Stunned political analysts are missing the most plausible argument explaining Donald Trump's unexpected victory. The misreading of the American electorate stems from the political class' acceptance of mistaken (and increasingly insane) economic dogma that has arisen over the past generation. Based on their flawed understanding of economics, the pundits could simply not understand why the electorate had become totally disillusioned.
According to the ideas favored by economists on Wall Street, in government, and in the Federal Reserve, Americans should be enjoying a marginally good economy. Unemployment is low, home values and the stock markets are high, credit is cheap and plentiful, prices are stable, auto sales are robust, healthcare is available to all, and GDP is growing, albeit at levels that are below optimal. These are conditions that would normally favor the incumbent party, and would discourage voters from taking a chance on an unknown who has promised to tear down the entire system. But that is precisely what happened. There can only be two explanations: Either Trump supporters were motivated by hatred strong enough to cause them to vote against their own economic interests, or they understood the economic reality better than the Ph.D.'s. I believe the people got it right.
In countless commentaries over the last few years, I have argued that the economy has been getting worse, not better, since the Great Recession of 2008. My points were simple. I suggested that the economic signals created by the Government's deficit spending and the Federal Reserve's eight year stimulus program were not creating growth but were actually hollowing out the real economy. I argued that prices were rising faster than Washington cared to admit and that inflation was an economic problem for ordinary Americans, not a magic elixir for growth. I argued that unemployment came down only because people either gave up looking for work (and then dropped out of the labor force), or took multiple low paying part-time jobs to compensate for the loss of good-paying full time jobs. I argued that increased workplace regulations, minimum wage increases, and Obamacare would create hostile conditions for small businesses and would stifle job creation. I argued that zero percent interest rates and quantitative easing were simply a benefit for the investor class and did nothing to generate real or sustainable growth (in fact those monetary policies guaranteed stagnation). I argued that these low rates would inflate debt bubbles in the auto and student loan sectors and would set up our economy for years of pain when those bubbles burst.
That is why my gut told me that Trump would win, despite the polls and the widely held belief that a Clinton victory was assured. I believed that voters (who live in reality, not the fantasy world concocted by the elites) would express their dissatisfaction the only way they could, by voting for Trump. Obama came into office eight years ago promising change but delivered more of the same. Clinton's promise to continue that failed legacy was a loser from the start. The rank and file saw things the way I had, and reacted the way I believed they would.
But just because the electorate has finally noticed the emperor has no clothes does not mean that we are now on the path to recovery. Donald Trump has proven to be a master of identifying the hopes and fears of voters, but whether or not he has the wisdom and courage to do what is necessary to restore the country's economic health is an open question. While it is true that Trump is less likely to continue with the status quo, no one really knows what path he will follow broadly. His election likely sounds the death knell for Obamacare and for a slew of environmental and workplace regulations imposed by Obama executive orders, but beyond that, it's anybody's guess.
He has said that he wants to lower taxes and reduce regulations, which are needed goals, but he has said nothing about the hard work of reducing spending or reining in our country's runaway national debt. Trump has openly admitted that his business successes have been based on his ability to go deep into debt, and then to emerge, Phoenix-like, on the back of good deal-making, marketing, and braggadocio. He probably thinks he can do the same on the national level. But there the rules are much different.
