According to the editorial board of the New York Times, America faces a looming catastrophe if Donald Trump is elected president of the United States. The Times' editorial board is not alone: media elites overwhelmingly see an impending crisis if Republicans win the White House. Why? Because the verdict of these elites is that a broad swath of the Republican Party is morally blind, intolerably biased and deplorable, at least by their standards.
The other political side sees a broad swath of Democratic elites in comparatively stark terms: a point that Ross Douthat makes while arguing that Donald Trump is no solution. Were it not for the fact that national polls seriously under-estimated the Republican stealth vote in 2014 Senatorial races, one might see Douthat's fears of a Trump White House as merely a touch of paranoia. After all, the U.S. presidency in 2016 will be determined by an electoral college outcome that leans solidly toward Clinton, not a popular vote that could possibly turn to Trump. Furthermore, even if Trump were elected, institutional safeguards would truncate his powers and limit much of his political legacy to words. But this is not the whole of the concern. As explained by New York Times writer, Frank Bruni, what terrifies him is whether the political terrain -- which he no longer recognizes -- is navigable from here.
Bruni is not alone is sensing that the main issue is whether the basic functionality of the American system will be reliable from here. This is something that the stock market has not yet priced in. During the presidential race the headlines penned by pundits have expressed ad hominem arguments about the leadership defects of Trump and Clinton. The larger issue, however, is economic, as no presidential candidate can be conjured with sufficient tools to deal with the economic problems that lie ahead. Thus, each presidential win in the next several match-ups may prove to be a one-term invitation for the opposition party to take the presidency in the following election.
The View from an Economic Top is not Pretty
Consider the economic challenges that loom. While Barack Obama had the good fortune of being elected near the bottom of an economic cycle, the presidential winner in 2016 will likely be elected near a top that will be difficult to extend. The recovery has been helped by a massive inflation of the global money supply. In most parts of the world the money supply inflation has been partitioned from the real economy, thus allowing asset values to rise without putting excessive demand pressures upon real world supply. Globalization aided this phenomenon by moving large chunks of global production to low-wage, high-efficiency parts of the world.
The world's central banks have accelerated globalization's advance by dropping their interest rates to unsustainable lows while loading their balance sheets with securities that were damaged by the previous downturn. Now, central banks are low on stimulus ammo. Simultaneously, the paper assets they hold reflect prices levitated to precipitous heights, especially in leveraged commercial real estate. Since the existing recovery is predicated upon asset appreciation instead of a healthy broad-based economic expansion, any damage to business or consumer confidence could bring down the house.
Meanwhile, under-investment in crude oil infrastructure for the last two years is promising much higher oil prices a couple years down the road. The same goes for some important metals and other raw materials. With monetary stimulus on hold, and fiscal stimulus approaching, higher CPI inflation is likely to emerge during the next several years, possibly doubling the current level. Higher inflation means lower bond prices and damage to the investment portfolios held by central banks.
As speculative fever relents in the face of higher interest rates, elevated housing prices in coastal metro areas will likely cool. People who spent too much on housing will adjust by reducing their discretionary expenditures. Simultaneously, baby boomers who put off retirement in the 2008-2014 period because the economic downturn will begin to retire in larger numbers. Higher federal deficits will result because of entitlement payments. Another result will be the continued growth of demands upon the healthcare system, thus draining the economy of support for other sectors. Meanwhile, globalization will continue to suppress wage growth for most Americans. The result will be stagflation: a recipe for conditions that undermine presidencies. Jimmy Carter's years in the White House are a case in point.
Winning in 2016, while recalling 1928
Whichever party wins the White House in 2016 could find itself unable to make good on its vision and promises, reaping a whirlwind of difficulties instead. A historical precedent exists. In 1928 election the Republican presidential candidate, Herbert Hoover won handily by taking 58 percent of the vote cast. But the stock market crash of 1929, followed by the Great Depression, put Hoover's party in the political wilderness for a long time thereafter.
The economic set-up in 2016 eerily overlaps that of 1928. While there are important differences, today's economic complications are wider and deeper than those of Hoover's time. Fortunately, we have a plentitude of social safety nets and institutional devices to buffer downturns. Unfortunately, we've recently tapped out most of our monetary resources in dealing with the financial crisis of 2008 and its aftermath.
The political party that loses in 2016 will find some shelter from the public opinion storm, getting its chance at problem solving in 2020. But it is destined to fail as miserably as will the party that wins in 2016. There are no solutions in sight as long as the economic architecture of the world depends upon unsustainable growth to fuel asset appreciation, which in turn helps presidents fulfill political promises to extend the entitlement state. Better days are unlikely until the political system is strategically overhauled, the social environment rebooted, and the financial architecture extensively redesigned.
Lessons Learned from Political Change
When Ronald Reagan was elected to the U.S. Presidency in 1980, the U.S. was still enmeshed in a Cold War with the Soviet Union. Reagan and many Americans saw the U.S.S.R. as a formidable communist foe and military power. Yet, just twelve years later the Soviet Union was an artifact of history, supplanted by a Russian federation and political autonomy for newly formed centripetal nations. Who could have imagined in 1980 that the U.S.S.R. would be in pieces in just a dozen years? The changes occurred through a set of political transactions that brought shock and awe. Many of the executive, legislative and judicial developments of the preceding twenty years evaporated as the new system took hold.
Something different but with significant overlap could transpire here in the U.S.A. A good portion of what the federal government has put in place in the last sixteen years could be gone in another twelve. Those who are concerned that the federal policies enacted in this era are here to stay can simply look across the ocean to see why, even in our times, no such suppositions are warranted. Indeed, the cultural, ideological and political conflicts that America is experiencing at this time are greater than the ones that shook the Soviet Union and toppled that system. There is no reason to assume that we are exempt, especially since Federal Reserve policy, wealth concentration, political polarization, and aggressive policy centralization is straining the ties that bind.
When we finally get a full-scale reboot of the economic system (perhaps around 2028), it will likely fail within a few years. To get things right will take a bipartisan spirit and respect for earned merit that neither the Left or Right could currently tolerate. There is simply too much excess and fantasy built into the system: privilege of station, undeserved political and corporate power, unmerited income and wealth, irrational subsidy, imprudent redistributive largesse, and destructive social policy that benefits discrete interest groups. The specter of uncertainty and the fear of the other side's insatiable greed and lack of objective moral introspection will cause people, high and low, to guard their piece of injustice's largesse. In sum, it will take desperate conditions, perhaps in the 2028-2035 period, to move the world forward on a sustainable basis. But don't lose hope. The great mystery of real progress is how new joys are born from sorrows. Discouraging circumstances teach important lessons we seldom learn in other ways.