By Professor Andrew Walter. Interim Director, Melbourne School of Government
There was a life-size cut-out of Republican presidential nominee Donald Trump at Philadelphia International Airport when I arrived last week for the Annual Meeting of the American Political Science Association. But there were few live Trump supporters visible on the streets.
Most of the city’s inhabitants seemed more intent on enjoying the summer weather. Tourists were desperately searching for the best place to pose as the more enduring American macho figure, Rocky Balboa, on the East steps of the Philadelphia Museum of Art.
America’s fifth largest city and site of the Declaration of Independence and the American Constitution is more Democrat than Republican territory. Pennsylvania is one of the key battleground states in the upcoming election, but it is likely to deliver Democratic nominee Hillary Clinton its 20 electoral college votes in November.
As for the professional political scientists gathering at the convention centre, Trump as a political phenomenon was a subject of many discussions around the edges of academic panels. The American colleagues I spoke to are largely appalled by his candidacy and see little good that will come from it. Although the consensus view was that he has already alienated too many important constituencies to have much of a chance of winning, most focused on the underlying causes of his unexpected success.
Political scientists are scrambling to identify and understand these causes among a number of complex and interrelated contenders. The same is true for those interested in the outcome of the Brexit referendum, another unexpected political phenomenon that was the subject of a well attended panel last week. A key conclusion of this panel was that elites had lost control of the political process and that voter allegiance to mainstream political parties was now more tenuous than at any time in living memory.
Not everyone is benefitting from globalisation
Political elites are reaping the whirlwind of a series of interrelated forces related to the “new world order” announced at the end of the Cold War in the early 1990s: globalisation, technological change, the emergence of ‘social’ media, and rising socio-economic inequality. The Global Financial Crisis (GFC) of 2008-9 further compounded a stagnation in the incomes of most households in most advanced countries that was already emerging. The United States has performed more poorly than most advanced countries as regards long term wage growth for relatively unskilled workers, which slowed sharply after the mid-1970s, but it is hardly alone and may, as ever, provide a picture of the imminent future for many.
In the November 2015 survey of American households by the US Federal Reserve, 31% of respondents reported that they were either “struggling to get by” or are “just getting by.” That’s about 76 million adults in the most successful large economy in history.
The response to the GFC has helped elites
It is not just stagnation in real incomes that has led many Americans to believe that they are being left behind by political and economic elites. The policy response to the GFC also led to a sharp divergence in the wealth of American households.
Average house prices fell sharply from their peak in 2006 in those parts of America where speculative bubbles driven by rapid mortgage growth emerged. Since housing wealth constituted the largest asset for lower income households, there have been sharp declines in the net wealth of poorer American citizens.
The Congressional Budget Office also reports that between 2007 and 2013, the wealth of families at the 90th percentile fell by only 7%. The continued recovery of financial markets since 2013 means that the very wealthiest American households (the majority of whose wealth is held in the form of financial assets such as stocks and bonds) are probably now well ahead of their 2007 position. This compares with wealth contractions over 2007-13 of 44%, 39% and 23% for families at the 25th, 50th and 75th percentiles respectively. Average net wealth for families in the 26th to 50th percentiles was US$36,000 in 2013, lower than in 1989 when the survey began. Net wealth for the bottom 25% of households is also sharply lower, at negative US$13,000 by 2013. So much for the American dream.
There is a growing academic literature on how the expansion of credit over the past century in advanced countries essentially involved a massive expansion of household mortgage credit. This “democratisation of credit” had powerful consequences for the middle and lower-middle classes, who increasingly began to purchase rather than rent their accommodation. The pre-crisis subprime mortgage lending boom was thus an extension of a long term trend, whereby credit became the means by which those who were being left behind by real wage stagnation could cling to the American dream by purchasing a family home (and, of course, buying a car and other consumer durables).
They took the risk, and they have since borne most of the cost of the destruction of housing wealth that has ensued. So, it might be said in consequence, are mainstream politicians.
No wonder these people are angry. From their perspective, the bailouts of Wall Street firms and quantitative easing by the Federal Reserve – which have done a wonderful job in boosting financial market asset prices – have restored the financial position of the elites but done little or nothing for the rest.
Trump has capitalised
Enter Donald Trump, who was able to conduct what amounts to a political coup in the political vacuum that had become the Republican Party – a party which, like its other mainstream counterpart on the centre-left, had become particularly adept at justifying policies that primarily benefitted economic elites.
Few American political scientists think Trump can win in November, but they also see Hillary Clinton as an unusually weak and vulnerable candidate, so they are not yet counting their chickens. Even fewer were confident that a second President Clinton will have the authority and support from the most divided Congress in decades to devise and implement policies that might begin to grapple with the deep socio-economic trends brought into sharp relief by this election.
Main image credit: Get Directly Down/Flickr