A Trump Presidency begins

There has been much concern, both inside and outside America, at the result of the American election – but it is now a fact that has to be lived with.  It is time to look forward.  Many people were taken by surprise, but there were warning signs in the depth of feeling expressed by angry American voters and in Hillary Clinton’s failure to connect with them.  Donald Trump’s success came despite a campaign focus on personalities.  Both candidates were unpopular.

Donald Trump’s victory came from his handling of three key themes: anxiety over the loss of jobs to globalisation, resentment against a neoliberal political class that has placed the interests of rich people above those of everyone else, and latent racism in the so-called ‘alt-right’.  The election of a non-politician is a slap in the face for the political establishment.  Donald Trump presented his candidacy as self-financed and he was clearly distanced from the Republican Party (although he was its nominee).

He now needs a chance to deliver on some of the economic promises he made during the campaign.  His commitment to spend $500 billion on infrastructure would create jobs, but he might find that his ideas on protectionism would result in retaliation, inflation and ultimately a loss of jobs.

He needs to avoid some of the obvious dangers inherent in the racist passions that he awakened.  It is to be hoped that the very real risk of fascism can be averted.

Donald Trump cannot reform the political establishment, which needs to reform itself to regain legitimacy and support.  Congress is tainted by its dependence on wealthy donors, who have used their influence to become even richer – as described in Richard Hasen’s book, Plutocrats United.  If politicians want to recover their credibility, they need to reduce their dependence on political donations; they should completely change the rules on campaign financing.  And both political parties need to regenerate themselves and define policies which will be acceptable to the electorate.

Naomi Klein has articulated her vision for reforming the Democratic Party.   Her antipathy to neoliberalism – the unqualified supremacy of commercial interests – would gain the approval of those who have been damaged by it.  Mariana Mazzucato’s essay, on “why it’s time for progressives to rethink capitalism”, also has ideas on what can be done.  The party needs to recover the support of working people.

Republicans also need to find a way of recreating their badly-fragmented party, whilst improving the position of the poor.  For example, Milton Friedman’s libertarian vision of a flat tax combined with a ‘negative income tax’ would guarantee benefits for the poor whilst preserving an incentive to work; it would close many tax loopholes for the rich, would be transparently fair, and could be compatible with Trump’s promise to reduce corporation tax.  With a Republican Congress, Trump has a golden opportunity to transform America’s broken tax system.

The two parties cannot afford to ignore their loss of support.  They would naturally come up with different policies, but they should nevertheless be able to reach agreement on some necessary measures; American Presidents of both parties have historically increased the minimum wage, for example.  American voter anger must be addressed, to avoid a descent into chaos.

Angry American Voters

The 2016 American primary elections have revealed considerable popular discontent and resentment towards the political class.  Both Bernie Sanders and Donald Trump got lots of support from angry anti-establishment voters.  Despite significant economic growth in the last few decades, many people suffer hardship whilst others prosper grotesquely.  There is a growing realisation that politicians, in seeking political donations, have aligned themselves to the interests of the wealthy – so many people blame the political establishment for their problems.  Others blame their problems on immigrants and globalisation.

Trump hasn’t been part of the political establishment.  He seems to be offering solutions to people’s problems: he has pledged to build a wall against Mexican immigrants and he has advocated protectionism as a way to defend jobs from foreign competition.  In reality, anti-immigrant rhetoric could result in hostility towards the millions of Hispanics and Muslims who are already well settled in America; this would lead to a rise in hate crimes – which rose 57% in Britain following the similar rhetoric used in the recent campaign to leave the EU.  And protectionism destroys jobs, as it did with America’s tariffs on Chinese steel.  Trump’s ‘solutions’ are unworkable and would not benefit people.

In a representative democracy people elect politicians to understand complex issues, to speak for them and to govern.   Populist politicians with siren voices, though, can lure people to follow paths to disaster – ignoring complex realities to seek apparently easy solutions.  Donald Trump is now in a strong position to win the American presidency, being seen as a strong and successful individual who financed his own election campaign and who offers to magically solve people’s problems.  The condemnation of senior politicians merely adds to his credibility as a champion of ordinary people.  Since Hillary Clinton is seen as part of the political establishment, supporters of Bernie Sanders might vote for Trump rather than for her.

The presidential election is now largely a contest between Trump and Clinton.  Neither candidate is hugely popular.  Trump has antagonised many voters with some of his more outlandish statements, but his anti-establishment stance and populist pledges might yet succeed in winning him the presidency.  Fortunately, though, the American political system was designed with checks and balances, so Congress could prevent some of the damage he might otherwise do – but he might not address any of the real problems either.

Since criticising Donald Trump just strengthens him in the current political climate, Hillary Clinton would do better to ignore him and focus instead on concrete measures to address people’s concerns.  Carefully-constructed arguments alone are not going to persuade people to support responsible politicians; positive messages need to be delivered with passion and emotional appeal. She might then win the Presidency, which would be the best outcome for America.

Even if she wins, though, her hands would be tied if Congress opposed every initiative.  What is also needed is for the politicians in Congress – whether Republican, Democrat or Independent – to be elected on more moderate and responsible platforms.  The recent political posturing, trying to score points off the other party, needs to be put aside.  The country needs politicians of all stripes to work together to fix some of the problems which have caused the popular discontent.  Otherwise there is a risk of American politics sinking into yet further disrepute.  Politicians need to tackle several issues:

At a minimum, they need to pledge to overhaul campaign financing to reduce the influence of money in politics – so that they are accountable to the population as a whole, rather than favouring wealthy donors.

They need to overhaul the tax code, so that the rich pay at least the same percentage tax as the middle classes.  The Active Financing Exception, which allows wealth to be hidden overseas to avoid paying tax, needs to be quashed.

Improved productivity is better than protectionism as a route to full employment, so wealthy people need to be incentivised to invest in real industries rather than hiding their money or speculating.

People need to be reminded of the benefits of free trade.  Protectionism increases consumer prices and costs jobs in the rest of the economy.

America is a nation of immigrants.  Immigration needs to be better managed, to streamline the legal way of entering the country; there would then be less incentive for people to try to enter illegally in future.  Border security needs to be tightened, but an amnesty is needed for some of those who came in illegally but who have contributed to American society for several years.

Poverty can be reduced with an increased minimum wage and some income support.

None of the measures suggested above is inherently exclusive to either Republican or Democrat values, although the two parties would place different emphases on them.  The American Constitution envisaged negotiation between the members of Congress to develop solutions for the benefit of the population as a whole.  Whoever becomes President, Congress should aim to constructively serve the American people and give them less cause for resentment.

Continued Political Cynicism

The British government is continuing to pursue economic policies which benefit the old and wealthy whilst inflicting severe cuts on young working families, yet it is trumpeting a narrative which tries to persuade working people that it is on their side.  This is flagrantly dishonest.  The following chart shows how a young working couple might experience a drop in net income in the next few years:

Embedded image permalinkThis fall in income is the result of what was described in the Economist as

“a budget whose slick politics hid economics that were often wrong and sometimes dangerous. The flagship substitution of tax credits for wage floors is a bad mistake; cutting benefits to the very poor while reducing inheritance tax for the wealthy is indefensible.”

George Osborne’s speech at the Conservative Party conference on 5 October 2015 has confirmed his intention to continue with these policies, pursuing a path which has reflected a political cynicism that has been evident ever since he took the job of Chancellor in May 2010.

When he first took office, he skilfully persuaded the British people that the previous Labour government had been responsible for the financial crisis in 2008 – but its real cause was reckless behaviour by banks and financial institutions, especially in America, leading to a credit crisis when the housing bubble finally burst.  He then persuaded everyone that austerity was a necessary medicine to correct the fiscal deficit, which was less than 1% at the time of the crash.  His policy of cutting government spending worsened the depression caused by the credit crisis, as unemployment increased and the welfare budget predictably ballooned.  He succeeded in increasing the fiscal deficit at the same time as trumpeting policies which he said would reduce it.  His measures were criticised by prominent economists, and the economic recovery in Britain was much slower than in America, but the British public believed (wrongly) that cuts were necessary – and that belief enabled his party to emerge triumphant in the 2015 General Election.

If the public were better educated, people would be able to see his cynicism for what it is: a focus on winning elections rather than benefiting the population as a whole.  He has ensured that the cuts fall on young working people whilst protecting wealthy pensioners.  And pensions are the largest item in the welfare budget.

It is perhaps hopelessly idealistic to expect wealthy pensioners to vote against a government which so blatantly protects their interests at the expense of the next generation, yet if those with a social conscience were to join with the numerous victims of his economic policies they might yet demonstrate that a bad government can be replaced in a democracy.

Reducing Inequality

The Pope’s Exhortation (pp. 44-51) has highlighted the immorality of the growing inequality in today’s society.  The content of his message should resonate with all Christians, not just Catholics, and with many other people who care about their fellow beings.

Political pressure groups, such as the Occupy Movement, and religious leaders like the Pope can influence public opinion and create a surge of popular support for a reduction in inequality.  For any change to happen, though, it has to be possible for people to vote for it – which means having politicians standing for election on a platform of commitment to a programme of specific actions to reduce inequality.

Several approaches have been suggested to reduce inequality:

  • It would be helpful to ensure that wealthy individuals pay their fair share in tax.  Mitt Romney, for example, paid 14.1% tax on an income of $13.7 million whereas many people in employment pay a higher percentage of tax on their (much lower) incomes.  This means fixing the tax code.
  • Concerted action is needed to make corporations apportion their profits according to their sales in each country; it is currently too easy for them to avoid tax by manipulating where profits are declared.
  • Tax alone, though, does not solve the problem because it polarises society between a small group who pay a substantial amount in tax and a large group who pay little or no tax – either because their earnings are low or because they are unable to work.  The currently fashionable theory of ‘trickle-down’ economics has led to an enormous gap between rich and poor and mutual resentment.  The Pope quite rightly criticised this now-discredited theory and called for change.  A new narrative is needed, which does not so obviously benefit the wealthy and which more clearly benefits the nation as a whole.
  • Everybody (including corporations) would be better off with ‘middle-out’ economic growth, where a better-paid middle class creates stable economic demand as it spends its money (in contrast to the wealthy, who gamble their excess money on the financial markets and create instability).  Such a bottom-up engine of economic growth will only develop if the proceeds of wealth creation are more equitably divided between ordinary workers, directors and shareholders.  Changes in corporate governance are required (3.5.6).

Change will not come about, though, while big money exerts such an influence over politicians and while election results are affected by huge advertising budgets.  The US Supreme Court’s Citizens United decision needs to be reversed, so that politicians can no longer be bought with huge sums of money.  Until this happens, both Democrats and Republicans will be beholden to those who make big financial donations – so neither party will dare to make the necessary changes and the plutocracy will steadily strengthen its power over the rest of society.

Even if one of the political parties doesn’t make a wholehearted commitment to reducing inequality, it should be possible for individual political candidates to stand for either party, or as independents, in support of a fairer deal for middle-class Americans.  What is important is that there should be candidates who offer themselves on the basis of a declared programme of action, so that voters can choose change.  That is how democracy is meant to work.

Mansion Tax and Bedroom Tax

In The Telegraph, Boris Johnson described the proposed mansion tax as “viciously unfair” because it would levy a tax on people’s homes without taking account of their incomes.  The tax would only be levied on people who have houses valued at more than £2 million, however.  Why would it simultaneously be fair to cut the housing benefit of much poorer people who happen to have a spare bedroom?  The Conservative party should answer this question if it is to be seen as governing on behalf of the people as a whole.  It is cutting benefits for the poorest members of society whilst rejecting measures that would reduce the disposable incomes of the wealthy.

Someone owning a ‘mansion’ would be able to borrow against its value and would not face “ruin” but for most people owning ‘mansions’, including Boris himself, the tax would be easily affordable.  For people on housing benefit who have a spare bedroom, the situation is very different.  They have to move house if they cannot pay the tax, but alternative accommodation may not be easy to find and they may have to move far away from work, friends and family.  People in this situation might regard the ‘bedroom tax’ as “viciously unfair”.

Many people are making financial sacrifices to help to reduce the country’s fiscal deficit.  This government appears to be extracting more sacrifices from the poor than from the wealthy, thereby increasing financial inequality; its actions belie its claim that ‘we are all in this together’.

The quality of newspaper reporting on this issue is also interesting.  Boris Johnson used emotive language about the mansion tax: “viciously unfair” and “a colossal annual fine of tens of thousands of pounds – in other words, ruin”.  This could be described as harmless exaggeration, but he also used words which would tilt the debate in a less obvious fashion: describing the Liberal Democrats as “Our little yellow friends”.  Was he hoping to make use of alternative senses of the word yellow?  It can mean cowardly, and there is also an echo of the language used during the Second World War about the Japanese.  Was he trying to slip prejudice into the debate, with the dishonest intention that readers would start to feel hostile about the Liberal Democrats without critically questioning where that hostility came from?

A Mirror article about the bedroom tax also used emotive language: it was entitled “Bedroom Tax victims ‘going hungry and pushed to brink of suicide'”, quoting Raquel Rolnik, the UN’s special rapporteur on housing.  This language was as vivid as that used by Boris Johnson, and it can be argued that it is similarly harmless exaggeration – though the Conservative Party chairman “said he is writing to UN Secretary-General Ban Ki-moon to demand an apology”.  The Mirror article, however, didn’t resort to dishonest use of language.

Neither newspaper felt obliged to explain the opposing arguments.