This post is part two of a three part series detailing a series of events and circumstances that unfolded over the last 15 years, ultimately culminating in the election of the populist Donald J. Trump to the office of President of the United States. Each of these posts could be a novel, so many issues are mentioned without truly being dissected in the depth they may deserve. Equally, each event discussed has a historical significance and context that one could spend weeks exploring. These posts focus upon the actions in recent history (the last 15 years) that resulted in a lack of confidence in the federal government, a lack of certainty regarding the security of individuals and families, and actively strive to explain, at least in part, why the call of populism proved effective in the 2016 American election.
Pt. 2: Bursting a Bubble
The fact that the title “The Great Recession” does not seem an anachronism of a bygone era is a testament to just how bad things were from 2008 to 2012. Precipitated by high default rates in the subprime home mortgage sector, there are few better examples of a perfect storm seen in modern history. The introduction of policies in the 1970s dressed the landscape that allowed commercial banks to provide mortgage loans to those who otherwise may not be able to afford them. The bundling of collateralized debt obligations (CDOs), seen then as stable investments, was a key factor in the erosion of ethical practices within the lending industry that saw the bubble pop, disastrously, with trickle down effects to residential foreclosures and job loss for consumers in unprecedented numbers.
The American Federal Government and an array of associated central banks acted in unison to insert an approximate $2.5T USD in an effort to avoid the compounding tailspin of lower wages and reduced consumption. The bailout worked – for Goldman Sachs and Morgan Stanley. The American auto industry never fully recovered, with Chrysler sold in parts to Fiat Automotive and various federal governments and heavy incentives being given to keep manufacturing in North America.
But economies are built like cyclones – expectedly turbulent and notably thunderous to those who read the winds. The Financial Crisis ended, the Great Recession began and fear turned to anger in the electorate. Politicians, upon the issuance of fiscal stimulus and monetary policy to stop the bleeding, began to look for targets – either those actually responsible for the actions culminating in the crash or, in lieu of, an attractive set of scapegoats to appease the bloodlust. It was concluded that the crash was ultimately avoidable, and that is was the failure of ratings agencies, investors and corporations to act in a manner that best served the medium in which they operated. Bankers were berated and demonized for their recklessness in state houses and newsrooms. The Dodd-Frank regulatory reforms and Basel III capital and liquidity standards were adopted to better insulate consumers from market risk and uncertainty.
The cash infusion and newfound stability did little to stem the immediate bleeding that followed. Real GDP began to fall in 2008, and by early 2009 was following at rates not seen since the mid-1950s. Industrial productivity, an indicator of manufacturing growth, was falling at a rate of 3.6% each month in 2008 and 2009. The impacts in export-heavy economies, such as Germany and Taiwan, were worse still. The downturn within the global economy heavily affected financial markets, and the combination of a strengthened dollar, a weakened economy and the more immediate concerns of job loss and home foreclosure crippled the American blue collar worker.
Predictions of job loss in the range of 50 million tapered off as the Recession became a reality. The economy began to show signs of rebound, including a promising indication in 2011 that manufacturing rates within the United States were increasing. Financing, once dried up in the uncertain market, began to flood regions where signs of increased productivity were emerging, including the United States. The fall in demand tapered as financial growth was shown in key industries. New investments were made in increasing technological efficiency, which provided more consistent growth in manufacturing productivity and the sector as a whole. Output per worker increased drastically, but the contribution of labor to productivity decreased, meaning there were fewer workers doing more. As of 2013, an approximate 1.57M jobs had been lost in the sector over the previous 6 year period and had not been recovered.
Increased rates of mechanization and technological innovation within the manufacturing process reduced the role workers play in the sector. Wages stagnated across the Midwest. Consumption fell due to the real median household income falling 6.5% from 2007 to 2016 within heavily affected regions. And while families across America struggled, the banks and corporations the politicians had once crucified became afterthoughts, returning to prominence and continuing their prosperous ways.
As of 2016, GDP per capita and overall industrial production have increased year on year since 2011. Unemployment sits at near record lows. Median household income is rising. All factors point to macro-economic success and a positive outlook for the American economy, save for the warning flags of wage growth and labour productivity. Yet Upton Sinclair’s factory worker, the man toiling for a wage, found himself forgotten in the eternal forecasting. The economy had adapted post-Recession. He had been left behind.
“A good job is more than just a paycheque. A good job fosters independence and discipline, and contributes to the health of the community. A good job is a means to provide for the health and welfare of your family, to own a home, and save for retirement.”
The economic and personal vulnerability felt by workers and families in America’s heartland drove them away from belief in the establishment and towards the fringe – where the ground was sown for the rise of a demagogue on the national stage.
Next – Pt. 3: The Reflection