Are Trump and Brexit voters trying to solve the wrong problem?

Over the last few months, political commentators and the so-called establishment have been shocked by the results of the electoral processes in the UK, voting for Brexit, and the US election, electing an unproven, unpredictable Donald Trump to the presidency.

How could this happen? A lot of analysis has gone on trying to explain it, most of it, in my opinion, misguided. Most analysts are focusing on how these results are the wrong solution to the problem. However, I think that the fact is that voters are addressing the wrong problem.

Both the UK and US electorates have voted in protest to what they perceive as being a worsening of their living conditions. Jobs are being lost to global competition and immigrants, life is highly pressured and unaffordable, there is lack of opportunity in our societies, etc. The problem, from voters’ perspective, is a lack of success in the UK and US economy. The economy is doing badly, this is impacting standards of living, and therefore the solution is to vote for political programs which promise (and sadly, that is all they do) success.

Common wisdom, and the narrative of the winning sides in both elections, goes something like this:

In the US, the Obama administration has failed at leading the recovery of the economy from the 2008 recession. Things are bad, and third party countries and foreigners are taking what is rightfully American. Trump is coming to the rescue, promising to make America great again.

In the UK, the EU has acted as a brake to the UK economy, preventing it from growing and succeeding as it otherwise might. The EU is slowing the UK down, with unwieldly red tape, curtailing the UK’s freedom to trade and flooding the country with uncontrolled immigration. The obvious solution is Brexit, which will make the UK great again.

I will look at whether Trump and Brexit are the right solutions to these problems in another post (in fact, they aren’t, but I don’t want too much of a spoiler here). But even before I do that, the first thing we should be looking at is whether these problems are real. And here is where facts come in. Facts used to be the way that reality was evaluated prior to decision making. Although they seem to have lost importance and to have been replaced by the loudest noise, I still believe they are the only logical basis to the decisions we take.

A few facts about the American economy you may or may not know:

The starting point is the financial crisis of 2008 and 2009, which coincides with the beginning of the Obama administration (although its causes are to be found, at least in good part, in the financial sector de-regulation presided over by the Bush and, to a lesser extent, Clinton administrations). In 2009, when Obama took the presidency, the US economy in real GDP terms fell a massive 5.4%, with unemployment at its highest level in 70 years, around 10%.

What has happened since?

• In the third quarter of 2016, the US economy, in nominal GDP terms, has grown 3.5% (this is above the average growth in the US economy since 1940, no mean feat http://www.tradingeconomics.com/united-states/gdp-growth).  
• The growth for 2016 is estimated at 3.1%. This is the highest in any ‘first World’ sizeable economy, with most other around the 1.5% GDP growth rate (https://www.gfmag.com/global-data/economic-data/countries-highest-gdp-growth).  
• 12 million jobs have been created since 2009, with unemployment at an all time low of 4.7% (https://www.bls.gov/news.release/empsit.nr0.htm). In fact, unemployment levels of below 5% are considered full employment, as this accounts for the percentage of people between jobs or willingly out of work at any given time in an economy.
• Budget deficit has been reduced by 60% since the trauma of 2009 (http://www.usgovernmentspending.com/federal_deficit_chart.html).
• 20 million Americans have health insurance for the first time, as a result of Obamacare.
• On the downside, public debt has increased by 90% since 2008, so that is the big issue for the US economy (the average debt per capita is still looking good compared to many developed countries such as the UK for example, see https://en.wikipedia.org/wiki/List_of_countries_by_external_debt).

This is, in anyone’s terms, an incredible recovery in a short period of time. The US economy is succeeding. Big time. So how can it be that Americans think they are doing so badly that they are choosing a candidate whose main promise is to take down the system? There are several reasons for this. I cannot enumerate them all here, but these are some of my favourite explanations:

• Negative news. The fact is, bad news sells better than good news. Fear sells better than hope. Human nature aims to protect what it has before aspiring to grow. Fear of loss is a much more powerful motivator than hope of improvement. This was discovered by psychologists in the 70s and has been the basis of sales and marketing theory ever since. As a result, the media, financed by advertising, publish majorly bad news. The growth in national debt in the US, and anecdotal stories about illegal immigration, get a lot more airtime than the economic recovery.
• Inequality. The distribution of wealth in the US has deteriorated in the last 8 years, worsening the prospects of those at the bottom of the economy. This is not by design of a socially progressive (at least by US standards) Obama administration, it is a global consequence of the dynamics of capitalism. By definition, it fosters inequality by ‘redistributing’ wealth (this is an euphemism for concentrating wealth in the hands of the owners of the means of production). This is classical economic theory, well studied by Adam Smith, Karl Marx, Milton Keynes et al.
• Envy and comparison with others. This was pointed out to me by a friend the other day. When humans compare themselves to others, that influences their perception of how they are doing. Success and failure, wealth and poverty, are relative terms, at least once you get over a basic line. There may be some truth in this. I don’t have any facts to back this up, only anecdotal evidence, which can be hugely misleading. If there is some truth in it, though, that would make some sense. Nowadays, we are bombarded by a culture of celebrity. The people we see in TV and in the media are wildly successful, earn unprecedented amounts of money and accumulate wealth and plaudits. If we compare ourselves with them, we may feel we are doing a lot worse than we really are.

And here comes the really interesting part. If we leave aside the rejection of immigrants, racism, and a few other, unedifying feelings which may have caused some pro-Trump votes but which Trump supporters are at pains to tell us are only a minority, we are left, when trying to explain the vote for Trump, and considering that he practically run with no program or plan, with two main explanations:

• A reaction against an establishment that is failing the American public, ignoring it and presiding over a significant deterioration of its standard of living,
• and the concept that Trump’s success in private life may equip him to show America the way to economic success.

Those arguments may stand in a situation where the economy is failing and the government is forgetting the working people. But, as we saw at the beginning of the article, the facts tell us that this is not the case. All the opposite.

And now comes the big question: In a reality in which the economy is succeeding, the recovery is well underway and Americans are getting access to universal services they never enjoyed before, but where they still have the problems of national debt and inequality, is the solution a president:

• who is a multibillionaire (multibillionaire status is typically a result of lack of equality, since most people are not multibillionaires),
• whose most clear policy is undoing most of what the previous administration has based the very successful recovery on,
• who is running on a ticket of greatly increased public spending and reduced taxation, hardly the recipes to reduce public debt.

That seems a real stretch. It seems that Americans may be voting to solve the wrong problem. 

Unfortunately, that has consequences and, in this case, some of them may be very serious, and contribute to very significantly aggravating the real problems, whilst undoing the real successes. I promised to blog on the Chinese and US relationship, but this post has got very long, so I will have to leave that for one of the next posts.

Before that, we should look at the vote for Brexit in the light of the real UK situation. My next post will be looking at some quite incredible facts about the misconceptions and fallacies that led to the Brexit vote.

Is Donald Trump a mermaid?

This title may be a bit disturbing at first, but you should be ok as long as you don’t conjure up any mental images which mess with your sleeping patterns.

Let me explain what I mean with that question.

Many people, when hearing the word mermaid, will think about Daryl Hannah in Splash, or about the 1989 Disney movie about a Little Mermaid. You could, in fact, probably gather something about people’s age just by which of those two images first comes to their mind. In both cases, mermaids were pretty cool (I have to say I go more for Daryl Hannah).

However, mermaids did not start out that way. Odysseus’ sailors, on their tortuous return voyage to Ithaca after the surrender of Troy (The Odyssey, by Homer, 8^th Century BC), were exposed to the dangers of Bronze Age mermaids, then called sirens. The deal was that the mermaids attracted sailors with their enchanting songs, the sailors followed the songs and they shipwrecked on the rocks of the mermaid island (the location of this island has not been clearly identified, although I now think it may be in Manhattan, soon to move to Washington DC).

Donald Trump has stated in an interview in the last couple of days that a trade deal with the UK would be a priority for him. This has been received with glee (or maybe just relief) by Brexiters, who I imagine cannot help to be a bit concerned by the UK’s impending abandonment of the EU. I guess people find comfort in thinking that you can get to be a multibillionaire by doing what you like to do, not what is in your best interest. However, my experience is that, if you want to accumulate billions, you need to have your interest at heart in any process you are involved in. So, if we are to accept, which I think most reasonable people would, that whatever Trump is saying is because he sees it to be in his best interest, then we should ask ourselves, why is Trump saying that at this point?

One explanation, probably widely spread amongst Brexiters, is that Trump can clearly see that trading with the UK is greatly advantageous to US, and he sees this as being highly significant. Throw in a bit of special relationship, this locker room (a Trump speciality) concept which is supposed to make US presidents put UK interest in front of their own, and you have your justification. Trump is keen to get to a trade deal with UK because trading with the UK is the key to US’s success in the New World order.

Is this true? What are the facts we need to know to evaluate this?

• US annual trade with UK (2015 figures) is $56Bn exports, $58Bn imports. (https://www.census.gov/foreign-trade/balance/c4120.html)
• US annual trade with EU (2015 figures) is $272Bn exports, $427Bn imports. (https://www.census.gov/foreign-trade/balance/c0003.html)
• US annual trade with China (2015 figures) is $116Bn exports, $483Bn imports (https://www.census.gov/foreign-trade/balance/c5700.html)
• US total annual international trade is $1,505Bn exports, $2,241Bn imports (https://www.statista.com/statistics/218255/total-value-of-us-trade-in-goods-worldwide-since-2004/)

I actually cannot resist the temptation to plot this for effect. You can see the figures below.

So, no wonder Trump thinks it cannot be without a trade deal with the UK. 3.7% of US exports and 2.6% of US imports are to UK. A trade deal with UK has to be his first priority! Keep telling yourself that, but, as I already wrote in previous posts, the repetition of clearly unfounded arguments does not make them true. Real causes are based on real facts.

I am now introducing a new saying. If it does not make sense, it is probably not true.

So, what could be an alternative explanation to what Trump is doing and the timing of it? I am now going to attempt an incredibly dangerous stunt: put myself in the head of Donald Trump. Exercise extreme caution if trying this at home.

Trump is promising to make the US great again. In American minds, that means leading the World economy. Being the World’s biggest economy. How are they doing on this? If you take a look at the United Nations 2015 list of countries by Nominal GDP (https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)), the ranking is:

• 1^st: EU, $18,518,430 Mn
• 2^nd US, $18,036,648 Mn
• 3^rd China, $11,158,457 Mn

There is a caveat here, which is that nominal GDP is affected by exchange rates. Since China are artificially holding down the value of their currency, the RMB, if we were to use the more ‘truthful’ measure of GDP by Purchasing Power Parity (adjusting exchange rate anomalies) the US would be third, as China already overtook both US and EU in either 2015 or 2016 depending on who you listen to (see https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)). But this is for another post, another day. In any case, US is, at best, second.

So, to make America great again, Number One, Man!, Trump can do 2 things:

OPTION A: Grow the US economy significantly (not that easy, especially at a time when many more countries are joining global competition, which is, by the way, a good thing in my book, as it spreads wealth to places which have had none until now, and to people who are prepared to work hard for a reward, as we are in the West, countries, for example, like Laos, Vietnam, Indonesia, etc.)

Or…

OPTION B: Make the EU smaller! Let’s do some Trump magic and take the UK figures away from the EU’s. Look at the ranking above again now:

• 1^st US, $18,036,648 Mn
• 2^nd EU, $15,660,427 Mn
• 3^rd China, $11,158,457 Mn (with the same caveat)

So, as if by magic, all Trump has to do to deliver on his promise is encourage the UK to abandon the EU, changing course and sailing to a potential shipwreck. Julius Caesar already coined this strategy with his famous ‘divide et impera’, or ‘Divide and conquer’, although Sun Tzu would probably claim he wrote it first in ‘The Art of War’, nearly 3,000 years ago.

The metaphor is completed by the fact that (and I have not checked this, so I am going from memory, don’t hold me to it) the mermaids in Homer’s poem (if you have not read it, you really should, essential reading in my view) wanted the ships to shipwreck as they would then eat the sailors. Now, just imagine Donald Trump, not exactly the first person that would come to your mind when hearing the word Win-Win, negotiating a trade deal with the UK at a time when the UK are desperate to strike trade deals quickly and are trying to replace 50% of their international trade, talking to someone who only has 3% of their international trade on the table, and 4 to 8 years to do the deal. I think many in the UK trade mission may find being eaten by traditional, better looking (á la Daryl Hannah) mermaids preferable.

Worryingly, if you look at the more relevant PPP table, once Trump overtakes the EU by helping the UK separate and fall into its jaws, the next thing he needs to do is slow down the Chinese economy. That would explain what is starting to go on in the South China Sea, what may happen with the Strait of Malacca and why the Thucydides Trap, another ancient idea, may still stand. I will blog on that next if I don’t get distracted, but, if you cannot wait and you really have the time, you should read ‘Easternisation’, by Gideon Rachman, and ‘Prisoners of Geography’, by Tim Marshall. Two outstanding analyses of current geopolitics.