David McWilliams: America reaps a whirlwind for undermining its middle classes
We all now know what has happened in America, but the big question is not what has happened, but why it is happening? In order to answer this question we have to look much deeper into the campaign, the insults and the upsets. We have to explore the economic, demographic and political forces that have come together in a perfect electoral storm in the land of the free.
I can think of no better place to assess this than here in New York, in the back of an imported Korean car. I am in an Uber, driven by Sadique, who is from Bangladesh and at college by night, driving by day. We are avoiding potholes, heading uptown on 3rd Avenue towards 125th Street in Harlem, the new Times Square. Sadique has only been here for three weeks. I remember a time when you needed to know New York to drive a cab. Like London cabbies of old, you needed the knowledge, an exam and a permit. Today, all you need is a car and a smartphone with Google Maps.
Many years ago as an itinerant economics student, I too worked here. I washed dishes on Bleeker Street. Had Uber been around then, I'd probably have been an Uber driver. But would I have been heading to Harlem in the mid 1980s? I doubt it!
New York has changed - and so too has America.
Every time I visit, a new nationality is driving cabs or running corner shops. From month to month, some new app revolutionises the way something is done, from music to journalism to travel. Each disruption enriches some and impoverishes others. Just think what Uber is doing to taxi drivers. What was once permanent is now transitory, what was once secure is now fragile and what was once a full-time income is now a part-time top-up.
Geographically, the place is in a constant state of flux. Every few months, some neighbourhood is being spruced up and sold on to hipsters - the hirsute prodigal sons of investment bankers. Old tribes move on, new ones move in. All the while, asset markets go ever higher, helping the rich, who own assets, get richer, while those who depend on wages become relatively poorer and more insecure.
This bubbling witch's brew of change, immigration, disruptive technology and winners and losers simmers away, unnoticed until suddenly it spills over to scald the US political mainstream.
This may not always be apparent, but in the same way as Irish teenagers washing dishes in the 1980s told us something about Reagan's America, the Bangladeshi lad driving the Uber tells the story of Obama's country.
Yet all this is changing.
Back in the 1980s, when I was toiling away in the kitchens of Manhattan earning expensive dollars to bring back home to Ireland, the Fed was right in the middle of its war on inflation. The strong dollar was an essential part of this offensive.
Beginning with Paul Volker in 1981 and for two decades thereafter, the Fed fought a campaign against inflation called "opportunistic disinflation".
The Fed welcomed recessions when they inevitably happened, because the downturn would compress wages and prices through unemployment. A corollary of this thesis was that the Fed should pre-emptively tighten in recoveries, prompted by leading indicators of rising inflation, rather than rising inflation itself.
Such pre-emptive strikes would 'lock in' the cyclical disinflationary gains wrought by the preceding recession. Each recession squeezed relative wages downwards, so that when workers finally got back up following a recession, they started each new upswing at lower wages. Therefore, each recession was seen by the Fed as an opportunity to squeeze a little bit more inflation out of the system.
All the while, the working man lost out as wages fell and the corporate man gained as profits rose. Such a massive switch from labour to capital, underpinned the massive bull-run we have seen in asset prices over the past 25-odd years.
The cyclical disinflation process was boosted by two huge secular events that drove inflation permanently lower and stocks higher: the emergence of China and Nafta (the North American Free Trade Agreement) - the two bête noirs of the Trump campaign.
Both the emergence of China and the implementation of Nafta pitted the American worker not against the American capitalist but against third-world workers as US companies outsourced.
The political cost of these developments has been the gradual erosion of the working man's wages and the marked amplification of inequality. With workers' incomes held down by China and Mexico, a much bigger percentage of American 'value added' went to profit, not wages, rewarding asset owners as opposed to wage earners, allowing corporate America to drive down American wages with the help of Chinese and Mexican workers.
Back in the US, only through increased personal indebtedness could US consumption be maintained, which is what happened.
However, the social cost of so much personal debt is a heightened level of economics insecurity.
Ultimately, the Fed won its 20-year war on inflation but at a cost of greater social inequality, which would come back to dominate this presidential campaign.
The undermining of the American working- and lower middle-class was not the unintended consequence of policy; it was the aim of policy - and now America is paying for it.
This is what has happened in the US and this is what is behind this election result.
As we pull up to 125th street, Sadique is still talking cricket - a game alien to the locals. The fare is docked virtually. No money changes hands and, in the process, another faceless middleman - this time the old-fashioned bank employee - loses out.
But the downsized bank teller is not just a number. In a fractious democracy, he is another disgruntled voter, another voice for change and another frustrated ballot-box warrior demanding a new direction.
As I head towards Harlem's famous Apollo Theatre, Sadique is already answering his next Uber client. I wonder if this intrepid young Asian has any idea the impact he, his iPhone and his ambition is having on America and how he will profoundly affect America's future path.