The election is far from over, and given the pattern of this election, nothing can be taken for granted. So while (at the moment) Hillary Clinton appears to be winning, less than two weeks remain.
ValueWalk's Raul Panganiban interviews Dan Pipitone, co-founder of TradeZero America, and discusses his recent study on retail investing trends. Q1 2021 hedge fund letters, conferences and more The following is a computer generated transcript and may contain some errors. Interview with TradeZero America's Dan Pipitone ValueWalk's ValueTalks ·
First, shifts in the behavior of the US affect geopolitics globally. Second, this election has revealed some profound changes in the underlying dynamics of American politics.
The New Deal shaped an unlikely coalition
The frame for thinking about this issue lies with the two major political parties. I want to begin with the Democrats because it is the party that has undergone the most profound change. It is also the party in which change is least discussed.
The framework of the Democratic Party was set in the New Deal. It was an unlikely coalition of Southern whites, Northeastern industrial workers, and African Americans. Its core was based on poverty.
The Civil War ended 67 years before the New Deal, and the South remained impoverished. In the north, the Great Depression had crushed both the ethnic industrial class (many of whom were just a generation or two away from immigration) and those African Americans who moved north after the Civil War.
The Democratic Party won the election of 1932 because it cast itself against the economic and social disruption of the Depression. It created a coalition of those who had been most affected.
The Republican coalition was focused on small businesses, small towns, the more prosperous farmers, professionals, and the upper class. It was the party of both wealth and culture. It held a disdain for the South that dated back to slavery. It also felt an unease about the waves of Eastern and Southern European immigrants and massive industrial urbanization.
This was the coalition that had ruled the country since the Civil War. But its power had been broken by the Depression.
The Republicans argued that the Depression was caused by the reckless consumption and lifestyle of the 1920s. Their solution was a dose of austerity. The Democrats’ view was that this was a systemic failure of capitalism… one that required state intervention.
The two coalitions lasted until 1964 when Barry Goldwater took the South away from the Democrats. Goldwater was crushed in the election, but he led a coalition shift that reshaped American politics.
The Democrats retained Northeastern ethnic workers and a growing black voting bloc. The Republicans retained the wealthy, the professionals, farmers, and a shrinking small town base.
But in 1964, Southern Democrats shifted to the Republican party. This move resulted in 28 years of Republican presidents in the 48 years between 1968 and 2016.
American politics has shifted to cultural issues
A new section of the population emerged during those 48 years: the suburbanites. This group was relatively well-to-do and tended to be better educated. The suburbs were spurred by the VA loans to World War II vets and the interstate highway system that made the land around cities accessible.
The pre-World War II suburbs were Republican, but this shifted as the Depression-WWII generation moved in. Then their children, the Baby Boomers, caused a stable coalition to be much less predictable. The Boomers had a general tendency to be socially liberal (after growing up in the 1960s) and more economically conservative.
Increasingly, the Republicans sought to hold and expand their coalition with two strategies. One was the need for tax cuts. The other was the culture wars: opposing abortion and gay marriage, supporting prayer in schools, and the like.
During this time, the Democrats remained wedded to the New Deal strategy. Then they added abortion rights, gay rights, and opposition to prayer in schools to their strategy. Cultural issues became at least the equal of economic issues.
The white South remained attached to the Republicans. African Americans remained attached to the Democrats. The children of the ethnic industrial workers now lived in the suburbs, and they were split.
The suburbs consisted of a majority that was socially liberal and a large minority that was socially conservative. But both of these groups shared a general tendency to be economically conservative.
In recent times, the parties’ issues have become increasingly about social mores. The children of the Boomers—the Millennials—are now voters. And they are strikingly like their parents.
But beneath the surface, a massive shift has been taking place.
The Democrats gave up on the working class
The foundation of the New Deal coalition was that the Democratic Party was the party of the workers and the Republican Party was the party of the upper-middle class.
But the culture wars cut the Democrats’ ties to blue collar workers without college degrees. This class also tends to be very socially conservative in all parts of the US.
The Democrats had already willingly given up Southern conservatives. Now, they were prepared to give up social conservatives everywhere. The problem, though, was that the social conservatives were (to a large extent) the same non-college-educated workers that had once been the core of the New Deal coalition.
President Barack Obama sought, not entirely successfully, to keep this group in the coalition. Then, Hillary Clinton decided to use them to discredit Donald Trump.
She painted Trump (and he painted himself) as the spokesman for those who were not college educated, white, socially conservative workers. Clinton understood that this was not simply a group that was no longer favored by the Democratic Party—it was repulsive to the Democratic Party.
There is an argument that soon the United States will cease to be a predominantly white country and that this group is increasingly irrelevant. A reasonable argument, it is posed in such a way as to create both a sense of desperate embattlement among white workers (particularly male) and a sense of loathing toward this group in the rest of the country.
There are two baskets. One is the “deplorables” who should have been expelled from the Democratic Party back in 1964 with the South. The second is the impoverished and hopeless.
But the key here is that Clinton did not try to split Trump’s hold over this second group, as Lyndon Johnson or Harry Truman would have. Rather, she treated them as alien and unimportant. The Democrats gave up this core constituency of the New Deal—the white, undereducated working class, committed to strict social values.
Clinton calculated that the price of retaining them was to accept strict social values. If she did that, she would lose heavily with the Democrats’ new base… the socially liberal in all classes.
Look at this another way. American politics had been driven by economic issues since 1932. Now, they are driven by social issues. From the Democrats’ point of view, the working class was on the wrong side of these social issues, so Clinton gave up on them.
What future parties will look like?
The Democrats created chaos in their base, but in an orderly fashion. The Republicans created it in a disorderly way. Trump drew the white working class to him and engaged in what proved to be the losing side of the social values debate.
The Republican Party lost the culture wars in 2016: they added the white working class (as Reagan had in part) but united them on social issues that simply didn’t have the votes.
The issue, at present, is this: What is the Democratic Party about now if it has already won on gay rights, abortion, and prayer in schools? What is the reason to vote Democrat in 2020?
The major political battles on the cultural issues have been won. And while the battle may continue, a massive reversal on these issues would require a massive reversal in the political structure of the US.
The issue at this point is the fate of those earning below the median income. These are the people in the second basket of Trump supporters… and the former core of the Democratic Party.
But because of the Democrats’ shift on cultural issues, they are now more aligned with the classes who earn above the median income. If they focus on those below, they must shift their cultural views. If they focus on those above, they alienate their old base.
If the Republicans now have the South and the white working class, what do they do once the culture wars subside? Both parties tossed out historical coalitions to fight the culture wars.
The Democrats no longer have a clear hold on any group for primarily economic reasons. At one time, this issue had been the Democrats’ foundation. The Republicans actually have more currency there now. But these recently added groups and the traditional Republican base don’t live well with each other.
It is tempting to say that the Republicans are a permanent opposition party now, but that would be wrong. For the moment, they have the possibility of owning the emerging challenge in the US —the ability of the middle class (and those below) to afford a decent standard of living. This was one of Reagan’s issues and Trump resurrected it. The question is: What will the Republicans do with it now?
I will argue that when we look back at this year, the Republicans will have lost the election, but they have been handed an opportunity to build a new coalition.
The US may or may not find that whites are a minority, but it is not clear that all non-whites have common interests. The Republicans’ acquisition of white non-college educated males—plus the South—is not trivial. This is a vital base, but it’s not enough.
Tying this base together with a winning coalition won’t be easy. It challenges what the Republican Party has become for the last generation. But then, Trump has bought an end to that phase of Republican history.
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