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Like It or Not, Donald Trump Saw the Economic Crisis the Others Didn’t
The Great Recession changed everything, and the leading figures in both parties failed to grasp how deeply. And so we got what we’ve got.
Donald Trump could not have won the presidency in 2016 were it not for what happened eight years before: the global financial meltdown. To this day, political elites do not grasp how the crisis shattered Americans' perceptions of their economic security. This top-level failure has gradually claimed the Republican Party as we've known it since the Reagan era. On Tuesday, the same failure claimed the Democratic Party as we've known it since the Bill Clinton era.
Cyclical recessions have cost presidents their jobs before. In 1980, Ronald Reagan ended Jimmy Carter's bid for a second term as inflation and high interest rates claimed 1.3 million private jobs in the months before November. In 1992, George H. W. Bush lost to Bill Clinton in part because of Bush's seeming lack of empathy for the 1.7 million Americans who had lost their private-sector jobs since 1990.
In both cases, a superficial short-term political formula worked. “Are you better off than you were four years ago?” Reagan asked debate-watchers. Clinton surrogates kept to James Carville's mantra: it's the economy, stupid. Also in both cases, employers finished replacing their lost jobs in the earliest months of the new president's term.
Both parties moved toward a consensus reinforced by their respective successes: free global trade and free global financial markets were unalloyed goods. American workers could quickly withstand any short-term disruptions that an ever-globalized economy sometimes caused.
The Lehman Brothers bankruptcy in September 2008 changed all that. The investment firm's failure exposed the West's financial system for what it was: not strong, but fragile. The U.S. government had to step in with trillions of dollars in guarantees for the financial system. AIG, Citigroup, and Bank of America each needed rescues worth hundreds of billions of dollars.
The bailouts may have prevented a depression. But they did not prevent the deepest and longest recession most Americans had ever seen: About 8.8 million people in the private sector lost their jobs. The country wouldn't replace those lost jobs – often with lower-paying positions – for nearly seven years.
Much of the previous generation's growth had been an illusion – an illusion built on ever-higher levels of consumer debt. Global financial firms provided the credit to make up for the wage stagnation that global trade helped cause. Between 1983 and 2007, mortgage debt nearly quintupled (after inflation). Other household debt – credit cards, auto loans, and the like – grew by nearly threefold. (The U.S. population didn't quintuple or triple; it grew by a third.)
Most people didn't understand these statistics. They did understand, though, after 2008, that something was wrong – and they came to understand, too, that supposedly marquee-level politicians had no practical ideas on how to fix it, only rarified theories.
The Republican Party was the first to fall victim to its leaders' lack of practical relevance. In 2008, 10 days after the Lehman collapse, John McCain suspended his campaign to rush back to Washington – only to reveal that he had no idea what he might do to revive the financial system. In his first debate with Barack Obama, he had little to say on the economy other than to praise “the goodness and strength of the American worker.”
Four years later, Mitt Romney, like McCain, was economically irrelevant. He couldn't grasp that Americans were still upset about bailouts and job losses. When he spoke about banks, it was to defend their bailouts, in sharp contrast to his position on the auto bailouts.
Romney and his surrogates were also perplexed that Reagan's famous 1980 question no longer worked. People knew they weren't better off in 2012 than they had been in 2008. But they also knew that the crash was so cataclysmic that this failure wasn't Obama's fault.
This year, traditional GOP candidates such as Marco Rubio and Jeb Bush had little to say about the nation's economic woes. On trade, both agreed in a January debate that America's trade deficit with China results in lower prices for shirts and ties – hardly the biggest concern on the part of workers afraid for their jobs. Critics said Trump's trade narrative was simplistic. But his position on Chinese steel imports, also outlined in a GOP debate, was far more sophisticated than those of his Republican rivals.
Republicans fell down so badly on national economic policy over eight years that people barely noticed that Hillary Clinton was about the worst candidate to go up against Donald Trump in an environment of acute economic anxiety.
Policy-wise, Clinton's instinct was to rely on the past. “I think may husband did a pretty good job in the 1990s,” she said ++in her first debate with Trump. That statement led to a devastating Trump rejoinder: “Your husband signed NAFTA, which … is the worst trade deal maybe ever signed anywhere, but certainly ever signed in this country. … You go to Ohio, Pennsylvania” – states Trump would win – “and you will see devastation.”
Trump's reading of NAFTA is superficial, as the experts always point out. But it is far less superficial than ignoring the fact that globalization has left many Americans behind.
Personally, Clinton enriched herself after her years at the State Department by taking money from the same global financial-services industry that exposed itself as so weak in 2008. She gave $4.1 million worth of speeches to Goldman Sachs, Deutsche Bank, UBS, Bank of America, and Morgan Stanley, among others.
Clinton was not aware – or did not care – that taking millions from banks even as Americans remained resentful of bailouts and fearful about future financial crises would become a political liability. The young adults who supported Bernie Sanders in the primary in part because they were aghast at Clinton's speech fees may have been Occupy Wall Street sympathizers leftover from the previous election cycle. But Occupy Wall Street has left an indelible mark on our politics, a change that Clinton, like Romney, missed.
And politically, Clinton relied on scare tactics. As she merrily told The New York Times Magazine, “I'm the last thing standing between you and the apocalypse.” To people who experienced 2008, plus Hurricane Katrina and the Iraq war and 9/11 – all under supposedly responsible politicians – this threat sounded hollow.
As Trump liked to say after the primaries, he beat 16 Republican opponents. In doing so, he tore apart the economic orthodoxy to which those opponents clung. He had one task left: to demolish the Democratic Party, and its similar economic orthodoxy.
Either party could have saved itself – by acknowledging that what is good for big global banks and big global corporations isn't always good for the American worker. In admitting that global trade and global finance have their rather obvious drawbacks, they could have preserved their sometimes less obvious benefits. It wasn't that hard. But it was, apparently, impossible.
In the coming months, we'll hear about how the democratic system failed. The reality is that it worked. In debate after debate, candidates exposed themselves not only as unprepared to deal with Americans' quite rational economic perceptions, but as ignorant of them.
Clinton was the last woman standing until she, too, fell to the self-professed billionaire from Fifth Avenue who saw what no one else saw. No one, that is, but the voters. Be angry and frustrated that Trump will be our next president, if you will. But be angrier and more frustrated at the elites whose eight-year vacuum created him.