Howard Marks memo to Oaktree investors for the month of November 2016.

I’m starting this memo a week before Election Day. I promise to try to stay away from the merits of the candidates and the question of who will win, and instead confine myself to the important messages that we should take away from the election and the actions we should push for as a result. The outcome of tomorrow’s election won’t change these things as far as I’m concerned.

Howard Marks
Image source: Bloomberg Video Screenshot
Howard Marks

Angry Voters

Of course, the big story of this election year has been the unprecedented, unconventional rise of Donald Trump. Trump threw his hat into the ring with a complete lack of experience in elected office or other public service, and without an established campaign organization. In fact, he had no established party’s ideology. He adopted some Republican elements but rejected others. And yet he has been able to attract a large group of voters, probably about 50 million strong.

He did this by assembling backing from an unusually diverse mix of elements. These included dedicated Republicans who weren’t about to vote for a candidate of another party; the many Clinton haters who’ve had 24 years to gel since Bill’s first inauguration; people who were attracted to Trump’s celebrity, reputation for business success, outspokenness and colorful manner; and supporters of the right. But this tells only part of the story.

The aspect I consider most important for the future relates to the Trump supporters – and some of the most active and vocal ones – who are motivated by an anger regarding “the system” that is neither purely emotional nor illegitimate.

Many are older, white, non-college-educated men who might be described as “demographically dislocated.” When these men were born, white males ran America; their communities weren’t mixed and becoming more so; and the cultural shifts occasioned by the civil and women’s rights movements, technological change and mass immigration were unimagined. Certainly the shift to the America of today – with all these things quite different – might be jarring and unpleasant to the people I describe.

At the same time, many Americans – and often the same ones – are experiencing the effects of job loss and diminished economic prospects. Fifty or even thirty years ago, men without college degrees could easily obtain good-paying jobs and the pride associated with being able to maintain their families at a good standard of living. One earner per household was enough, and one job per earner. Strong labor unions ensured adequate pay and benefits and protected workers from too-rapid changes in work rules and processes.

Now the number of unskilled jobs has been reduced by automation, foreign manufacturing and increased globalization of trade. Unions are much less powerful in the private sector (name a powerful union leader of today who comes to mind). Men of the sort described above – older, white and non-college-educated – are likely to have lost jobs, know someone who has, or seen the impact on their communities.

Importantly, until 2000, most Americans felt their children would live better than they did. Now this is no longer true:

When asked if “life for our children’s generation will be better than it has been for us,” fully 76 percent said they do not have such confidence. Only 21 percent did. That was the worst ever recorded in the poll; in 2001, 49 percent were confident and 43 percent were not. . . . virtually all polling shows a steep decline in optimism since the late 1990s and early 2000s. (The Washington Post, August 12, 2014)
Here’s a quote from Thomas Friedman in The International New York Times of June 30 that I used to sum up in “Political Reality” (August 2016). As I wrote there, I think it does a great job of capturing the situation:

It’s the story of our time: The pace of change in technology, globalization and climate have started to outrun the ability of our political systems to build the social, educational, community, workplace and political innovations needed for some citizens to keep up. We have globalized trade and manufacturing, and we have introduced robots and artificial intelligent systems, far faster than we have designed the social safety nets, trade surge protectors and educational advancement options that would allow people caught in this transition to have the time, space and tools to thrive. It’s left a lot of people dizzy and dislocated.
What we have is a country – in fact, a world – that is changing rapidly and in ways that are unpleasant and disorienting for large segments of the population. The present is different from the past, and the future looks worse than it used to. Slower economic growth is producing less opportunity overall, and a number of forces are supplementing slow growth in diminishing the outlook. Rising income inequality is directing an increasing share of the gains to top earners. Older people lacking higher education are particularly ill-equipped to deal with the changes.

I think this is an apt description of conditions in the U.S., but it seems equally applicable to much of the developed world. In an opinion piece on October 26, starting from the German point of view, Joachen Bittner of the International New York Times described a broad group he called Wutbürgers, or “angry citizens.” I think they’re rising everywhere:

It is a relatively new expression, with a derogatory connotation. A Wutbürger rages against a new train station and tilts against wind turbines. Wutbürgers came out in protest after the Berlin government decided to bail out Greece and to accept roughly one million refugees and migrants into Germany. Wutbürgers lie at both ends of the political spectrum; they flock to the right-wing Alternative für Deutschland and the socialist Linke (Left) Party. The left wing has long had a place in German politics, and the Linke has deep roots in the former East Germany’s ruling party. And we’ve had a fringe right wing since the postwar period began. But the populist anger of the A.F.D. is something new: Anti-establishment, anti-European Union and anti-globalization. . . .
[drizzle]
The same thing is happening elsewhere in Europe: Many British Wutbürgers voted for Brexit. French Wutbürgers will vote for Marine Le Pen’s National Front. Perhaps the most powerful Wutbürger of them all is Donald J. Trump. Which raises the question: How was anger hijacked? In its pure form, anger is a wonderful force of change. Just imagine a world without anger. In Germany, without the anger of the labor movement, we would still have a class-based voting system that privileged the wealthy, and workers would still toil 16 hours a day without pension rights. Britain and France would still be ruled by absolute monarchs. The Iron Curtain would still divide Europe, the United States would still be a British colony and its slaves could only dream of casting a vote this Nov. 8. Karl Marx was a Wutbürger. So were Montesquieu [who articulated the concept of separation of powers within a government], William Wilberforce [the leader of the abolitionist movement in Britain], the Rev. Dr. Martin Luther

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