway.

There is also the perception at the top of the economic pile that all is well with America, which was perfectly illustrated by last week’s Economist when it wrote:

America’s clout is increasing. The country has demonstrated an astonishing capacity to dominate each new generation of technology. It is now presiding over a new era based on the cloud, e-commerce, social media and the sharing economy.

Facebook and Google do a majority of their business abroad, and that share is rising. When Microsoft was at the height of its powers in 2000, it made less than a third of its sales overseas. American firms now host 61% of the world’s social-media users, undertake 91% of its searches and invented the operating systems of 99% of its smartphone users.

But these IT capabilities will not, simply cannot, solve the crisis of America’s squeezed middle classes because these types of service industries don’t tend to employ enough people.  And even if enough new employment was created, it seems unlikely that that these new jobs would pay sufficiently good wage given the way that US companies are incentivised by “shareholder value”.

For the US chemicals industry this goes to the very heart of the demand issue.  Rich people by themselves do not buy that many chemicals because there are not many of them. So in order to significantly boost US chemicals demand, which for many years now has stagnated, you have to reduce the squeeze on America’s middle classes.