FIS Group on Donald Trump – The Revenge of the Precariat Part Two: I’m Mad as Hell and I’m Not Going to Take This Anymore

Donald Trump’s unexpected victory in the U.S. presidential elections was another resounding expression of the phenomenon which we described as The Revenge of the Precariat over Davos Man in our July post Brexit commentary.1 Trump, like his British counterparts, eschewed long held political and policy assumptions and stitched together a new coalition bound by disaffection with rapid changes in our societal makeup and economic opportunity; as well as a generalized anger at a “system” from which they feel increasingly disconnected. In the U.S., this disaffection is best demonstrated by increasing pessimism about the future at the dawn of the 21st century. For example, an August 2014 Washington Post article reported that when asked if “life for our children’s generation will be better than it has been for us”, 76% of U.S. respondents did not have such confidence; compared to 43% in 2001.

In light of the global financial crisis’ (GFC) erosion of public confidence in our political and financial institutions, as well as anemic growth that has followed it, the current surge in populism in the U.S. and Europe is unsurprising. Thus, in addition to Brexit and the U.S., in Italy, the world’s fourth largest sovereign debt market, comedian Beppe Grillo’s Five Star Movement is neckand- neck in the polls with the status quo governing Democratic Party. In France, nationalist and ardent Eurosceptic Marine Le Pen will likely enter the final round of the May 2017 presidential election (though she is unlikely to win).

As with Brexit, professional pollsters completely underestimated the mood of the electorate (or perhaps, those polled were not straightforward about their preference for the controversial Mr. Trump) and almost universally predicted a Clinton win. In both the U.K. and the U.S., the starting premise of the political establishment, dominated by the Davos class, was that elections are decided by core middle class voters who are averse to economic risk and allergic to radical lurches (towards the left or right), in spite of their anxieties. Similarly, in the US, based on the frequency with which it was aired, the campaign advertisement that was considered most post potent recounted Donald Trump’s many ill-tempered pronouncements while declaring Hillary Clinton as the stable and safe alternative.

So far, Precariat’s “leaders” have not emerged from their own ranks. After all, Brexit leaders, such as Michael Gove and former London Mayor Boris Johnson are both Oxford Men. While Mr. Trump bills himself as a political outsider, he is hardly Precariat. However, these men have profited from a similar play book: sew distrust with the political and financial establishment; cynical manipulation of national and racial attachments by objectifying minorities and immigrants, and vague promises to bring back jobs that have been savaged by trade (their favorite chimera) and technological advancement (which was rarely, if ever, discussed).

As discussed in our Q4 2016 Outlook, at bottom, the current angst among many voters has been spurred by insufficient economic growth – in that there’s simply not enough of it to keep everybody happy while paying the debt and entitlements we have promised ourselves in old age. Even before the GFC, prosperity had bypassed the Precariats in that 21st century corporate giants, such as Facebook and Apple are far less labor intensive than their counterparts in 1950’s and 60’s, such as GM and Xerox, that propelled millions of the Precariat into the middle class. Many of their jobs have been replaced by technology, and increasing globalization led to a shift of income from low-skilled workers to high-skilled workers. Moreover, the increasing integration of the global labor market between rich and poor countries has effectively given companies in rich countries access to a large new pool of workers, thereby increasing corporate profits which disproportionately favored the financial Davos elite. These trends resulted in an overall decrease in the share of national income going to Precariat labor and a rising income inequality. Furthermore, immigration has hit low skilled workers the hardest, given that approximately 28% of foreign-born workers in the U.S. do not have a high school diploma, which puts them into direct competition with less skilled domestic labor. After the GFC, the Precariat were especially peeved at the apparent immunity of the elite from any consequences of their prior mismanagement that led to the financial crisis.

In the United States and China, the world’s manufacturing powerhouses, fewer people work in manufacturing today than in 1997, thanks at least in part to automation. Modern automotive plants, many of which were transformed by industrial robotics in the 1980s, routinely use machines that autonomously weld and paint body parts—tasks that were once handled by humans. Research by MIT economist David Ator shows that between 1980 and 2005, the middle class suffered both in share of jobs and in wage growth. Since the 1980s, Ator posits that computers have increasingly taken over such tasks as bookkeeping, clerical work, and repetitive production jobs in manufacturing—all of which typically provided middle-class pay. At the same time, higher-paying jobs requiring creativity and problem-solving skills, often aided by computers and low-skilled jobs, (such as restaurant workers, janitors, home health aides, and others doing service work that is nearly impossible to automate), have
proliferated. The result, according to Autor, has been an apparent “polarization” of the workforce and a “hollowing out” of the middle class—something that has been happening in numerous industrialized countries for the last several decades. This is why post-election surveys of Donald Trump voters show a preponderance of middle income earners as opposed to the popular narrative of down-in their luck workers; because they have borne the brunt of technological disruption. The trouble is that this disruption is accelerating, as some robots already cost less to operate than the salaries of the humans they replace, and they are getting cheaper and better. For example, Boston Consulting Group predicts that, by 2025, the operating cost of a robot that does welding will be less than $2 per hour. That’s more affordable than the $25 per hour that a human welder earns today in the U.S., and even cheaper than the pay of skilled workers in the lowest-income countries. Machines are, learning to do the jobs of manufacturing workers; artificial intelligence-based tools are mastering the jobs of call-center and knowledge workers; and cars are beginning to drive themselves. Over the next decade, technology will decimate more jobs in many professions, inequality will increase. So, the real question is even if Trump and his trans-Atlantic cohorts make good on their promise to keep immigrants out, how will they stop the advance of robots?

Now that they are prevailing, it is our hope that these selfappointed representatives of the Precariat will use the anger that they have clearly tapped into as fuel for progress; and not squander it by continuing to flirt with uncontrolled institutional and economic arson. While we are somewhat troubled by the absence of substantive policy prescriptions, as we have written before in the July paper; Donald Trump and his trans-Atlantic cohorts have tapped into a real vein of economic dislocation and feeling of abandonment which is laid most bare in the so-called “Rust belt” of the U.S.

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