Inequality and political control of the rich, Trump unchained, and Canada’s opportunity

Today’s daily post is going to be more on the political economy side of things. I apologize for not having a weekly ready to go yesterday. Time simply didn’t permit it. I am hoping to draw in some themes for the upcoming week since I failed to write a weekly post last night. But that depends on how quickly I finish this post.

As an aside, let me say, definitely let me know if there are stories or themes you want to see discussed here. For example, a follower on Twitter keeps reminding me about the opioid crisis and I have someone in Pennsylvania I want to interview about that now. Hopefully, I can have something on that issue soon.

One last thing: when I read, I try to suspend disbelief as much as possible. For example, I read Britain’s Daily Mail every day with the same suspension of disbelief I have when I read the and the Guardian. I am sensitive to this topic since I wrote about it recently. I think this is a big reason I keep getting tripped up by the spin coming out of the White House (see my last post, for instance). But from a process perspective, I prefer suspending disbelief and getting tripped up and correcting myself to becoming too partisan and biased. I just hope you appreciate this in the analysis I produce!

Now on to the post.

1 Big Idea: As inequality rises, so too does the political power of the rich

This lead theme is what precipitated my writing the preamble about suspension of disbelief above. I don’t have a strong view on this theme yet, but I am running it by you because of a recent article in The Economist magazine. Let me quote from it.

“…Daron Acemoglu and James Robinson argue that in the 19th century governments across the West faced the threat of socialist revolution. Mere promises of greater redistribution were insufficient to eliminate such threats; institutional guarantees were needed. Giving credible guarantees, they reckon, meant increasing the share of the population allowed to vote….

…Mr Acemoglu and Mr Robinson tackle the question in another paper, co-written with Suresh Naidu and Pascual Restrepo. They conclude that democracies raise more taxes than non-democracies do. But this does not translate reliably into lower levels of income inequality….

And in a recent study of European politics, Derek Epp and Enrico Borghetto find that political agendas in Europe have become less focused on redistribution even as inequality has risen. Though both inequality and public concern about it are increasing, politicians seem less interested in grappling with the problem…

Mr Epp and Mr Borghetto think another possible explanation should be considered. Rather than straightforwardly increasing pressure on politicians to do something about skewed income distributions, they suggest, rising inequality might instead boost the power of the rich, thus enabling them to counter the popular will. Research in political science gives substance to the impression that America’s rich wield outsize influence. An examination of the political preferences of those with $40m or more in net worth by Benjamin Page, Larry Bartels and Jason Seawright found that they overwhelmingly favour cutting spending on major social-safety-net programmes. (The general public wants it increased.)…

I’m going to stop right there. I think you get the premise here. And the logic is compelling. The data seems to back up the premise as well.

What do we do with this information? The Economist ends the article with a kind of ‘don’t give up hope about western democracies’ Disney movie ending. But, the reality is that this is a fairly dystopian premise – the concept that ‘elites’ control the political process right across western-style democracies in a way that increases inequality and corrodes democratic values. My gut reaction to the Economist article is that this makes western Democracies ripe for revolution. But what kind of revolution? So far, we have seen a decided shift toward nationalist fervour across a broad swathe of countries in Europe and also in the US.

My thought bubble: this theme of ‘elites’ controlling the process seems to be driving a lot of the movement away from established center parties.

For example, in Germany, support for the Merkel coalition group (has dropped to a record low of 29% from an already low 3% in the election of 2017. And this is despite her coalition partner Interior Minister Horst Seehofer trying to move the coalition toward a more ‘nationalistic’ stance on immigration.

In France, the same thing is happening; Emmanuel Macron’s ratings are the lowest since he became president in May 2017. His poll numbers show just 37% approval in the latest survey by Ifop.

Nothing these mainstream parties are doing is helping them hold the center. I don’t know where this is heading any more than you do, of course. But it bears noting that voters are not happy in many of these countries in the EU. The US is another kettle of fish.

2. How ‘Trump unchained’ will end

And the reason for the US being different is Donald Trump. He is a populist who has effectively hijacked a center-right party and shifted its agenda toward a more nationalist, non-mainstream party agenda. I think of him as non-mainstream, despite winning election as a member of the Republican Party.

And the shift in agenda is clear as the ‘Trump Unchained’ strategy continues to make headlines. Just as a reminder, ‘Trump Unchained’ is the moniker I applied in March as Trump began to purge globalists and non-loyalists from his administration.

And it’s interesting to see how Canada’s Globe & Mail newspaper picks up on this in terms of US-Canada relations. Here’s what they wrote on Friday.

Initially, [Trump] was surrounded by advisers whose worldview wasn’t so radically different from [Canada Prime Minister Trudeau’s team’s] own.

Secretary of State Rex Tillerson was one. He countered the President’s America First tendencies. He was a restraining influence people like Ambassador MacNaughton could respect. But soon after a productive session with him, Mr. MacNaughton turned on the news to discover Mr. Tillerson was gone, replaced by hardliner Mike Pompeo.

On another day, the ambassador had dinner with National Security Adviser H.R. McMaster, who, like Mr. Tillerson, tended toward a globalist’s view. They had a good rapport. As it happened, the next day, Mr. McMaster was gone, replaced by hardliner John Bolton.

This week, the ambassador met with Defence Secretary James Mattis. The thought plagued him before the meeting that its aftermath would find him out the door as well. And it well might. The secretary’s pragmatic views have created a worrisome distance between him and the President.

Why this matters: The Trump of 2017 was a man who gained ascendancy as a result of winning the battle inside a mainstream party. As a result, as an outsider, he initially allowed that party’s mainstream voices into his inner circle. But 2018 has seen a marked shift in political strategy, with Trump moving aggressively toward policy paths that appeal to his populist and nativist gut instincts. And we should expect more of this as his poll ratings have increased.

Deeper dive: Look at the New York Times story on the Affordable Care Act. The call it “The Stealth Campaign to Kill Off Obamacare“.

In 2010, before the Affordable Care Act was passed by Congress, the pharmaceutical industry’s top lobbying group was a very public supporter of the measure. It even helped fund a multimillion-dollar TV ad campaign backing passage of the law.

But last year, when Republicans mounted an aggressive effort to repeal the law, the group made a point of staying outside the fray. “We’ve not taken a position,” Stephen Ubl, head of the organization, the Pharmaceutical Research and Manufacturers of America, known as PhRMA, said in an interview in March 2017.

That stance, however, was at odds with its financial support of another group, the American Action Network, which was heavily involved in the effort to repeal the act, often referred to as Obamacare. The network spent an estimated $10 million on an ad campaign designed to build voter support for its elimination…

PhRMA was one of AAN’s biggest donors the previous year, giving it $6.1 million, federal regulatory filings show. And PhRMA had a substantial interest in the outcome of the repeal efforts. Among other actions, the Republican-backed health bill would have eliminated a fee the companies pay the federal government, one estimated at $28 billion over a decade.

But there was no way the public could have known at the time about PhRMA’s support of the network or the identity of other deep-pocketed financiers behind the group.

Unlike groups receiving its funds, PhRMA and similar nonprofits must report the grants in their own Internal Revenue Service filings. But the disclosures don’t occur until months or sometimes more than a year after the donation.

This is how politics in the US now works. And voters understand this. American voters resent the power corporations and rich people have through spending money. But it is still unclear wat that will mean at the ballot box.

3. Trump’s inconsistency is a double-edged sword

As Trump has moved toward a more aggressive ‘America First’ platform, it has created tension, both within the Republican Party and with US allies in Europe and North America. But the Globe & Mail article sees an opening due to Trump’s unique ability to say one thing one day and something totally different the next.

On policy, he didn’t have many fixed addresses when he began his presidential run. It’s still a matter of who crowds his ear. The globalists had the edge, the hardliners won him back. But the good news now is that he shows signs of changing again.

His advisers on the trade file aren’t looking so good now. The trade war has provided enough evidence of backfiring that he is backpedalling. The bailout for farmers announced this week is one signal. Even bigger is the new tentative deal on trade reached with the European Union.

EU negotiators were having just as difficult a time with the Trump reactionaries as was the Trudeau government. But they hit on something to win him over; concessions on soybeans and natural gas that allowed Mr. Trump to pronounce a victory of sorts…

Now may be the time, with Mr. Trump facing midterm elections and showing some willingness to strike a deal, for the Trudeau government to do what the EU did. Make the big play.

Why this matters: The US economy is doing well. And Trump is loathe to allow his trade agenda to upset that. He realizes that China has ways of hurting the US and of hurting his electoral chances. So he is backpedaling on how aggressive he is willing to take his protectionist views in terms of policy. That does give Canada a window to negotiate indeed.

Deeper dive: But when I read this, I think of Trump’s inconsistency in a different way. I am looking at how he verbalizes what was said and what was agreed to in private conversations.

For example, when Trump said he was happy with his NATO visit, he indicated that the Europeans had agreed to increase defense spending. But subsequently, no European leader agreed with Trump’s inference that Europe had agreed to increases that had not already been hammered out with the Obama Administration.

Then, after Trump met with European Commission President Juncker, he said they had made a breakthrough on agriculture, specifically beef and soybeans. Subsequently, Juncker and the EC’s spokeswoman contradicted the substance of much of what Trump and his surrogate, Larry Kudlow, had to say about the talks.

Finally, there was the meeting between the New York Times’ publisher and the President.

Statement of A.G. Sulzberger, Publisher, The New York Times, in response to President Trump’s tweet about their meeting https://t.co/N6soZfxQZ7 pic.twitter.com/W9mFxCF0tp

— NYTimes Communications (@NYTimesPR) July 29, 2018

Sulzberger implies that Trump’s spin on what was said during the meeting was false.

Seeing these incidents makes clear that Trump is a promoter, or even self-promoter. His statements are hyperbolic or even false but their aim is to promote his agenda. But, Trump is quick to backpedal when he believes his previous statements no longer positively promote that agenda. And so, he can turn on a dime. That inconsistency is a double-edged sword. Certainly, it lowers the President’s credibility. Yet, at the same time, it gives hope to negotiators like those from Canada who see an opportunity to turn Trump around.

For them, the key is to present a counter-narrative with a train of logic that promotes Trump’s agenda to Trump. And if that counter-narrative is compelling, Trump will reverse course.

I have a few more threads to discuss today. But I will do so in a separate post as time is running short. Thanks for reading and Happy Monday!