The fury of American voters is in its infancy

At bottom, this anger is economic. People do not expect incomes to rise, writes Roger Altman
FOUNTAIN HILLS, AZ - MARCH 19: Republican presidential candidate Donald Trump speaks to guest gathered at Fountain Park during a campaign rally on March 19, 2016 in Fountain Hills, Arizona. Trumps visit to Arizona is the second time in three months as he looks to gain the GOP nomination for President. (Photo by Ralph Freso/Getty Images) ***BESTPIX***
Republican presidential candidate Donald Trump
There is a deep anger in the American electorate that explains the rise of two candidates whose presidential campaigns would, in previous election years, have been killed off well before now. It explains why voters are prepared to overlook the relentless insults of Donald Trump, the Republican frontrunner, and the avowed socialism of Bernie Sanders, the main rival to Hillary Clinton for the Democrats, while embracing their unorthodox stances on trade, healthcare and much else. And it explains why two-thirds of Americans say the country is on the wrong track.

At its heart, this anger is economic. Ever more Americans are having trouble making ends meet. Many of the jobs created since the financial crisis are low-wage. And voters do not expect better incomes in the future. For a nation accustomed to believing that each generation would live better than its predecessor, this is a bitter pill.

This economic pressure is not temporary either, because the trends undermining incomes — technology and globalisation — are in their early stages and still accelerating. All the talk from Mr Trump and Mr Sanders about building border walls and killing trade agreements misses the point. Such steps would have no discernible impact on these powerful trends. What is needed are bolder income support policies to cushion workers against them.

How weak are incomes? Today’s real median household income is $53,600, down nearly 7.5 per cent from the peak seen 20 years ago. And real median wages per hour have fallen 4 per cent since the financial crisis. Further, while 14m net new jobs have been created since the crisis, nearly half of these are in the low-wage sector, as defined by the Bureau of Labor Statistics. Of the new jobs that will be created between now and 2025, according to the BLS, more than 90 per cent will pay $36,000 or less annually. In 2013, 22 per cent of children, at some point that year, did not have enough to eat. This cannot be the America we want.

There are two reasons for the downward pressure on income. One is technology. In earlier periods, technology created as many decently paid jobs as it destroyed. That is no longer the case. Just look at total private-sector employment: it has returned to pre-recession levels; but the proportion of decently paid jobs in manufacturing, construction and information services are below the levels of 10 years ago.

Sales of US-made vehicles, for example, are at record levels today in America but automation has sharply reduced employment in the industry. Digital processes, still in their infancy, are reducing innumerable categories of white-collar employment, such as customer service.

Then there is globalisation. Even a generation ago, the US was the biggest market in the world for many products. No longer. Whether it is toothpaste, cars or consulting services, rising living standards across the world have generated a much bigger market for many of America’s products. In response, businesses have created more jobs — with lower pay — overseas than in the US. Africa, the largest emerging global market, is just coming into focus.

On this basis, American incomes will remain weak. Which is why we need to provide a more effective education system. If one-tenth of working-age men who do not have a university degree were to earn one, the 35-year decline in median wages would disappear. So we must make a greater effort to help students complete their degrees.

We also need to provide greater income support for middle and low-wage workers. There are two possible approaches. First, double the impact of the earned income tax credit (EITC) by raising both eligibility levels and payment limits. Second, combine this with a higher minimum wage linked to inflation. Such moves would boost take home pay for tens of millions of working Americans.

Yes, doubling the EITC would cost taxpayers another $60bn annually. But this is not a big sum by federal budget standards and could readily be financed by phasing in higher taxes on dividends and capital gains. Many forget that tax rates on income from capital are not high by historical standards.

In the longer term, it is possible that more advanced technologies will permanently reduce the demand for human labour. If this ensues, we may eventually consider a universal guaranteed income for working age adults.
The point is that the income pressures we see today are going to continue. If we ignore them, voter anger will intensify. It could make Mr Trump’s brand of authoritarianism look moderate.

The writer is founder and executive chairman of Evercore and was deputy US Treasury secretary under President Bill Clinton

Ancient Rome’s Donald Trump

Philip Freeman
. Roman statue

DECORAH, IOWA – Populism has a long and colorful history in American politics, from Huey Long on the left and George Wallace on the right, to – more recently – Ross Perot in 1992 and Donald Trump today. But the roots of populism stretch much further back in time – more than two millennia, to the beginning of the end of the Roman Republic.
For most of its history, the Roman Republic was governed by old political families and reliable power brokers who knew how to keep the masses in line. Elections were held, but they were deliberately designed to give the ruling classes the lion’s share of the popular vote. If the Roman aristocracy, which voted first, chose a man for office, officials often would not even bother to count the ballots cast by the lower classes.
On occasion, disgruntled farmers, tavern owners, and donkey drivers would rise up and press their rulers for debt relief and a real voice in government, but these revolts were put down quickly with promises of better times ahead and by hiring a few off-duty gladiators to rough up the chief troublemakers. In the late second century BC, the aristocratic Gracchi brothers tried to bring about a political revolution from within, only to be killed by the conservative nobility.
The man who ultimately brought down the system was a wealthy and ambitious nobleman named Publius Clodius Pulcher, a populist demagogue who refused to play by the rules.
Clodius had always been eccentric and unpredictable in ways that both shocked and amused the Roman populace. As a young man, he had incited a mutiny among his brother-in-law’s troops. Then, when pirates captured him, he took deep offense at the small ransom they accepted for his release.
Nothing was sacred to Clodius. The more audacious his behavior, the more the public loved him for it. In Rome, for example, Clodius, a noted ladies’ man, committed sacrilege by dressing up as a woman and infiltrating the female-only religious festival of the goddess Bona Dea, with
the aim of seducing Pompeia, Julius Caesar’s wife. The scandal led Caesar to divorce Pompeia, and gave rise to the famous quip that Caesar’s wife needed to be beyond suspicion.
After escaping punishment by employing a large legal team and doling out generous bribes, Clodius entered politics in an effort to secure the respect of the ruling class, which was quick to dismiss him as a buffoon. What Clodius’s critics failed to realize was that he was smart, determined, and very much in touch with the frustrations of the common people.
After the elite rebuffed him, Clodius began breaking every rule in his quest for power. He gave up his standing as a nobleman and officially joined the plebs, positioning himself as the leader of the angry Roman working classes. Using his natural charm, fiery rhetoric, and keen sense of how to play establishment politicians against each other, he rammed through legislation establishing the first regular handout of free grain in Western history. This provided him with a huge following among the common people, especially those who had lost their jobs in recent economic upheavals. He became the king of the Roman streets and unleashed a populist uprising unlike anything the Republic had ever seen.
Rome’s ruling classes had no idea how to control Clodius, whom they continued to despise. If the Republic were going to be destroyed, the famous orator and establishment politician Cicero lamented, at least let it fall by the hand of a real man.
Exacting revenge, Clodius engineered Cicero’s exile and laid his plans to rise to the top of the political pyramid. During his campaign for the praetorship, an elected magistrate that ranked just below Rome’s ruling consuls, the elections had to be postponed twice because of fighting in the streets between his followers and the faction of his enemy, Annius Milo. When Clodius happened to meet Milo along the Appian Way, a fight broke out between their guards, and Clodius was gravely wounded. Reckoning that a dead rival was less of a threat than a live and angry one, Milo ordered his men to finish him off.
But though Clodius had been killed, the populist forces he unleashed remained very much alive, and they quickly found new champions, most notably Caesar. The ruling classes stood by dazed and helpless as control of the state they had run for centuries slipped from their hands.
In 49 BC, Caesar crossed the Rubicon, engulfing Rome in civil war. Caesar’s murder on the Ides of March was followed by a revolt that destroyed, once and for all, the power of the ruling classes. An autocratic Empire arose, and the Roman Republic vanished forever.

Getting Technical

Commodity Charts Suggest Inflation Is Nonexistent

Prices are still weak, suggesting interest rates are not going anywhere for a while.

By Michael Kahn

One look at the yield on the benchmark 10-year Treasury note tells us all we need to know about interest rates (see Chart 1). The trend is down, and so inflation is still just a memory from a long time ago.

Chart 1

10-Year Treasury Interest Rate

With Tuesday’s jump down, the 10-year yield seems to be on track to test its recent technical support at 1.65 (it traded at 1.758 Wednesday).

I admit I was in the scary inflation camp as the Federal Reserve carried out its quantitative easing plan, essentially printing money out of thin air. But the market rules, and the market was not worried. Perhaps demand for money from the economy was weak enough to offset inflationary pressures from the Fed’s efforts.

But that is for economists to ponder. On the charts of most commodities I see continuing declines.

Let’s start with the big two – oil and gold. I have written here that I thought oil had bottomed but was not ready for a bull market. Gold, while stronger than it had been, still has not confirmed a major bullish reversal. My opinions here have not changed.

What is surprising is that of the traded commodities I follow, only three – sugar, lumber and soybean oil – show any sort of bullish trend. Indeed, the trend in the PowerShares DB Agriculture fund remains stubbornly to the downside (see Chart 2).

Chart 2

PowerShares DB Agriculture Fund

The agriculture fund does not include lumber or soybean oil, but it does have nearly a 14% weight in sugar. Overall, it is more than 51% corn, live cattle, soybeans and sugar, with lesser amounts in wheat, hogs, cocoa, and coffee.

In other words, it tracks commodities without the heavy weighting of precious metals and energy found in other measures, such as the CRB Index. And the negative components far outweigh the positive. If we could track breadth statistics in commodities, the advance-decline line would point lower.

Agriculture-related stocks are not faring much better. While the Market Vectors Agribusiness exchange-traded fund rallied with the market this year, it started to lag in early March (see Chart 3).

Chart 3

Market Vectors Agribusiness ETF

Arguably, it has already broken down below the small rising trendline from February. Its relative performance line versus the Standard & Poor’s 500 definitely set a new low, and, in fact, is at a new lifetime low since it was first traded in 2007.

This is bad news for a broad swath of the market from fertilizer producers to big food growers. One stock that seems to be a tell on the group is Deere & Co, a maker of farm machinery and equipment. Unlike Caterpillar, which produces more of a mining and earth moving line, Deere shows its 2016 rally abruptly cut short as agricultural commodities started to fall (see Chart 4). Contrast that to Caterpillar, which is still near its 2016 highs as precious metals have improved.

Chart 4


The bright lights in the group are chicken producers Tyson Foods and Pilgrim’s Pride. The larger Tyson is up 20% since February and 50% since last November, so it is a bit overbought as an investment. Technicals show a tiring stock.

The bottom line is that commodities and commodity-related stocks continue to hurt, and we can infer that there will be no inflationary pressures for quite some time, at least from this part of the economy. That alone can keep downward pressure on interest rates. Right now it is hard to attribute the trend to demand for the safety of Treasury securities, because the stock market is holding on to its recent gains.


Fear and loathing of a world without borders

In Europe there is fear that foreigners will compromise traditions, writes Ivan Krastev
The thousands gathering at Europe’s borders, and the thousands who have already crossed, are widely but wrongly supposed to be refugees of an uprising that failed: the Arab spring. In reality, they embody a distinctly 21st-century revolution that is yet to come.

In 1981, researchers at the University of Michigan in their World Values Survey found that Nigerians were as happy as West Germans despite being materially far poorer. Almost four decades on, that situation has radically changed. In most places, according to the latest surveys, happiness is in direct proportion to per capita gross domestic product.

The spread of the internet has made it possible for young Africans or Afghans to see with one click of a mouse how Europeans live. People no longer compare their lives with those of their neighbours but with the planet’s most prosperous inhabitants. They dream not of the future but of other places. Smartphones and social media make it easier to cross borders and yet keep their ethnic and religious identities. It is possible to remain Syrian while living and working in London or Berlin. You can keep in constant touch with those left behind or follow the headlines from home.

In this connected world, migration — unlike the utopias sold by the last century’s demagogues — offers radical change instantly. The 21st-century revolution requires no ideology, political movement or political leader. You change not the government but the geography. The absence of collective dreams makes migration the natural choice of the new radical. To change your life you need a boat, not a party. With social inequality rising and social mobility stagnating in countries such as Ukraine and Russia, it is easier to cross national borders than class barriers.
But the migrants’ revolution has the capacity to inspire a counter-revolution and remake our democracies. Historically, democracy was the way Europe integrated outsiders and opened to the world; it can just as easily be an instrument for exclusion and closure.

The myriad acts of solidarity towards refugees fleeing war and persecution seen last year in western Europe are today overshadowed by their inverse: a spreading fear that such foreigners will compromise the welfare model and traditions; that they will destroy liberal societies by threatening women’s rights. Conservatives fear that the flow of migrants is a death sentence for the cultures of the European nations. Fear of radical Islam, terrorism, criminality and a general anxiety over the unfamiliar are at the core of a moral panic.

Many in the EU feel overwhelmed — not by the 1m and more refugees who have asked for asylum but by the prospect of a future in which their borders are constantly breached by migrants.

The future ageing and shrinking of the incumbent population painted by demographers is frightening even to some of the more robust Europeans. The majorities who feel under threat have emerged as an influential force in politics. Not only the extreme parties such as the National Front in France and Britain’s Ukip but also Hungary’s governing Fidesz and the mainstream Law and Justice party in Poland see their role as advocates of those “threatened majorities”. They fear and loathe the idea of a “world without borders” and demand an EU with clearly defined and well-protected barriers. They are convinced the crisis is the result of a conspiracy between cosmopolitan-minded elites and tribal-minded immigrants.
The situation is radically changing European politics and the world view of many on the continent. If, yesterday, they bet their security on the prospect that Europe would be surrounded by liberal democracies ambitious to become members of the union, today they hope it can be surrounded by friendly regimes, liberal or not, willing and able to turn the human tide. The soft power so attractive to outsiders is now seen by member states as a source of vulnerability. Wednesday’s Dutch referendum on the EU’s association agreement with Ukraine exemplifies this mood. The No voters want to send the message that Europe is unwelcoming not only to refugees but also to societies that dream of one day joining it.

This change of hearts and minds can be seen in relations with Turkey. To secure the country’s support for relieving the pressure from refugees, European governments are silent on Ankara’s growing authoritarianism. They want to signal that Europe is not such a nice place as foreigners believe it is.

In short, EU leaders are trapped between the rhetoric of democratic revolution as an answer to the problems of an interdependent world and the messy reality of migration as revolution.

The writer is chairman of the Centre for Liberal Strategy in Sofia and permanent fellow at the Institute for Human Sciences in Vienna