There’s an old chestnut about how a frog in water that is very slowly heated will not jump out. Instead it will remain in the water and be boiled alive. This is most likely untrue as frogs are not as stupid as people, but the metaphor is often used to describe how cultures can evolve in terrible directions. Anyone over the age of 40 understands this because they can think back to their childhood, seeing how things have changed, for good and ill.
A better example of this is the immigration crisis in Europe. Over the last few decades, European elites have been slowly bringing in millions of foreigners through the population replacement project and the locals have barely noticed. Armed with the trident of egalitarianism, multiculturalism and anti-racism, the people in charge have made noticing the slow filling of cities with Muslims into something as close to a mortal sin as is possible in a secular society.
By the time people did start to notice, Europe already had millions of Muslims that had been in place for a generation. Islam was now a political player. But then something happened. Millions of Muslims started flooding into Europe. People noticed and noticed in a big way. So much so even the normally resolute German government panicked and closed their borders. Suddenly, attitudes in Europe are changing faster than the elites can subvert them.
Anyway, watching the GOP preliminaries, there are two things I keep thinking about and both are related to the economy. One is the fact that over the last three decades, life for the middle-class has eroded. This unusually sober post at ZeroHedge makes this plain. Home ownership rates have always been a good bellwether for middle-class prosperity, which is why the ruling class was four square behind the credit bubble of last decade.
Now look at home ownership.
There’s a debate about the home ownership rates and where it should be in a society steadily filling up with third world peasants. Economists don’t phrase it that way, preferring “diverse society in a globalized, highly mobile world.” But, that’s one of the many reasons economic is not a STEM field. Even so, there’s a trade-off between home ownership and labor mobility, which in a big country is an important consideration.
What’s not debatable is the growth of the Federal government in per capita inflation adjusted dollars.
What we have been seeing for a couple generations now is the steady growth of the state at the same time the middle-class has been under increasing pressure. In the 1960’s, a working class guy could support a wife and kids on one paycheck and that usually meant owning a modest home. Today, working class people struggle to pay rent and can do so only when both parents work.
The 2016 election is driven in large part by the realization of the frogs that the gas has been on and the water is boiling. It may be too late to escape, but that does not mean they will not try. The appeal of Sanders and Trump is due, in part, to this realization. It’s also driven by the hysterics of the people in charge, who are largely responsible for the state of the nation.
That last part is what I described in the Trump Effect post. A wide swath of the public no longer trusts what they are being told by the people in charge. Most Americans now think the rich are looting the country. They may not be willing to have a boiled rope party just yet, but people on both sides are now listening to appeals that were considered off-limits not so long ago.
Trump’s plan to treat investment income as normal income is a great example. The day he made the comment, ambulances were sent to National Review headquarters because the entire staff fainted. The folks at the Wall Street Journal threatened severe retribution if the heretic was not brought to heal. Yet, many rank and file conserves think he is probably right. The reason for this is they intuitively sense the trouble lies in all of these sacred cows protected by their betters.
The point here is we have a public that is suddenly aware that the status quo cannot hold. Things have to change and they have to change fundamentally. The candidates who have shown that they get it are doing well, while the guys from party headquarters are floundering. This is true even though, on the one hand, Sanders is offering nonsense as a solution and on the other hand, Trump is not offering much of anything beyond making sport of the pearl clutchers.
There’s something else to consider. What if things get worse? That’s what European elites are facing today. Since 2008 they have been wrestling with the economic irrationality of their project. This decade of crisis is a mini version of the Crisis of the Third Century, in that the people in charge are expending all of their energy on addressing symptoms while the underlying causes fester. In the case of Europe, the new crisis is a migrant invasion that is only possible because of the underlying rot at the heart of the European project.
In America, ZIRP has masked a lot of troubles, but that is coming to an end. Everyone agrees that the equity markets are due for a big correction. Everyone agrees that the labor markets are starting to drag the domestic economy into recession and it may already be in recession. Further, many are starting to worry that we have another credit bubble brewing. In other words, the economy may be about to get worse and maybe much worse.
Recessions are a fact of life, but when they come during a crisis period like we have now they can unleash all sorts of unexpected results. In the late 70’s, the ruling class came to terms with the reality of their situation and were willing to gamble on Reagan. He was not a revolutionary, as much as fans like to portray him as such. The people in charge knew what they were getting and knew he was largely correct. They could do business with Reagan.
That may sound comforting, but there’s no Reagan on the horizon and the current ruling elite is not going to be swayed by appeals to God and country. Tip O’Neil was wrong about most things and not the nicest guy, but he loved his country. The old party hands in the GOP may have looked down their nose at the actor turned politician, but they put the interests of their country first.
The current crop is a different sort of ruling class. Their only allegiances are to their class and the global financial elite that supports them. It’s why both parties rallied around the Iran deal, for example. Global players like Boeing, Halliburton and their bankers had pending deals with Iran. National security and long standing loyalties to allies in the region simply did not matter.
An entrenched ruling elite, trying to fight off an insurgency is one thing. Such a battle in the midst of an existential crisis like another brown tide flowing north or a full blown financial crisis is a horse of a different color. The preliminary rounds of the 2016 election have been interesting, but they could be about to get much more interesting. Imagine another liquidity crisis as Trump and Sanders are trying to clinch their party nominations.