Trump: Causes, Risks, and Lessons

There are many causes to the Trump victory, as well as domestic and foreign risks. We explore the broad set of issues and challenges facing US society going forward to dig deeper into what lies behind this and what lies ahead.

Michael Moore called it and essentially nailed it before it happened. There are social reasons and consequences as well as risks to consider. Trump sniffed the opportunity: general discontent, social and racial tension, income inequality, and angry ordinary workers ready to jump on board with extreme points of view. Like a good business person, he saw the "demand" and levereraged these items of discontent in key states, which were hit hard by globalisation and global competition from rising production power houses such as China, India, Mexico, and Brazil, as well as technology and automation. As I wrote in my post about the end of jobs, ordinary workers without a specialisation are easy to replace by machines or cheap Asian/Latino labor. This was exacerbated by the 2008 global recession shock, exposing ordinary people even more to economic risk and uncertainty.

What, exactly, happened? It seems a convergence of factors played out:

1. Low voter participation, especially from Democratic-leaning voters who thought to themselves that Clinton was a sure thing, given polls and probabilities.
2. A throw-out-the-baby-with-the-bath-water type of "hunger for change at all costs" that simply gave an anti-establishement vote, going against Clinton and Big Money and hoping for some radical "change" that voters themselves are not totally sure what it should be, other than "kick those latinos out and bring back jobs that China took from us" type of garage shop discourse.
3. Economic difficulties of key swing voters in swing states that were underpriced for some time by policymakers in Washington.
4. Mounting racial tension exacerbated by income and wealth inequality.
5. A general breakdown of decency, respect, and integrity in the public debate, even with the highly respectful, decent, and nuanced Obama presidency.

​The combo of causes is long and complex. We have an increasing "the ends justify the means" political landscape. Much more could be said, of course. For example, the low official unemployment rate masks a deeper issue that is exposed when you look at the employment rate, income inequality, and wage growth for the vast majority of workers.
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I will discuss risk elements, starting with what I see as lowest risk and moving on to discuss the more serious risks...

Direct economic risk
Generally speaking, I am not overly concerned about economic risk for trading partners or other countries. There is a Congress, a Senate, and a host of institutions, laws, and social norms that will prevent any major redesign of NAFTA or any other trade agreements and will also prevent excessive quotas, import taxes, etc.

The short term risk is on Mexico, because the country will have to increase interest rates due to the falling Peso caused by the Trump presidency, and this could bring them to recession in 2017-2018. This is very possible, but it is not a major long term issue.

International geopolitical risk
Obviously, Trump is not a savvy and astute politician who is used to handling intelligent and highly strategic/manipulative players like Poutine in Russia, Chinese officials in general, or EU seasoned politicians. There is a risk of a general breakdown of political decency in the global sphere such as what we saw on the domestic front, as Obama so clearly exposed due to the apparently adolescent "tantrum"-prone Trump, who risks breaking down political global order and protocole. That said, I do NOT think the main risk is on other countries, as I will discuss shortly.

Bush with his Cheney-Rumsfeld "associates" DID essentially invade the entire Mid East, brought everything down, leaving chaos and a political hole that is being filled by worse-than-before crazies, while at the same time adding incredible amounts to government debt. I actually do not fear this under Trump. Clinton seemed more inclined to pick a fight with Russia than Trump, and for all the missings of democracy in Russia, perhaps the right strategy is that of the saying "keep your friends close and your enemies closer."

Environmental risk
The total denial and rebuffing of any environmental issues or challenges by Trump AND the Republican-controlled institutions is a direct and obvious threat of backing off from international treaties and moving forward on the front of energy efficiency and cleanliness. This may unfortunately become very real very fast. It is less direct and "hurtful" in visible ways, but it can have a high price tag in the long run.

The social safety net
THIS is where my concerns go to the next level. All institutions are Republican, and the Supreme Court will also have a majority of Republican judges, and you have a crazy, self-centered lunatic as President. I know that not all GOP members are crazies. Not at all, actually. Many Repuplicans are very decent individuals and have good judgement, as History has shown. But the planets are aligning in scary ways, and the ordinary folk who think Trump will watch out for them are in for a hell of a surprise down the road... There will obviously be no increases in high-income taxes of any kind... Yet there HAS to be... because the USA will eventually have to attack the fiscal problems of the Federal government, especially starting in 2020.

The real danger is that the long-dated dream of the super-minimal-state crowd will actually happen: bring the government debt up to crisis levels, then use the fiscal crisis to cut in Social Security, Medicare, Medicaid, etc. (No tax hikes of any kind, of course). In short, use the fiscal tension to rip the social safety net and create a survival of the richest society, like they have in Latin America.

As I explained in my post on taxing corporations and the rich, taxing the rich in the USA DOES make economic sense (contrary to corporations) and needs to happen at least a bit. Taxing institutions only creates additional wage depression and job losses in the long run. But generally, I do not see any form of tax increases of any kind under the political setup as it is, and the USA DOES need extra tax income, because the State is already quite minimal and would be hard to cut even more, to a point that it is hurting itself by low public infrastructure quality and quantity and a gradual fall in the accessibility to quality education for all, which is one of THE issues for the US today, especially if it wants to re-establish equality of chance for all, as Trump so forcefully says (what a cynical joke).

Immigration and immigrants
For sure, the number one losers in this whole thing, those who are directly exposed to risk, are immigrants and all "non-white" people, which of course is a LOT of people. Policies will change, making it harder for immigrants to integrate society, which is already quite hard. It is one thing to limit immigration, that is fine and is done by all countries, even my own Canada. But it is another to start making their lives hell and, more importantly, creating a social norm of racism that feeds existing anger and hatred.

Decency and social tension
The last item in the risk list, the one I am most worried about, is one that is related to general decency in social interactions, racial tensions, and class warfare that could come to a breaking point. When the LEADER of the entire nation has NO respect for women, Muslims, and Latinos, and brags about it openly, you have a BIG| problem. This "example" creates a "social norm" of acceptability, and those who were kept in check by the stigma of being impolite and disrespectful will now feel empowered to express their more radical views and behaviours boldly and openly, since "the Number One" does it... and THIS, combined to the potential breakdown of the social safety net, income inequality, wage stagnation, and political polarity can bring the USA to a dangerous breaking point between the (roughly) half of the country that put this guy there and the other half.

Even if they are, in the end, not "kicked out", immigrants in the US will have an increasingly harder time and will be exposed to daily agressions, either explicit or psychological and social. The poor and the middle class, in the trenches of daily life, will feel this quite a bit, and it is a scary thought for the general social "vibe" and peace. France, anyone? I do not think there will be a wall built between Mexico and the USA, but the damage is already done.

Lessons
There are a myriad of lessons to get from all this, but I see 4 broad lessons to learn from this event:

1. Education is paramount to social peace and long term social stability.
2. Income and wealth inequality matter.
3. Immigration policies are of supreme importance.
4. The State and its institutions are important.

These sound "trivial" and they are, but bare with be and keep reading...

Education
When I speak of "education" here, I mean ALL education, from 5 year olds to phd students, but perhaps even more for the 5-18 age bracket, during which critical thinking and judgement are shaped through family, friends, and schools. Education matters because it acts as a glue that makes the social fabric "stick." It is where critical thinking should be encouraged, thus allowing open, respectful exchanges of ideas in a clear and organized way, challenging other opinions and our own. I say this with NO bias, as I very well know that some schools and universities in all countries of the world tend to "brainwash" students on either the left or the right, feeding false claims on both sides, and ALL these are unacceptable because they ultimately bring bad social and economic policies. Two negatives don't give one positive. The education system must provide the intellectual tools for people to develop judgement, decency, and a "sense of democracy," which goes way beyond voting and "expressing your opinion" on your facebook page This allows the aggregate vote to represent, on average and in the long run, a collective intelligence that puts checks and balances on crazies and extremists.

When you look at upper-level politicians in countries where there is high inequality alongside low-volume and low-quality education, a clear picture emerges: a weak and corrupt State, inept leaders, a bloated and inefficient public sector, and high taxes without the public services to show for them. This is Latin America in a nutshell. In Latin America, you have VERY good schools and universities, the only trouble is: they are incredibly expensive! So who goes there? You know who... and the public sector? A few institutions are well known for high quality but can't meet 10% of the demand, and the vast majority is shitty education and everyone knows it, thus putting a very low value on the "public sector" brand.

The USA is headed to become a failed state, in which only the rich can provide a high-quality education to their children, thus giving these an edge and exacerbating inequality of chance AND of outcomes, thus feeding the insider-outsider feedback loop and continuing the frustrations of those same people that put Trump in power.

Quality education is THE key to everything. Small classes, low dropout rates, highly qualified and nuanced teachers, lots of "outside-of-class" help and support, etc. In the long run, this brings optimal voting, sound institutions, good policies, and decency in the general population and social interactions.

To finance a high-quality education system that is HIGHLY ACCESSIBLE to ALL, it takes lots of State spending, hence lots of taxes. High taxes are only acceptable if the population senses it is not getting skrewed and cheated by its leaders.

To me, Trump as President is a general failure of the entire education system, especially the public sector and the basic education system.

Income and wealth inequality matter
At one point, even if the increases in upper-incomes are "economically logical" due to globalisation and technology, the general population starts to feel that the "capitalist game" has an excessive cost relative to its benefits. This may only be a perception, but perceptions matter. Capitalism has generated unbelievable prosperity for the masses relative to any other time in History, but it also comes at a cost: economic uncertainty. The ups and downs of the business cycle create unemployment and financial risk and the general requirement to "work for a living" means you can fall out of the loop due to sickness, old age, or any other bad luck (or laziness, too, of course). The stagnation of middle income wages competing for demand on assets with the super rich creates tension and frustration. At one point, you come to a breaking point, and the whole thing goes down. This takes several forms: Trump as President, populism, Nazis, commies, protests and rampage, Brexit, etc.

If the USA wants to truly be an "equality of CHANCE" society as it so boasts, it needs more public spending on helping those who struggle to access those "chances" due to costs of education, wage stagnation, and health problems and healtcare costs that cause personal bankruptcies and debt. Such public intervention can indeed MAYBE (maybe) even sacrifice a few percentage points of growth, as Robert Solow once said. It's a cost-benefit analysis. No doubt the USA on average would not want to have a Scandinavian economy, but they could perhaps lean a bit more towards Canada and see the benefits that this could bring in the long run: social peace, low crime, equality of chance, an educated population, low racial tension, and more.

Immigration policies
No country can simply freely open the gates and invite everybody in. It would flood the whole system and create chaos, unemployment, institutional breakdown, and social tension. You need a well-articulated policy that facilitates and speeds up the process of integrating society and the labor market. ALL countries have major issues on this front and ALL under-invest by several orders of magnitude on things like language courses, social accompanying and "coaching" by domestic peers, upgrading and education of skills for immigrants, etc. Scandinavians are no example here, as these countries have the highest immigrant unemployment rate differentials relative to the domestic population of the world. The USA of Trump seems to simply have the policy of "stay out", which is not optimal in any dimension, either economically or socially.

The State
The State is important. Rule of Law is important. Decency is important. When the population allows and encourages a breakdown of State institutions and decency by voting for arrogant demagogues such as Trump, you know you have gone too far down the state-failure rabbit hole, and it is time to redirect. The tone of the political debate in the USA has turned toxic and "showbiz-like" and is not prone to nuance and intelligence. Soundbites only please. I often say to my students: as Eisntein said, "make this as simple as possible, but not simpler." At one point, elites and qualified people must make the pedagogical effort to extend a hand, explain, and listen... even to those "deplorables..."

Conclusion
Siver lining: if all these risk elements play out, the downfall will be so brutal that even anti-Obamas will miss him badly! Sometimes you need to go through your midlife crisis and drive red Ferraris for a while before you return to some form of wisdom and nuance, once you realise what really matters and how to get it. Perhaps this is where the USA stands now. Lets hope the wisdom and vision of the Founding Fathers are not thrown out with the bath water. Perhaps none of these risks will materialize, and we are all just worrying too much... but lets keep an eye open...