The Corner

Economy & Business

Are There Economic Policy Answers to Trump Voters’ Woes?

Tim Carney, in the Washington Examiner, well sums up the main grievances of both Trump and Sanders voters: the lack of prospects facing blue collar white males. This, he notes, helped fuel the success of Rick Santorum during the last Republican primary cycle, and is documented by  Charles Murray in Coming Apart, where he tracks the growing class divergence in American society.

The average Trump voter, as Carney notes, appears to be a resident of Murray’s Fishtown, the loser in the race to overall economic progress:

The median woman with a professional degree earns 27 percent more than her counterpart in 1991, adjusted for inflation. And professional degrees are much more open to women today. If you’re a man with some amount of college education, but no degree, you’re making 11 percent less than your counterpart in 1991. When you consider that black males’ income is up 20 percent in that period, and Hispanic males’ income is up 14 percent, you realize how negative the picture has been for white men with no college degree.

And while some are turning to Bernie Sanders and the left, most of them are not:

The Left had an answer, but Fishtowners were uninterested. “Pride prevents them from taking advantage of social services,” one Philadelphia welfare agent wrote. “For them to accept these services might be to admit that they’re not all they claim to be.”

Unsatisfied with the consolation prizes of cheap Chinese-made goods or government handouts, it’s no surprise many of these voters dropped out of two-party politics.

It doesn’t matter that materially, Fishtowners are much better off. The benefit of affordable imported goods  is significant, as Steve Horwitz has shown convincingly.

But this is of small comfort to Trump voters. They reject the left’s offer of welfare-for-life because it offers little to meet their aspirations. A “good, $20-an-hour job” was the road to self-sufficiency and respectability. Being able to afford better material goods with less money fulfilled neither of those goals. The Fishtowners had replaced dinghies with yachts, but still found themselves continually having to bail them out to stay afloat.

This is a complex problem for free marketers, who understand trade-offs, and are fine with parties who have had an unfair advantage losing that advantage—an attitude that can be seen as cold-hearted towards the “losers” when reforms are instituted.

There was a prime example of this during my own formative political development. During the 1970s, the labor unions ran Britain. They brought down one government and controlled the next. They held the British economy hostage to the interests of workers in uneconomic industries that had rigged the game in their favor.

Margaret Thatcher was elected to reverse this trend in 1979. Her primary antagonist was the mineworkers’ union. She did two things to defeat it. First, she diversified Britain’s energy base by increasing the supply of natural gas power plants. Secondly, she took on the union in a major national strike. She won, and Britain’s economy has on the whole been much better for it.

I supported her action and still do. And yet…

I came from the heartland of the miners’ union. My grandfather was a miner. Breaking the power of the miners also broke the power of the shipbuilders, and the two industries that sustained my part of the world essentially disappeared. The gaping hole that was left behind ruined many peoples’ lives – and made the Conservative Party and free market economics objects of utter hatred in some regions. Today, that hatred fuels support for Labour Party leader Jeremy Corbyn, Britain’s Bernie Sanders.

There was also a cultural aspect. Northern England is Fishtown writ large. The strong culture and sense of community was broken alongside the institution of the dominant unions. The Thatcher government dismissed these concerns in the 80s, in a manner that looks to me similar to today’s leftists who dismiss concerns about the culture of western ranchers and farmers. It argued there would be plenty of economic opportunities once the economy got back on its feet. Yet the unemployment rate in the miners’ North East is still over twice that of the Conservative South East. The British economy is booming, but the North East has largely missed out.

A similar process is happening in the United States, but it is more widespread and blamed on both parties in Washington. However, the losers here are much more likely to be individualists rather than communitarian in spirit, as was the case in Britain.

The challenge for free marketers, then, is to find a set of policies that can speak to the individuals’ aspirations and sense of self-reliance.

In that sense, we are lucky this dislocation is happening at a time when vast swathes of new economic opportunity are on the verge of becoming available. What people call the sharing economy or the gig economy is actually the tip of the iceberg of an economic revolution based primarily on an unprecedented lowering transaction costs. What may seem to be the destruction of old industries that provided “good, $20-an-hour jobs” like taxi driving is actually Adam Smith’s “system of natural liberty” reasserting itself.

No driver actually “works for Uber.” In the new sharing economy, the driver is an independent entrepreneur who uses Uber as a platform to find customers. Yes, there are requirements to use the platform, but those are a reflection of consumer demand for trust and quality (a problem regulation previously sought to address).

This independent businessman sets his own hours and is free to pursue other opportunities for profit—it’s the promise of The Four-Hour Workweek come to fruition. Those opportunities are likely to increase exponentially as more and more platforms open up markets previously dominated by highly regulated industries. Entrepreneurs will find customers and suppliers, and consumers will find the products and services they want merely by looking at a smartphone app.

There is opportunity—if we let it happen—for an explosion of economic activity at the community level, with neighbors buying services and renting high-capital cost items from neighbors to mutual benefit. Duke University economist Michael Munger explains the potential in his chapter in a recent volume about Ronald Coase.

Coase realized that we created large firms to keep transaction costs low. We probably don’t need to do that any more. As Munger puts it:

[A] long-term contract of the sort we associate with firms may well become quite rare. Firms may rent capital equipment and labour for very short periods, increasing the productivity of the workers for the period that they are employed and dramatically reducing the fixed costs of the firm. In the limit, firms themselves might simply become individuals or small teams that hire out for specific projects. Workers in this system would be private contractors, not ‘employees’ in the traditional sense. Unsurprisingly, the counter-revolutionary fervour of those who wish to protect existing power structures of both firms and unions will call for attempts to control the sale of transaction cost reductions.

That is exactly what is happening. New Deal-era regulation, and the regulators who interpret them, are holding back some of this innovation. They view platform apps unequivocally as employers, and are pressured to do so by unions, who seek new opportunities for collecting dues from workers.

So there are new economic opportunities opening up for Fishtowners. Unfortunately, there are people who want to stop these opportunities from flourishing. Fishtowners need to learn of these opportunities, and be encouraged to take them up. Far from a “gig economy” of low-paying piece work, we are facing the tip of an enterpreneurial iceberg.

The regulators who want to stop people this revolution need to get out of the way. Occupational licensing should be top of the list (even the Obama administration agrees up to a point). Next on the list should be the Big Labor union-regulatory complex—the National Labor Relations Board, the Department of Labor, and their state and municipal equivalents, which want to hammer the new economy into the model that existed when they were created in the 1930s.

For too long, free market politicians have concentrated on the defending the concerns of big business, and not done enough to condemn the crony capitalism so despised by Trump and Sanders voter. Making the struggling aspirant the focus of their attention may be the only way to win back the residents of Fishtown from populist anger.

To do so, they need to prioritize policies that make it easier to start a business and keep it going, and truly rein in Washington and local regulatory bureaucracy. That is as true for handyman of Pennsylvania as it is for the rancher in Eastern Oregon.

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