The 2016 Presidential Election In 144 Years Of Context

By Bill O’Grady

April 14, 2014

(N.B. In this report, we are tackling the geopolitical impact of the 2016 elections. Given the size of the topic, it will be discussed over a three-part series.)

As we noted two weeks ago, American presidential elections are important events, although not all are equally critical. Some elections occur during periods of relative tranquility, and elections with an incumbent running tend to have less drama.

However, as we survey the political landscape for 2016, the next presidential election could be historic for two reasons. First, in our opinion, the last three presidents have been unable to create a consistent foreign policy that reflects America’s role as the unipolar superpower. The next president will probably not have the luxury of this lack of policy focus. Second, economic stress is weakening the ruling political coalition and we may be on the cusp of significant political change.

In Part 1, we discussed the issues that have led to stagnant economic growth. As we noted, private sector leverage has been the key issue that has kept growth constrained. Allowing the economy to reduce leverage “naturally” could take another decade. It is hard to imagine that the political process could cope with subpar growth and low employment for another ten years.

Thus, in this report, we will examine the domestic political situation. Because this is a geopolitical report, we usually avoid domestic politics. We are engaging in this rare examination of the domestic political scene because it appears that the U.S. will be hard pressed to maintain its superpower role without a timely resolution of the leverage problem. It should be noted that there are ways that the leverage problem can be resolved that support America’s superpower role, while there are also methods that would almost require the U.S. to abandon that role. The resolution of the leverage problem is political in nature, which is why we are analyzing the domestic political situation.
In this analysis, we will use a method similar to our analysis of American foreign policy archetypes (see WGR, 1/9/2012, The Archetypes of American Foreign Policy).

Although we won’t use the presidential archetype model, we will use four different archetypes to describe the domestic political landscape. After describing these groups, we will offer a history of the interaction between these groups. We will address the likelihood of various policy outcomes based on the relative strengths and weaknesses of the four political groups. Unlike our usual reports, we will not conclude with market ramifications but instead discuss the transition to Part 3 of this analysis.

The Four Domestic Archetypes

We believe there are four major archetypes, the rentier/professional, the entrepreneur, the right-wing populist and the left-wing populist. It should be noted that these are broad categories; it is rare to find a person who purely matches these descriptions. The point of an archetype is to describe a group for informational purposes.

Rentier/Professional: This group consists of the center-left Democrats and center-right Republicans. In common political analysis, these two groups are thought to be entirely different archetypes. In our opinion, however, we believe they are similar enough to be considered a single class, although they will, at times, appear to be in opposition. It seems that the members of this group agree on more than they differ, and their “opposition” is more in style than in fact.

This archetype is the “establishment” of both of the major parties. This class includes the political mainstream, most of the management of U.S. corporations and the owners of inherited wealth. This archetype generally prefers the status quo. They support high and positive real interest rates. The relationship of this group with the government is generally positive. This archetype tends to use government to support their businesses; they view lobbying as a way to secure an orderly marketplace. In terms of deregulation and globalization, this class is usually torn. Their status in established businesses can be adversely affected by new technology (which can be more easily introduced in a deregulated environment), and thus prefers regulation structured to secure their position in society. On the other hand, their pay levels have mostly been positively affected by globalization which has improved the profitability of the firms they manage and own.

This group tends to support immigration. In terms of social policy, there tends to be some degree of dissonance within this group. Generally, the center-left of this group tends to be somewhat more liberal than the center-right, but neither usually allows these positions to overrule economic concerns. The liberal and conservative parts of this class can be split, at times, and can join other archetypes to form coalitions, although the differences in policy often turn out to be slight and the splits tend not to last. In terms of Walter Russell Mead’s foreign policy archetypes, this group mostly consists of Hamiltonians, heavily represented in the center-right, although the center-left subtype has some Wilsonians. In general, they support America’s superpower role. This group tends to be associated with the Chamber of Commerce, the Brookings Institution, the Council for Foreign Relations and similar organizations.

Entrepreneurs: The entrepreneurial class tends to be the most disruptive for the economy. This group creates new businesses and introduces new methods or technologies that change the face of the nation and the economy. For the most part, this group is hostile to government. For this class, government simply interferes with their goals. They strongly support deregulation, immigration and globalization. Low inflation and low interest rates are preferred by this group. They want low capital costs and labor costs. Socially, this group tends to be rather libertarian, following a “live and let live” stance. For example, this class tends to oppose the war on illegal drugs and usually supports reproductive rights for women. At the same time, they tend to also strongly support the Second Amendment. In general, the social position is more based on opposition to intrusive government rather than generally held moral beliefs.

In terms of Mead’s foreign policy archetypes, this group tends toward Jeffersonians as they prefer small government and an aggressive foreign policy is inconsistent with this goal. Thus, they generally don’t support the military part of America’s superpower role, opposing an active military role. However, they do appreciate the ability to tap global capacity, thus supporting the economic part of the superpower role. This class is associated with the Club for Growth, the CATO Institute and the American Enterprise Institute.

Right-wing Populists: This group is, in many respects, the most difficult to characterize. They have the most complicated relationship with the government. This class puts great stock in work and disdains government handouts as it places a high value on personal independence. At the same time, they strongly oppose deregulation and globalization. In terms of the latter, this is currently being expressed by the opposition to immigration. However, this group does not support free trade either. In effect, right-wing populists want high-paying, low-skilled jobs and want the government to build an economy to provide that goal. Although this group tends to oppose government income supports, they will accept them if packaged appropriately. Social Security is seen as a funded retirement plan (even if it is really an intergenerational transfer of wealth), and thus is acceptable. They

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