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Why David Plouffe won’t win elections, or get matches on Tinder

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Plouffe’s inability to recognise why issues like trans rights swayed votes is the reason why he is bringing the outdated Obama era down with a crash

Having kept his head down (with some justification), David Plouffe recently emerged for the first time since the election to contribute to some of the very worst takes about the 2024 election, on Pod Save America.

It’s very easy these days to understand who has experienced an ad, so we were feeding a lot of digital ads to people who might have saw that spot. But at the end of the day, we were spending a lot of time with voters in these battleground states both quantitatively and quantitatively, and this trans ad was not driving vote.”

To say that Plouffe is from a different era is an understatement – he is now the Paul Krugman of electoral politics belonging to a barely recognisable age. In his defence of the failed Harris campaign, however, we can identify a mental anachronism which will continue to drag the Democrats down, even after being shocked by the force of nature that is Trump in three consecutive presidential elections. As a supporter, historically, of Bill Clinton, Gore, Kerry and even Hillary in her 2008 incarnation (not so much eight years later) this pains me. Everyone is offering their views on how “out of touch” the Democrats have become, so here I offer my own.

First, the Democrats appeared to make a basic error in interpreting polling on voter priority as monolithic support for their side. The most obvious case was seeing “the state of democracy” as the biggest concern for voters, but assuming that such people must be anti-Trump side. As the exit polls showed, among those who considered democracy threatened around half actually supported Trump, not Harris:

Even if we accept that people voted on the basis of just this one issue, it turns out as many considered the ‘lawfare’ campaign against Trump as a threat to democratic norms as did the events of 6 Jan, and Democrat pursuit of the argument that “Donald Trump is a fascist” were not only failing to gain traction but may actually have been counterproductive. The same applies to abortion, which earlier on in the campaign was considered critical: among the one-third of voters who thought abortion should be “legal in most cases”, voters were split evenly between the two candidates:

If strategists such as Plouffe were not even bothering to dig into the numbers behind the headlines to this basic level, it is hardly surprising that they were wasting their resources based on biased assumptions and projection.

Secondly and more importantly however, is the very use of voter prioritisation polling. Most examples of such polling were single answer (rather than, for instance, allowing respondents to choose as many as were important). This created two problems: the error of forced choice and the error of colouring. Forced choices make people go with obvious and pronounced options even when other issues might cumulatively be more important (eg the economy might be outweighed by adding immigration + crime together). Colouring is the consideration that a seemingly insignificant issue by itself still adds a great deal of colour to the candidate or party, influencing voting subtly.

The fact is that most people do not vote on ‘policies’ other than very occasionally when a policy is so simple that it cuts through all the political noise to become totemic. These are so rare that we are hard-pressed to even recall many instances – although Trump’s promises on trade treaties in 2016 comes to mind (as well, perhaps, as his “no tax on tips” policy this year). Elsewhere, the chance to buy your council house under Margaret Thatcher in 1987 is an example from the UK, as was Jeremy Corbyn’s land value tax proposal in 2017. Rather than policies, voters pit a general sense of where policy proposals are headed (eg “lower taxes”, “tough on crime” etc) against a matrix of what a candidate is ‘famous’ for. If the candidate is not well known for the economy for instance, no amount of policy proposals on that subject will mean anything. People vote for their impressions about a candidate, not so much the content.

Which leads to the issue of trans rights, which Plouffe so airily dismissed as “not driving vote”. He was of course correct that it affects tiny numbers of people, and directly animates only a few more; but he is wrong that Harris’ well known past history on trans matters did not colour voters’ impressions of who she was and what she tends to care about. Certainly, she did not come across as tending to care about immigration or inflation, two subjects Trump did convey; on the other hand the trans dsicussion, while not shifting votes directly, added up to an impression of her priorities. On a broader level, it brought into focus her judgement – “is a politician sanctioning free transgender operations for prisoners really worrying about the same things as me?”. Issues can be obscure without being innocuous.

(The same, by the way, was true of Brexit where for years the polling had told us that the issue of “Europe” was not a priority:

Yet this totally missed the point that while in a forced choice, it was not important, at the same time its many facets coloured huge chunks of the public discourse about Britain and the efficacy and power of its government to effect change on matters such as the economy or immigration. Rightly or wrongly, the democratic overhang created by EU membership far overshadowed the importance of the actual issue in voters’ minds and this manifested as a groundswell of discontent which could barely be contained – if Cameron had not asked the question in 2016, a future prime minister would have had to do so within the ensuing years).

None of this nuance emerges in Plouffe’s narrow and mechanical interpretation of voter issues, but it does not take a genius to see how it all connected in the minds of a voter who is only semi-engaged. I will use the parallel of Tinder, where I doubt David Plouffe would have much success, to illustrate the point.

If we strip away the 50% of women and 99% of men who swipe left or right based purely on the photo (although this, too, may be instructive to campaign directors), we are left users of the app having only a quick glance of the few things written down on a profile to decide their choice. Now, imagine a man includes the sentence “vegetarian” in his profile, and consider the consequences. Few women will be so militantly carnivore that they swipe left for this reason alone; but there is no doubting that it somehow adds colour to the profile which will make them think twice. “What does this guy care about?” “What sort of restaurant would we have to go to?”, “Will he force me to only eat lettuce?” and so on. Nobody will admit to vegetarianism having been the deciding factor for their swiping, but you can be sure that it did its job in making that profile underperform in finding matches.

Such structural misunderstandings significantly weakened the strategy Plouffe and his crew were running, well before we get to the litany of “unforced errors” which surely did not help in what was supposed to be a tight race: bear-hugging the Cheneys on campaign; encouraging abortion ballot initiatives in the same election meaning voters could split their ticket and vote for Trump and for abortion; avoiding Joe Rogan and not distancing from Biden; and the ignored sense of scandal surrounding both pretending Biden was mentally capable until June, and then replacing him without a primary. But these need not be litigated here, because the Plouffe team had made historic mistakes in reading voters’ preferences well before the campaign minutiae.

It is, in a sense, rather poetic that the governing classes in both parties (and in the UK) who for so long have sought to reduce politics to a pseudo-science of well-placed dog whistles and esoteric metrics about the economy, should be hoisted on their own petard. Trump offered little if any direct policy solutions to the questions of immigration or inflation, but voters felt he understood it in his marrow. The Democrats need not had offered policy answers either, they simply needed to find a candidate or a message which showed they too understood the problem. But having spent three decades telling voters that life is all about the statistical evidence, about management, about professionalism and about making sure the ‘system’ worked, voters then went on to rightly judge them on these very metrics. Prices were up, groceries less affordable, government seemingly ineffective. If you live by technocracy, you will die by technocracy.

Lichtman’s model may still be good, even if his 2024 prediction is wrong

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An absurd online tussle has commenced over Allan Lichtman’s ‘Thirteen Keys’ thesis over the coming US presidential elections, where not only are endless amounts wasted on challenging his predictions (“He is biased! No he’s not! He’s pro-Democrat! He wears a wig!” etc), but actually being threatening to the poor septuagenarian. Even in the heated environment of this contest, as JD Vance says, this is not worth it.

Yet it presents a good opportunity to think about how robust his model actually is. For the record, I like this type of macro historical analysis, and I think it has value. In particular I like the discipline it instils in not subjecting the election only to the noise of the latest polling. On the other hand, I have a sneaking suspicion (famous last words, perhaps) that Lichtman’s actual predictions this year, which are for a Harris victory, may be wide of the mark. Would this render the model broken?

I don’t think so. Trump may well win this year, but if he does so it will be less about Lichtman’s model being wrong so much as Lichtman’s own interpretation of it. Let us bear in mind that the model is just that – a neutral series of tests (explained in detail here) – but Lichtman then has to take these tests and package them into an opinion (below is the most recent I can find). There is plenty of room for subjectivity. Currently, he sees the lie of the land like this:

Critics of Lichtman’s model – and there have been many – mainly focus on the keys that are obviously open to interpretation and are therefore ‘subjective’. Nate Silver for instance notes that the two “charisma” tests are very much in the eye of the beholder, while others would complain that the definition of a “major policy change” or foreign policy “success” or “failure”.

However I am less interested in those tests so much as the supposedly binary ones. Because the problem is that the whole political system has been shaken in the last decade, resulting in what I think are some structural problems in Lichtman’s definitions – his underlying intent is correct but the manifestation of the issue he has identified no longer conforms to how he has set the keys up. Below, I focus on a few examples.

Key 2: No primary contest

Now this may seem obvious and technically true, but I think Lichtman may not be seeing the wood for the trees this year and ignoring his own wisdom. If we take a step back, the point of there being “no primary contest” is essentially that the incumbent party has not had a bruising encounter which exposes disunity in the ranks of the incumbent party seeking re-election (apparently the same is not true for the opposition, which I have some sympathy with).

But considering what has occurred in 2024, I am not clear that this is true in spirit, even if it by letter. The fact is that many Democrat supporters either a) resented Biden being deposed the way he was, or b) did not like Kamala’s unchallenged rise to the nomination. I personally know a few who have not forgiven the party for what appears to have been a hugely opportunistic change (and let’s be clear, it was perfectly possible to have still had some sort of debate leading up to the Convention, something championed by many including Ezra Klein and numerous others here and here). While Harris acceded unopposed at the Convention, her elevation left quite a bitter taste in many corners of the party.

Thus, while technically the incumbent party did not have a divisive primary, there has in fact been discontent around the selection procedure, so awarding the key to the Democrats in this case is structurally dubious.

Key 3: Incumbent seeking re-election

In this case Lichtman has given a key to Trump which is questionable. Of course, again strictly speaking, Harris has not been President and is therefore a new candidate. And even allowing for sitting VPs such as Al Gore not being considered ‘incumbent’, the peculiar issues surrounding 2024 again makes this seemingly binary key more nuanced.

Is Harris an incumbent? Who is the incumbent? Not only has Harris been part of a long-running trend whereby VPs have been more active in the Executive (Gore and Cheney, and now Harris), but she has now basically been Acting President due to Biden’s incapacitation. She was elevated only after the incumbent had been selected and had started to campaign for the presidency; she has inherited almost his entire infrastructure and strategy and by choice or not, has been unable to distance herself from the Biden administration. To my mind, unlike when a VP runs after an 8 year term (such as Gore in 2000, or HW Bush in 1988), I think the public will likely see Harris as a continuity of the regime, for better or ill. In Lichtman’s model she should therefore get credit for more or less being an incumbent.

Key 4: No third party candidate

Here is perhaps the most far-reaching and controversial challenge to Lichtman’s definitions. Again, of course, this is technically true since Lichtman defines “third party candidate” to mean an officially non-aligned candidate who polls more than~5% of the popular vote. In other words he is limiting himself to the Ross Perots and Barry Goldwaters of electoral history. But with 2016, I think this part of the model has been completely blown out of the water.

Trump, in 2016, was essentially the first third party candidate to win the presidency. Yes, he ended up tackling the Republican primary and using that as a vessel into politics, but he famously had previously been a Democrat and moreover, disagreed with much of the incumbent GOP platform and heritage. Trump’s greatest moment in the primaries was arguably his anger at calling out the Republican establishment over the Iraq War, and being roundly booed for his troubles:

To look at the purpose of Lichtman’s key, it exists to highlight that a significant third party usually indicates discontent with the system, which tends to favour the challenger (this I think is a debateable point but generally I can understand his perspective). No third party therefore favours the incumbent. Yet if a challenger has essentially captured the opposition vessel for effectively becoming a third party candidate, this no longer applies. The same would be true, back in 2016, of a potential Sanders candidacy for the Dems would have seem him as an outsider also. I previously expressed the 2016 worldview like this:

PhyPhi - post 2016 politics

So ultimately we are judging Lichtman’s model by his own narrow interpretation, since as far as I know nobody else is doing an independent version using the same system. But just as an example, if I switched the three examples above around, the 8/5 balance becomes 7/6, and we would be left with discussions over imponderables such as the fact that there are millions of Obama-Trump voters, which belies the thinking that Trump does not win over people from the other side (the definition of “charistmatic challenger”). Indeed whether Trump, in or out of power, would ever be not a “challenger” is itself a question for Lichtman.

For the record, my own interpretation of the Lichtman model offers a 8/5 in favour of Trump. In addition to the key changes above, I would change the charismatic challenger key as explained, and I also sense the “scandal” key to be more prominent than Lichtman believes, because I think there is a whiff of wrongdoing around how long or how early senior Democrats have been hiding Biden’s senile incapacitation. But, as others have noted, these are down to personal views and the polls continue to tell us the race is close.

On balance, I would say that Lichtman’s model is one which we can proceed with with caution for fun, but I would urge psephological geeks (such as myself) to drill into the underlying keys and render their own interpretation, rather than rely on Lichtman’s. Separate the man and his keys, and you may be better off.

Physics, philosophy and why people don’t want “Centrism”

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Physics & Philosophy

For a while, it seemed that “centrism” was back on the agenda. In the US, Howard Schultz, the “burnt coffee magnate”, was considering a run for Presidency and was only one of a long queue that included Beto O’Rourke and Michael Bloomberg (who has decided not to run). In Britain, renegade Labour and Tory MPs founded The Independent Group, designed to coral a fragmented anti-Brexit sentiment in into a movement, replete with the usual platitudes about a “new type of politics”. Every centrist potential presidential candidate is feted by the media as an answer to Trump and AOC; the TIG has actually had success in forcing policy changes from the Labour Party. It seems that, three years after the events that led to 2016, and two decades after the Third Way of Bill Clinton and Tony Blair, sensible politics was hoisting itself back into the public consciousness and relevance.

But here’s the problem: people don’t actually want “centrism”. Politicians on both sides of the Atlantic have taken onboard the very real desire for non-partisanship and somehow mangled this interpretation into support for centrism which is about as far from reality as they could be. It is unclear whether this misunderstanding is at least rooted in good faith about what ordinary people want, or whether it is part of a more sinister move to hijack the non-partisan agenda into something more appealing to those who only ever considered Trump and Brexit as aberrations. Indeed, from some parts of the spectrum supporters of these centrist trends are even preparing themselves for failure, by raising the red herring of “polarisation”. According to this, it is the public’s problem – they are too polarised these days to accept the logic of centrism. Shame on them.

There are two principal reasons why centrism is destined for failure, and none are the problem of the electorate. They are rooted in the two things which centrism stands for. First is compromise. There is some truth to the idea that the electorate is too polarised for compromise today; but this has always been the case. In politics, compromise has rarely been highly regarded since it inevitably results in the worst of all worlds, and usually are a by-word for kicking the can down the road. The Missouri Compromise or “Don’t Ask, Don’t Tell” come to mind for US history. The Barnett Formula, the EVEL answer to the West Lothian Question, and even the British opt-outs at Maastricht in 1992, are cases in point for Britain. The fact is that compromise is rarely satisfactory and tells of an inherently unstable equilibrium which as yet still needs to be resolved. Voters are quite tired of this given the questions thrown up by two decades of globalisation, automation and the 2008 financial crisis, and compromise is not going to answer them.

The second reason is that “centrism” above all (be it consciously or surreptitiously) is about defending the status quo – the exact opposite of popular opinion today. Whether Schultz or the TIG, advocates of the new politics are effectively trying to preserve a now discredited consensus around major issues of the day including free trade of the sort we have come to know, liberal immigration, a focus on GDP, the pursuit of “growth” and exports, keeping interest rates and inflation low and above all the protection of large corporates rather than SMEs. But that is from a pre-2016 world. Today the electorate, having been woke by the events of that year want something quite different – in a weird way, what they want is not centrism but extremism at both ends. Yes, they want to break the deadlock of existing parties, but they don’t want to return the consensus of old. Yes, they do not want the old “Left” vs “Right”, but neither do they want the compromise and consensus of the old “Centre”.

I have previously referred to what I call the Physics and Philosophy paradigm, and it is perhaps worth explaining more here. The problem with studying physics and philosophy is that each seems so different at the beginning and none of it makes sense until the loop completes at the end. Nothing makes sense until everything makes sense – whether in academia, business or anything else.

PhyPhi

Politics, too, is like this. At the beginning, one only sees things labelled for us as “Left” and “Right”, and the expanse of the political firmament is limited by lines of sight from traditional perspectives. Hence, at the beginning of 2016, this is what the American political world imagined it was seeing:

PhyPhi - pre 2016 politics

What we do not see at first glance is how these two ostensibly opposed directions may link up again at the other end of the circle. Yet if we tilt the planet up to peak behind, it is revealed what the political firmament had become by the end of the that year:

PhyPhi - post 2016 politics

Trump and Sanders were not, at the end, all too far away from each other in many of the crucial questions being posed on a number of areas such as trade, international companies and overseas cash-piles, and even infrastructure and healthcare. Both had moved right around the planetary orbit until they almost met again at the other side – the dark side of the planet invisible to the conventional commentariat sitting comfortably on the light side. And in that dark side are all the commonalities which are so hard to digest, principally amongst them the sense that the starting point for policy had to be the domestic and national, not the trade or people beyond the borders. In a sense, Trump and Sanders were in the “centre”, but a “centre” a world away from the “centre” prescribed by Bloomberg. The old centrists are wrong: their centrism was not being rejected due to cultural, regional and partisan polarization – it was not because the two sides were too different, but rather because they were too similar.

And this, ultimately, is where we are today. The TIG’s polling numbers have dramatically collapsed in the face of Nigel Farage’s new Brexit Party, declining from the mid-teens to low single digits since the party’s inception earlier this year. Bloomberg never ran. Howard Schultz has been non-committal about a presidential campaign and Democrats have been begging him not to run; the likes of known centrist Amy Klobuchar are failing to gain traction whilst complete outsiders like Andrew Yang are doing so. Yang, if anyone, is the 2020 heir to the 2016 dark-side-of-planet movement.

“Centrism” is an idea of a bygone age, one where the recent past was a story of success, where defending the status quo seemed like common sense and where just a small amount of compromise would be enough to navigate through foreseeable difficulties. But politics has changed in the last few years. Whether you are for or against Brexit, or whether you are for or against Trump or Sanders or Andrew Yang, the stasis engendered by the old “centre” is as irrelevant as defeating Communism or the Nazis. Although much of the mainstream media remain seduced by the familiarity of what was, voters on both sides have moved on; and most of them have now marched so far around the unseen side of the planet that only candidates who themselves see the future, will be positioned to reap its rewards. Centrism is dead; long live the Dark Side!

 

 

How all politics really works – in one simple chart

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Introducing the General Theory of Government 

The events of 2016 were curious because of their dichotomy: on the one hand, they were such a shock to the political classes, on the other hand they were also entirely predictable. Yet the commentariat both then and since appeared to miss (or simply forget) the most basic and obvious premise of how all politics works: namely that the ruler has to offer the ruled a mixture of both material and psychological well-being. The desire for identity is as legitimate a concern as any amount of wealth, and any government that fails to provide one or the other over a long period of time will suffer the occasional revolt. Understanding this explains Brexit, Trump and any other examples one might care to mention.

I do not claim this to be revolutionary, but given its lack of profile and given the impending elections in the US which will doubtless cause another round of soul-searching, I think it is useful to visualize this concept in a simple, easy to comprehend model. With no further ado therefore, all politics can be represented in this single chart:

General Theory - basic model

The Wealth-Identity Trade-off Model

It should be easy to see where I am going with this. Into the x-axis goes all those things which politicians want to focus on: taxes, welfare spending, the cost of living. Into the y-axis are all those things politicians seem not to think exist anymore such as ethnicity, religion and language. And, in a democracy at least, any government which consistently offers too little of one or other of these parameters, will find themselves cast out. We have for perhaps too long been living in a world where the governing classes have not only mistaken how to deliver W (Sanders, &c), but completely ignored i (Trump, Farage &c). Political parties across the spectrum have spent the last few decades obsessing over the x-axis whilst assuming that the y-axis will tend to itself. Rectifying this will be, as I have alluded to before, the dominant theme of the next two decades at least in the West.

I would hope this is all intuitive enough not to need vast amounts of explanation, but in a series of posts I intend to outline the basic premise of the General Theory and specifically its core idea, the Wealth-Identity Trade-off Model (WITM™). I will go on to examine how and when a society ceases to function properly; what a society really comprises within the model (“Median Man”, or “MM“); and lastly look at some applied examples in the world today and perhaps yesterday.

What I am proposing is not in itself, I think novel; however like all good things I believe this theory synthesizes simple, intuitive ideas which have at best not been expressed before in such a manner, or perhaps may not have been coherently identified. To anyone who disagrees with this, or who have contrary opinions, I look forward to hearing them. Additionally, since these are blog posts which may one day find their way into a book, I will not footnote everything in detail. However I trust that enough is articulated to allow the reader to comprehend what I intend.

American poverty is neither urban nor rural – it’s small, mostly white towns

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A vacant, boarded up house is seen in the once thriving Brush Park neighborhood with the downtown Detroit skyline behind it in Detroit,

It has been a year since Trump entered the White House, and eighteen months since the Brexit vote. Yet the media still display an astonishing lack of understanding about several aspects both of US wage stagnation, as well as how it interacted with voting.

The Brookings Institute came out with an important piece recently which has not received the attention it deserved. They produced five maps, showing the winners and losers in median wage change across the US between 1999 and 2016. Some of the results are obvious: the first map, of “winners”, shows that wages in the tech hubs and in government subsidised DC have done rather well; the last map, showing where wages have done the worst – step forward Detroit amongst others – is also a well-worn narrative.

But it is the penultimate map which should be most concerning. I have long argued that American liberals take far too narrow a view of poverty, and see the role of government as essentially providing urban answers to urban problems, which are the most visually obvious to those inside the Beltway. This ends up focusing on helping ethnic and other minorities, albeit usually in a less-than-constructive method. Altogether ignored is where much of the real poverty lies – as this map shows:

metro_20171012_alan-berube_fig4-struggling-v3

It repays some close study. The problem areas are not Detroit or Flint or Cleveland. The problems are that 10 urban areas of over 1 million inhabitants – and another 59 towns of between 100,000 and 1 million – have experienced median wage declines of 10% – 15% over the period. On the basis of this study, that’s 50 million people constituting the single largest group, and are not all names you would expect:

While the group contains a handful of large Sunbelt metro areas still laboring to rebound from the late 2000s housing crash (e.g., Miami, Orlando, Phoenix, Tucson) and a few major industrial centers in the Midwest (e.g., Chicago, Indianapolis, Milwaukee), small- to mid-sized urban areas predominate in this category. Most are manufacturing centers that lost significant numbers of middle-income jobs in the 2000s that have not been replaced, including 10 urban areas in Wisconsin, six each in Michigan and Ohio, and five each in Georgia and Indiana. A few have shown some green shoots in the 2010s after a rough decade, including Ann Arbor and Kalamazoo in Michigan, and Oshkosh in Wisconsin. Others, however, have slipped considerably since 2009, such as Charleston, W.Va., Davenport, Iowa, and Springfield, Ill.

This reinforces two lessons. The first is that the often quoted cliché about urban vs rural voters is a false one; neither America (nor Britain) are about large urban centres. By my last count, well fewer than half (43%) of Americans lived in conurbations of over a million people. Fewer again (33%) lived in cities of over two million. The genuinely rural population is also small (15%). Instead, real American life is about small market and post-industrial towns.

Politics focused on what happens in New York or LA, and contrasted perniciously against what happens “out on the ranch”, is not helpful to anyone. Reporters and politicians know all about the urban indigent, even if they do not do much about it; but they seem to know nothing of the small-town working poor. That is what Trump and Sanders were all about. It is also the case with Britain, as was identified in an excellent piece in 2007 by Blair Freebairn.

The obsession with reporting on urban areas is one I have discussed before in relation to media misinformation about street protests in the developing world.

Neatly compact urban street protests are highly photogenic and easily captured on camera. Crowds sell news … It is difficult for outside observers to empathize with anyone other than those who are so passionately occupying the capital. It also involves much greater effort and investment in time – time which is not afforded by the twenty-four hour news cycle.

The great tragedy is that the same misguided focus is applicable at home, where we discovered last year that journalists who should know better, did not.

The second lesson is the danger of economists and economic commentators continue to fall victim to the intellectual Tyranny of the Mean, whereby average numbers still form the focus at the expense of median data. What I should hope is by now a very commonly seen chart shows the disparity which still leads to the incredulous question: “who are all these poor white people?”

US_GDP_per_capita_vs_median_household_income

There is little sense in technocrats informing voters that their economy has been growing, or that living standards have been rising, when no-one recognizes it as such. The disparity shown here is not only obvious as a chart, but more importantly in how voters feel about the economy. Median calculations are not perfect, but a good starting point would be for all economists to rethink along median lines each and every time they put out a statistic or indicator.

All said and done, it seems to me most liberals have still not grasped the underlying lessons of the last few years. Obama, of course, had precisely zero to say on the issues that would come to dominate 2016 – he barely seemed curious about such trends, for someone so supposedly intellectual. Fighting the urban-rural battle is to continue the last war. Small white towns are where it’s at right now, and telling them they’ve been doing okay is not going to win any votes.

Not all imbalances are created equal

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Trump Merkel

Finally, an opportunity to get my teeth into something classically “asymmetric”: trade.

A piece recently crossed my path, dripping with the complacency of either ivory-towered elites not thinking through the real world; or worse, a Koch-sponsored lobbyist who knows perfectly well the costs of globalisation but wants to hide it in the sophistry of undergrad economics in order to shift the conversation amongst those who do not know better.

It turned out, of course, to be by Dan Hannan, friend of a friend but also the kind of writer who has something of the over-enthusiastic undergrad about him, and is a paid up neo-con – hence the telltale signs above. It was misleading on a number of accounts, and I would go as far as to say, was quite mischievous.

First, the article starts by making fun of Trump’s complaint over German trade policy. Of course, broadly speaking the Germans are exporting a lot because they make great stuff. That’s fine. But the problem is that a good chunk of their competitiveness has nothing to do with their quality of manufacturing and everything to do with a form of currency manipulation, in the shape of the Eurozone. In this regard Trump is perfectly correct to say that they are “selling too much stuff” – just as many would accuse China of the same in recent years. I hope the author was not attempting to criticise the use of simple language for simple people.

Secondly, Hannan goes on to make this statement:

“Incidentally, there is nothing wrong with having a trade deficit with Germany, or with anyone else. Germans can do only two things with the American dollars that they get for their goods. Either they can import American products, or they can invest those dollars back in the United States. At the moment, they are doing a lot of the latter – to everyone’s benefit. The trade deficit is matched, down to the last dime, by the investment surplus. That is why we talk of a trade “balance.”“

This is not entirely correct. The fact is that because it is dollars and not any other currency, the Germans (or anyone else) can directly take those dollars and invest them elsewhere without the US being involved. This is the burden one bears for owning the currency of international trade, the “exorbitant privilege” of being the world’s only real currency. Of course this brings benefits to the US too, principally the ability to print as many dollars as they want and continue to borrow in it, without causing inflation or lowering their credit rating. Nonetheless, America does suffer uniquely.

Last is the issue that has been exercising Trump, Sanders, Corbyn et al (though sadly not Theresa May), namely that not all imbalances are created equal. It is all very well having a capital surplus to match your trade deficit; but the beneficiaries of a capital surplus – financial and real estate investors for instance – are not the same people losing out from the trade deficit. Capital inflows hugely benefit landowners and bankers, but don’t do so much for others.

For most large countries, it would be a pretty sad and politically unsustainable situation to rely only on capital inflows (though small entrepôts like Hong Kong or Singapore might fare better). It would almost certainly lead to unemployment and inflated asset prices – just as it has done in the US. And it won’t be the homes of unemployed steelworker in Bethlehem whose prices go through the roof either; it’s going to be the flats of white collar urbanites in Manhattan.

Herein lies the limitations of much classic economic theory. This is even before we get onto the issues of Europeans freeloading off American defense spending and so on. Really, the question is how on earth do we expect most electorates to digest enough of these nuances to make rational voting choices? With the likes of Hannan doing the talking, in all likelihood they never will.