A Leap into the Dark

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Like most people, I was surprised by the election of Donald Trump as forty-fifth President of the United States. But I was not as shocked as some, because I had taken seriously Nate Silver’s warnings over at fivethirtyeight.com. He had Trump’s chances in the 30-35% range last week, and he had also warned specifically of the possibility of his winning the electoral college without winning the popular vote. (Trump is the fifth president to do so; John Q. Adams, Rutherford Hayes and Benjamin Harrison did it in the 1800s and George W. Bush did it in 2000.) After Trump’s sexual aggression scandal, I doubted that he could get above 40% of the vote, but that changed after the Comey letter brought the Clinton email controversy to the forefront again. That’s an example of a kind of political butterfly effect; Comey flapped his wings (or jaw) and influenced the political weather around the world. Another example is the election official who approved a confusing ballot format for West Palm Beach (known, appropriately, the “butterfly ballot”), which probably cost Al Gore the state of Florida and the 2000 election. That almost certainly gave us the Iraq War, and maybe the financial meltdown as well.

Winners and losers

Identifying the main losers in this election is not hard. Undocumented immigrants lose any path to citizenship and any protection against deportation, even if they have been in the country since childhood or have American-born children. African Americans lose federal government support for their struggle against voter suppression, racial profiling and mass incarceration. Women lose the best opportunity they’ve ever had to elect the first woman president. Foreign businesses will probably lose some access to U.S. markets (and also vice versa). Environmentalists will lose presidential support for the battle against global climate change, which our new President regards as a hoax. People all over the world may lose from that one. The list could go on and on.

Who won? Well supposedly, the biggest winners are supposed to be the working-class men displaced by the loss of manufacturing jobs due to deindustrialization and globalization. Trump promises to bring back their mining and manufacturing jobs. Although most economists are dubious about that, there is a lot of commentary across the political spectrum that something should be done to create more economic opportunity for those folks.  One good thing that may come out of this election is a more serious national effort to create some good jobs, especially by investing more in infrastructure projects. That has at least as much support from Democrats as Republicans; in fact, it’s something that President Obama would have done by now if he could have gotten more Republican cooperation.

A Trojan horse?

That last point raises a troublesome issue about the Trump victory. In many ways, it’s a victory for the wrong party! The fate of the struggling working class is now more securely in the hands of the party that has traditionally been least supportive of their interests. Donald Trump is many things, but Franklin Roosevelt he ain’t. How did the mantle of working class champion fall on his shoulders?

Trump has actually changed his party affiliation many times over the course of his life, probably to help him in his business dealings. (He is fond of saying that he knows how corrupt the system is because he’s been so involved in it.) He had to run for president as a Republican, since his views about immigrants, African Americans and women are anathema to Democrats. Although he may have gotten his margin of victory from disenchanted rust-belt Democrats who crossed party lines to vote for him, the bulk of his support came from the large majority of registered Republicans who just supported the nominee of their party, as they supported Mitt Romney in 2012. The party is overwhelmingly white, but not particularly blue-collar. Those who are blue-collar came out strongly for Trump, but most of the more educated and affluent Republicans voted for him too. The small-business owner feeling burdened by regulation, or the evangelical Christian upset over abortion, may be angry, but their anger is not the same as that of the displaced manufacturing worker. Many conservative agendas coexist within the Republican party.

By making his cause the Republican cause, Donald Trump may have made himself into a kind of Trojan horse: He looks like a champion of the working class on the outside; but open him up, and out comes a horde of economic, social and cultural conservatives. The economic conservatives identify with the management and ownership class, not the working class, and they believe that economic benefits trickle down from the top.

Trump and the Republican Congress

The Trump victory has also reaffirmed Republican control of both houses of Congress, although Democrats made some small gains. Although Trump was not the first choice of the Republican establishment, I expect more harmony than discord between him and Republican lawmakers.

Congressional Republicans held open a Supreme Court vacancy all year so that he could fill it, and they should be happy to confirm his choice. Trump has promised to appoint justices similar to Anthony Scalia, which will insure that the Roberts court will continue to be the most pro-business court since at least the 1940s. For one thing, their decisions have made it much harder for workers and consumers to bring class action suits against businesses.

On the legislative front, one of the first orders of business will be repeal of the Affordable Care Act. Who will be hurt the most? Not the elderly, who have Medicare; not the very poor, who have Medicaid; and not the wealthy, who can afford private insurance without government subsidies. The act was aimed especially at people above the poverty line but below the median income, exactly where most white people without college degrees fall. Unless Congress comes up with some awfully good alternative, repeal will hurt many of the very people Trump has promised to help. That’s why true friends of the working class like Elizabeth Warren staunchly support universal health insurance, vigorously oppose Donald Trump, and are disliked by most Republicans. Don’t be surprised if Trump and the Republican Congress also try to eliminate the Consumer Financial Protection Board that Warren fought for.

One of Trump’s promises is to scrap or renegotiate trade agreements. Yet by voting Republican, Trump’s working-class supporters are keeping in power the lawmakers who have most supported those agreements, although recent Democratic presidents have supported them too. That is one issue where President Trump and Congress may disagree, and he may have trouble reducing the foreign trade that many American businesses rely on for customers, laborers and components. But when it comes to domestic economic policy, Trump’s positions are similar to those of the Romney-Ryan ticket: more tax cuts for corporations and the wealthy; fewer regulations to protect consumers, workers and the environment. In other words, more of the same policies that helped produce the greatest economic inequality since the Gilded Age.

The working-class Democrats of the rust belt who crossed party lines to vote for Trump could easily end up with many of the policies they voted against when they helped defeat Romney and Ryan in 2012. If so, they will have been had. They can join the casino investors and Trump University students as victims of Trump’s grandiose promises. Or I could be wrong, and Trump will magically transform the Republican Party into the party of the working class and America into a more egalitarian society. Want to bet on it?

The view from Wall Street

And speaking of betting on it, what do the Wall Street stock bettors think? The markets dislike uncertainty, we are told, and for a moment markets around the world seemed spooked by the prospect of a Trump presidency. Then the mood turned more optimistic, at least in the United States. Investors seem to like the prospect of corporate tax cuts and fewer regulations, which should boost short-term profits. Bank stocks did especially well yesterday, amid talk of possibly repealing the regulations put in place after the financial crisis. (Alan Greenspan, whose lax regulation as Federal Reserve chair is one oft-cited reason for the financial crisis, has reappeared to argue for such repeal.) Wall Street also hopes that Trump can make good on his promise to accelerate the rate of economic growth.

I don’t try to predict short-term stock fluctuations. I generally think that investors ought to keep at least a portion of their portfolio in stock all the time, as long as they mitigate risk by being well diversified. I do believe, however, that the Trump presidency increases the long-run risk to the domestic and global economy. I do not see in his ideas any new formula for long-term growth, and I do see more risk of increasing income disparities and environmental degradation. The heightened uncertainty and risk makes stocks less valuable to me than they were last week, no matter what the market says at the moment.

 

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