From TPM Reader AJ …
Twenty-two year reader here. I came back for a visit today looking for some astute commentary with grim humor, but there’s none to be found — which is appropriate, given the circumstances.
Last night, and like many others, I felt ill upon realizing that this was the new political reality: an unabating descent into authoritarianism and autocracy. As a lawyer, I cannot imagine what is going to happen to our federal judiciary — both the Supreme Court and otherwise. I know that my illness has become a chronic one. I know that it won’t go away, and it may even result in my/our demise. Nevertheless, I feel oddly calm.
More concretely, in analyzing the election results, I want to offer the following thoughts
The root cause of the Democratic collapse really is the disparity created by unconventional monetary policy — and especially quantitative easing, the reduction of interest rates via the Federal Reserve’s purchase of government debt, reducing the cost of capital at the middle and long end of the yield curve. Broadly speaking, the policy was adopted in 2008 during the Great Financial Crisis, and again early in COVID in order to bring stability and liquidity to the credit markets and subsequently to stimulate growth by making credit cheaper.
Sounds good enough, but the visible result of this policy wherever and whenever it has been implemented by a central bank has been very high financial asset prices and obscene levels of disparity. Look around you: Anything that can be bought on credit has become incredibly expensive: stocks, bonds, real estate (particularly in large urban areas where people own a lot of stocks and bonds), technology company valuations, speculative assets like cryptocurrencies — even education, in the United States.
Consequently, the threshold for entry to the 1% of American households is a net worth of around $16 million. In places like Beverly Hills, Aspen, Manhattan and Palm Beach, there is a liquid market for homes above $20 million (!). As one metric for compensation that is tied to these high financial asset prices, last year profits per equity partner at about 15 law firms were above $5 million per year per partner. As for the working people, they benefited from little to none of this. Rather, inflation in goods and services was greatly accelerated by the two rounds of COVID stimulus and the amount of government deficit spending since then — over 6% of GDP.
The election results are a natural reaction to the amount of disparity that has been created in our society by the above policy measures. Rich people own lots of equities and real estate, and have never been wealthier with the stock market and home prices at these levels. Those people are disproportionately 65+, college educated and white. Contrary to expectations, Harris improved her margins with these people. They are generally doing well.
Meanwhile, everyone else has suffered immensely in this economic environment. Especially young people, Latino people, Black people — they are far more likely to be in the approx. 60% of Americans who do not have a brokerage account and do not own any real estate. Worse, home prices are stratospherically high, and rents escalated significantly post-COVID almost anywhere but San Francisco. As we know, inflation in the cost of day-to-day goods and services has escalated. Worse, for the working class, a large supply of illegal immigrant labor has also impaired their ability of those workers to obtain large wage increases consistent with inflation. In the results we have right now, two of these groups have trended away very sharply from the Democratic Party — they’ve gotten none of the benefits and all of the burdens of unconventional monetary policy.
So what’s the solution? Overnight, once results became clear, the market started discounting the effect of Trump’s stimulatory policies and the cost of credit began to spike. It’s a good sign that higher rates are ahead. In my mind, that higher cost of credit is likely to filter throughout the economy and cause a serious recession. During his term, either Trump chooses to raise interests rates to quell inflation and economic growth craters, or he removes the independence of the Fed (à la Erdogan), keeps rates lower and inflation spirals out of control. It’s one or the other; there’s no third option. The mass deportations and tariffs on imports planned are also expected to have the effect of driving inflation much higher by raising the cost of labor (which is passed along to the consumer) and by acting as a tax on everyday items, respectively. In short, I fully expect a serious economic meltdown in the next year or two, accelerated by Trump’s marquee policies. Already we are seeing a very low volume of home sales and less than robust job growth due to the high cost of credit.
It is essential that the Democratic Party tie any recession in the coming years to the Trump agenda, and remind the American people that Trump has sold himself as the person who promised to fix it. To hold him completely responsible for any policy failures. My guess is that he will have, by far, the worst economic performance of the past 15 years during his term. If so, it would be in diametric opposition to voter expectations.
I can’t tell you how shocked I was to hear my Latina housekeeper — herself possibly undocumented — tell me how much she adored Trump, and how her three daughters all voted for him (!) because he will “make the economy improve.” Consistent with Lakoffian theories regarding political reasoning, my housekeeper’s level of understanding of and attention to politics is what most voters have. We cannot simply message policy at a sophisticated level; we need to message at a basic level too. The Democrats have traditionally been bad at this — HRC was thought to be especially so. Anticipating policy failures and tying them to Trump and the Republican Party are crucial to breaking the authoritarian fever that has come over our electorate.
Harris closed her concession speech by saying that it is only in the dark that we can see the stars. I agree. Playing our cards right now, we can lay a foundation for a great revival of left-wing politics in the United States if we build the messaging and information environment that communicates, on a simple level, and ancillary to other interests that young men and Latinos may have, the themes that need to be communicated to the electorate about how Democratic policies are different, and how they are working to help you.
