A lot of predictions were upended when Donald Trump won the presidency. But one of the most interesting was the idea that a President Trump would cause a stock market collapse — or at least a sharp decline. As the liberal economist Justin Wolfers argued at the end of September, after analyzing market movements during a presidential debate, “Wall Street fears a Trump presidency. Stocks may lose 10 to 12 percent of their value if he wins the November election.”
“The market,” Wolfers concluded, “prefers the Democrat and believes that Mr. Trump is a unique threat to prosperity.”
The opposite happened. The stock market soared, driven by Wall Street firms in particular.
The stock market is not a barometer of economic health or growth, of course. It’s an amoral calculator of short-term corporate profits and dividends over the next few years, nothing more or less. Stocks were right to rally, as corporate profits would be seeing a windfall with a wave of deregulation and elite tax cuts. Though it was lost in the endless debates about what went wrong for the Democrats, that the stock market so welcomed Trump was yet another source of troubling pain for the Democrats’ self-conception.
This pain is worth dwelling on. Since the election, numerous articles have argued that the Democrats need to become more populist. But they generally don’t get into the specific questions that Democrats need to answer in the wake of 2016. The stock market issue is useful here, as it touches on several issues that Democrats need to reckon with while they are in the political wilderness.
First, Democrats need to reevaluate their idea of themselves as disinterested stewards of the economy — as a party that accepts the current economic arrangements largely as a given. Second, they need to understand what their coalition looks like if they can’t peel off moderate Republicans, as they predicted they would throughout 2016. Third, they also need to decide if the economy requires structural changes, or merely some tinkering around the edges. And finally, they must decide whether social programs should target narrow populations or lean towards universalism.
A Democratic Party that believes that it is the party that is truly good for the stock market would answer these questions one way; a party that looks beyond the stock market answers it another way.
Decrying Trump’s outlandishness is (still) not enough
Of course, the Democrats could spend the political wilderness not changing anything. Trump is a mess of a president, with his approval numbers steadily falling. Republicans are trying to take health care from millions while cutting taxes for the rich, toxic positions within the electorate across parties. Grassroots Democrats are swarming town halls and running for office in massive numbers. Maybe the funk will take care of itself.
Yet the Democrats face an uphill battle to gaining power again. Trump is unpopular, but he’s more popular than the Democrats. (Sound familiar?) A recent poll has a 40 percent favorable rating for Trump, but only 35 percent for the Democratic Party. An April 2017 poll surprisingly found that Trump would win in a rematch against Clinton. Democrats haven’t gained in popularity or gained in party identification. The Republican Party as a whole hasn’t been this powerful since the 1920s. The Democrats have collapsed in state governments, now controlling only 31 of 98 state legislative chambers. Some rethinking is necessary.
One idea to reexamine is how the Democratic Party views itself in relationship to the economy. That the Democrats are the best stewards of the economy is central to how the Democratic elite view themselves.
I choose the word steward carefully, especially given how the left and right loathe the course Democrats have taken on economic matters over the past several decades. The left considers Democrats corporate-friendly sellouts, “history's second-most enthusiastic capitalist party,” as Kevin Phillips once called it. The right believes Democrats want to control business and bend it to their power-hoarding ideological ends of social engineering. Each side scores its points, but neither captures how elite Democrats view their approach.
Democrats have come to view themselves as neutral caretakers of the existing economic system
Stewardship conveys ideas of looking after and keeping order. Democrats now see their role as serving as a fair broker among the competing parts of the economy. They insist they can come up with an arrangement in which capital and labor are simultaneously better off, and that they are the ones who will make the hard decisions, in contrast with the feckless Republicans.
Think of the number of times Democrats have emphasized that they balance the budget while Republicans run giant deficits. Think of the balancing acts required to promote reform without naming business as an enemy — as we saw in both the financial and health care arenas. Think of how President Obama tried to achieve a Grand Bargain with Republicans in 2011 that would have cut Social Security under the mantra of responsibility, only to be stopped by the fact that conservatives wouldn’t budge an inch in raising taxes.
This approach hit two serious walls in 2016. The first was that people weren’t happy with the economy. Nearly three-fourths of people said the country was on the wrong track, with similar numbers describing the economy as rigged. Median household incomes in 2016 had finally inched back to 2007 levels. This lead to a year of awkward juxtapositions, with “America is Already Great” headlines running next to reports on how much life expectancy is falling for white workers. Democrats attacked Trump as a poor steward, someone too unstable and chaotic to run the economy as it was. But that message doesn’t motivate voters when they believe the economy isn’t working for them.
The second wall Democrats hit was the inclination of the business community, with its eye on deregulation and tax cuts, to side with the Republicans regardless of how responsible the Democrats are or whether someone like Trump is at the helm of the GOP. The stock market rally shows concretely how happy the capital markets are to have anyone who will boost corporate profits, even Trump.
But there were also strategic miscalculations. There was a sense, for example, that the insurance companies would help defend the ACA from reckless repeal efforts like the ones we’re seeing. Yet, as Vox’s Dylan Scott reports, the insurance companies are on the sidelines: “Health industry groups generally don’t love Obamacare enough to jeopardize their ability to shape the rest of the Republican agenda — including big corporate tax cuts,” he writes.
The Obama administration avoided calling out the predations of Wall Street after the financial crisis and didn’t take strong actions to prevent foreclosures that would upset the capital markets. Yet finance still hates the Democrats and is waging war on the sensible, necessary reforms Dodd-Frank put in place to prevent Wall Street from creating another crisis. There’s no middle ground to be had there. (Fittingly, the current Treasury secretary, busily rolling back financial reform and soon to lead an assault on progressive taxation, ran a foreclosure mill that the Democrats refused to investigate or prosecute aggressively.)
One key question for Democrats is the old labor one: “Which side are you on?” The Democratic Party used to give the answer, as Harry Truman did in 1948, that it “is pledged to work for labor.” In recent decades they’ve given an answer that was essentially “all sides, for the common good.” After 2016, Democrats should pick a side again.
Democrats should end the romancing of the Republican professional class
The appeal of the stock market also shows who the ideal marginal voter is for today’s Democratic Party: a well-educated, moderate-Republican professional. Though tough to get in normal times, certainly these professionals would never vote for Trump. Professionals would more than make up for the white-working class voters Trump would win over. Authors like Thomas Frank have documented the transition of the vision of the Democratic Party base from workers to professionals. Democrats had a slightly different vision: 2016 would be the year that yoked those two groups together to create a dominant new political coalition, rivaling the one Democrats maintained through the New Deal and afterward.
It worked in some places, like affluent Republican suburbs of Dallas, Kansas City, and Atlanta, as well as old-money GOP areas like Greenwich and Winnetka. But overall, well-educated professionals joined the Democrats in nowhere near enough numbers to offset declines in working-class voters of all races, and they were not in the right places to help. Faced with Trump, Republicans stayed Republican.
This theory missed that in our polarized world, elections are increasingly about mobilizing the base rather than convincing independent voters. The upscale moderate defectors the Democrats keep expecting to show up still haven’t appeared. So another important question is: Can Democrats fix their woes by continuing to try to appeal to moderate voters?
A predominant Democratic view is that the economy is mostly fine; it’s just a matter of adjusting and correcting it to ensure everyone has access. Deeper, structural, changes are put to the side in favor of taxes, transfers, and behavioral nudges to help people out.
On trade, for example, the consistent Democratic narrative in 2016 was that we need to “compensate the losers” of trade. The phrasing alone tells us everything we need to know. Which voters want to be identified as losers? Democrats may mean something more abstract when they speak of “losers” in a globalized economy, but the language carries the connotation of personal blame.
But what role does individual agency play when global capital flows upend communities? And why are we treating the economy as a natural phenomenon — one whose consequences we simply must accept — when voters know it’s a series of laws, trade agreements, and businesses making decisions? If this is the best Democrats can offer, it’s not surprising workers aren’t interested.
Worse, small-scale redistribution creates inter-group competition that Trump has all-too-easily exploited. Whereas Democrats say that they’ll ensure that the worst off get taken care of, Trump turns this logic upside down: He says that he’ll take care of his white, middle-class voters (and not the “undeserving” poor, implicitly black and Latino). Universal programs are the way to defuse the zero-sum competition created by narrowly targeted programs.
It is telling, on this score, that a choke point Republicans are hitting in their efforts to overhaul health care is state resistance to killing the Medicaid expansion. The Medicaid expansion helped bring in more people and turned a program for people in poverty into a broader program for working-class people. If the current health care arrangement survives, this will be one reason why.
The questions I’m raising here frame a clear choice. How the Democrats decide to answer them will determine much of what they’ll do later. Democrats should redouble their commitment to labor, abandon the obsessive focus on the preferences of American professionals, rein in the most predatory parts of the economy, and throw their weight behind simple, universal programs that would improve citizens’ economic and social lives.
The Democratic Party had started to move in this direction during the election, but it was never the central pitch. Now, however, every time the Democrats are tempted to deviate from this agenda, they should remember that the stock market loves Trump and could not care less about his antics. That’s because the business class has already decided what side it is on.
Mike Konczal is a fellow with the Roosevelt Institute, where he works on financial reform, unemployment, inequality, and a progressive vision of the economy. He blogs at Rortybomb, and his Twitter handle is @rortybomb.
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