Confused Why Donald Trump’s Message Is Resonating? Relative Comparison Theory And Income Inequality Explain A Lot.
Last week, I published a story explaining that the overall picture of the United States is incredibly good on a historical perspective. The Democrats also painted this picture during the convention, and I strongly believe that our Republic continues to reach new heights every year. There’s much to improve, but that has always been a unique aspect of the American Experiment and our Democracy.
As Barack Obama said during his DNC speech:
There are pockets of America that never recovered from factory closures; men who took pride in hard work and providing for their families who now feel forgotten; parents who wonder whether their kids will have the same opportunities we had. All that is real. We’re challenged to do better; to be better.
He rightly points out that many people have struggled, and there’s a reason why Donald Trump is successfully playing on fear and nationalism. The majority of people reading this article on Medium probably haven’t felt the pains that Obama described, so they’re confused, like me, about the popularity of Trump. I again decided to collect data to breakdown the issues that I think are frustrating many Americans. It takes more than graphs and psychological theory to explain this, but I’m going to try. In turn, Democrats and Republicans need to recognize that and deliver real solutions to these issues, not platitudes, fear, and nationalism.
This first graph is by far the most important chart in explaining both the benefits and impact of globalization, free trade, and a changing economy to different constituencies. The greatest benefactors of the extension of the Bretton Woods System (free trade and globalization) following the end of the Cold War have been those who own capital and the poorest people in the world. Unfortunately, as money has moved from the Developed Economies to the Developing World in search of return and comparative advantage, the middle class in the United States and Europe have failed to benefit.
Many behavioral psychology studies have shown that even when your life is improving in absolute terms, you see very little psychological benefit when your life isn’t improving as quickly as your neighbor. Your absolute size of the pie is less important than your relative slice of the pie (Christian Elger and Armin Falk — University of Bonn). This is why inequality is so damaging to the national psyche. The video below shows one monkey becoming irate as his neighbor receives more for the same work. Humans are not monkeys, but we share similar psychological patterns.
Wage stagnation has resulted in many Americans feeling left out of the new economy. On real terms (inflation adjusted dollars), wages are back to where they were in 1996.
This is because a majority of the recent economic gains have gone to the owners of capital and the richest portion of our population.
And the share of income going to the top 1% is similar to what the country saw in the “Roaring 20s.”
This issue extends beyond the typical 1% vs. 99% that we’ve heard so much about. When you look at the staggering difference between an average income for a college educated American versus a non-college educated American, you can start to see the value of an education (and why Bernie Sanders and the DNC now support making college more affordable to give everyone a chance at success).
So, college educated Americans are doing a lot better than their non-college educated peers, and this gap is widening with our service economy. Additionally, remember, we rate ourselves against our peers. It’s no wonder that Donald Trump’s message of fear and despair is resonating so well with one particular demographic — non-college educated white people.
These people, who are feeling left behind and relatively poor, are looking for a scapegoat. Trump is providing that through immigrants. He normally talks about the illegal immigrants that cross our borders and take low paying jobs, but 1) there’s not as many of them as he makes you think and 2) it’s more likely that white non-college educated men see the educated immigrants as a bigger threat. As shown above, a college education results in a much higher paying job, and college attainment rates are higher amongst immigrants than the rest of America. This is because our immigration policy has rightfully favored highly educated immigrants, since they add tremendous value to our economy. This is how Barack Obama’s father came to the country and how many of the most successful entrepreneurs in our technology sector are able to work and live in the United States.
College attainment is way up, but it’s still less than immigrants — remember psychology teaches us that it’s all relative, not absolute.
Meanwhile, this issue was hidden for a couple decades during the debt boom, which allowed people to think that they were keeping up with their neighbors. Since 2007, however, debt has been very difficult to come by for most households. This is making it more difficult to buy a car, home, or pay an exorbitant credit card bill.
Once you add this data to the overall picture of a massive technological revolution in our economy (the internet), you’re facing a double whammy on the middle class. Carlota Perez demonstrates that technological changes follow very similar patterns with a significant amount of capital during the “frenzy” phase ending up in the hands of the small percentage of the economy who were poised to build and invest in the new technology.
After this phase, comes a “golden age” where the rest of the population typically benefits from the new technology. We are probably about to enter this phase, but it requires a retraining of the entire workforce to catchup to the small group of early winners. With computer science degrees at an all-time high, this reeducation is happening, but it takes time and the older generation of non-college educated men (i.e. strong Trump supporters) are probably too late.
This is why sentiment toward the future is so low. People are comparing themselves to their neighbors and feeling like they’re not getting their fair share.
Frankly, I’ve been confused about the anger and support of Trump. But the misunderstanding is almost certainly due to my luck in life. I live in a bubble in New York City and in the technology industry. I’ve benefited from a good education and an opportunity to work in the new economy. These are not opportunities that most people have been lucky enough to access.
The anger stems from a reasonable psychological reaction to relative economic comparisons and the very real difficulty that stagnating wages cause. The Democratic Party and everyone trying to convince her family and friends that Donald Trump cannot be the next President must keep this data in mind.
We need solutions to these real problems. I personally believe that Hillary Clinton is offering them through increasing the minimum wage, sharing more profits with employees, maintaining many aspects of free trade, reducing the debt burden of college, continuing the work to make healthcare affordable, and much more. These are the issues that impact people who feel left behind, and we need to make this logical argument and maybe even forget about the party or the candidate and just talk about the solutions that will help them recover a bit in this changing economy.