US election: above all, this is a middle-class economic revolt

Donald Trump’s election represents a social and political upheaval. Picture: AP Photo/Kin Cheung.

Eight years ago we went through a global capital strike. Now, in the wake of the mishandling of its after­math, we are seeing a vast “strike” by middle-class labour: first Brexit, now president-elect Donald Trump.

The middle classes were told by their betters that globalisation was good for them, and then watched as their jobs were offshored to low-wage countries and their incomes capped while the rich got richer.

They were told zero interest rates would make things better, then watched as their savings earn nothing and their wages fall behind while the rich got still richer.

Now they are being told innov­ation is good for them — but this time they don’t buy it.

Those who voted Republican are something like modern-day Luddites, with Trump as their Ned Ludd. They are being told automation and artificial intelligence, robots and driverless cars, are going to be great! Just wait! But, understandably, they just see bankers and Silicon Valley moguls finding another way to profit at their expense.

To comprehend the incomprehensible, we must turn to the man who predicted both Brexit and a President Trump six months ago. Steen Jakobsen of Saxo Bank ­explained then that it’s all about the “social contract”, which is not only being broken, but discarded.

The social contract, he said, is the pact between the ruled and the rulers, defining each other’s rights and duties. Voters around the world now want anything but the traditional establishment.

Trump’s election represents not just a social and political upheaval — above all this is an economic event. Among all the desperate attempts to explain the Trump victory, the one that makes the most sense echoes Bill Clinton’s 1992 campaign theme: “It’s the economy, stupid.”

Employee compensation in America as a percentage of GDP has been falling for 40 years and is now the lowest in history. Corporate profits, however, are the highest ever. The share of aggregate US income taken by the top 20 per cent of income earners has risen from 43 to 51 per cent, as the share of all other quintiles has ­declined.

Over the past eight years, since the global financial crisis, the problem has been made worse by monetary policy; near-zero interest rates and quantitative easing have benefited those with access to ­credit, at the expense of savers — retirees, in other words — and those who don’t have access to ­credit: small businesses that actual­ly employ people.

So monetary policy designed to moderate the cycle, to prevent deflation and another recession, has actually further enriched those already doing very well, and robbed those already falling behind.

But the structural shifts that have underlain the cycle have proved far more powerful as the creators of Trumpism.

Globalisation — the combination of free trade and global capit­al — has lifted millions out of poverty in the emerging world, and is still doing so. But there are losers in the developed world — democracy gives them a voice, and digital media makes that voice louder and less controlled.

In recent years the effects of globalisation have overlapped with automation, and in many ways innovation now looks to be the greatest threat to the livelihoods of ordinary workers, blue- and white-collar.

Will Trump turn back that tide? Probably not, and his voters are now set up for disappointment, but at least he’s not part of an establishment telling the people what’s good for them.