By Walden Bello*
If there’s one certainty that emerged in the 2016 elections, it was that Hillary Clinton’s unexpected defeat stemmed from her loss of four so-called “Rust Belt” states: Wisconsin, Michigan, and Pennsylvania, which had previously been Democratic strongholds, and Ohio, a swing state that had twice supported Barack Obama.
The 64 Electoral College votes of those states, most of which hadn’t even been considered battlegrounds, put Donald Trump over the top. Trump’s numbers, it is now clear, were produced by a combination of an enthusiastic turnout of the Republican base, his picking up significant numbers of traditionally Democratic voters, and large numbers of Democrats staying home.
Wrong Messenger, Right Message
But this wasn’t a defeat by default. On the economic issues that motivate many of these voters, Trump had a message: The economic recovery was a mirage, people were hurt by the Democrats’ policies, and they had more pain to look forward to should the Democrats retain control of the White House.
The problem for Clinton was that the opportunistic message of this demagogue rang true to the middle class and working class voters in these states, even if the messenger himself was quite flawed.
True, these working class voters going over to Trump or boycotting the polls were mainly white. But then these were the same people that placed their faith in Obama in 2008, when they favored him by large margin over John McCain. And they stuck with him in 2012, though his margins of victory were for the most part narrower.
By 2016, however, they’d had enough, and they would no longer buy the Democrats’ blaming George W. Bush for the continuing stagnation of the economy. Clinton bore the brunt of their backlash, since she made the strategic mistake of running on Obama’s legacy — which, to the voters, was one of failing to deliver the economic relief and return to prosperity that he had promised eight years earlier, when he took over a country falling into a deep recession from Bush.
These four states reflected, on the ground, the worst consequences of the interlocking problems of high unemployment and deindustrialization that had stalked the whole country for over two decades owing to the flight of industrial corporations to Asia and elsewhere. Combined with the financial collapse of 2007-2008 and the widespread foreclosure of the homes of millions of middle class and poor people who’d been enticed by the banks to go into massive indebtedness, the region was becoming a powder keg.
The Stimulus Debacle
In 2015, the number of unemployed Americans nationwide was still about 2 million above the 6.7 million unemployed at the beginning of what is now called the “Great Recession” in 2007.
While the unemployment rate is now down from the 10 percent peak in late 2009, its decline has been painfully slow, and the improvement stems less from improved labor conditions than a falling participation rate, as discouraged workers withdrew from the labor force.
That the ranks of the jobless have shown little actual improvement stemmed from a fateful decision taken by the administration in 2009, when the Democrats controlled both houses of Congress. Instead of pushing a stimulus program of $1.8 trillion, which his top economic advisers told him would be required to bring the country rapidly out of recession, Obama decided to propose only $787 billion.
Why? Not out of economic rationality but out of political expediency, from a desire to appear to the Republican budget hawks as “reasonable.” Much of the economic misery at the grassroots that blanketed the succeeding years of the Obama presidency could have been avoided or truncated had Obama shown more political will.
As Barry Eichengreen points out in Hall of Mirrors, “An administration and a president convinced of the merits of a larger stimulus could have campaigned for it. Obama could have invested the political capital he possessed as a result of his recent electoral victory. He could have appealed to GOP senators from swing states like Maine and Pennsylvania. Going over the heads of Congress, he could have appealed to the public. But Obama’s instinct was to weigh the options, not to campaign for his program. It was to compromise, not confront.”
Abandoning the Foreclosed
Obama’s shortcomings on the employment front were paralleled by his failure to bring relief to the millions of households that had been reduced to bankruptcy or near-bankruptcy by the collapse of the housing bubble created by the banks.
Despite appeals from all quarters that the government had to step in to help homeowners in crisis by having the banks write down their mortgages, Obama and his crew chose to focus only on bailing out the banks and refrain from doing anything that would have prevented them from returning quickly to profitability.
So little was done to help 4 million homeowners avoid foreclosure that even the normally restrained National Journal called Obama’s response to the housing crisis “tepid, half-hearted, and conflicted… a disastrous approach that did little for a market in free fall or for the millions of Americans still underwater and facing foreclosure.”
Like Florida, another competitive state that flipped from the Democrats to Trump’s side, the Rust Belt was littered with abandoned or foreclosed houses, their dispossessed owners burning with resentment at an administration in which they’d initially placed hopes for relief.
The Regulators Regulated
Perhaps the signature debacle of the Obama administration was its complete failure to discipline and regulate the banks whose managers the president had warned at the beginning of his first term to submit peaceably to tighter regulation. “My administration is the only thing that stands between you and the pitchforks,” he cautioned.
Yet eight years after the shenanigans of the big banks nearly brought the economy to its knees, no senior Wall Street executive has been jailed for the myriad of white collar crimes connected with the trade in subprime mortgage and derivatives.
In fact, the salaries of top bank executives have continued their unrestrained upward climb, with the top chief executives of the 20 leading banks pocketing nearly $800 million in bonuses owing to tax loopholes, according to the Institute for Policy Studies, even though the stocks of their companies remained at pre-crisis levels. Leading the pack in total pay packages (salary plus bonuses plus stock options) were two CEOs that helped bring about the 2007 crash: Jamie Dimon of JP Morgan, who made $27.6 million in 2015, and Lloyd Blankfein of Goldman Sachs, who awarded himself $23.4 million.
When Obama signed his administration’s comprehensive financial reform package, the so-called Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, he said, “The American people will never be asked again to foot the bill for Wall Street’s mistakes. There will be no more taxpayer-funded bailouts. Period.” Yet assuring the big banks that they were too big to fail was precisely what the legislation did by declaring that every financial organization worth more than $50 billion was “systemically important.”
Derivatives, the financial instruments that investment magnate Warren Buffet had called “weapons of mass destruction,” were not banned, as many reformers had advocated. Instead of prohibiting banks from using depositors’ money to trade on the banks’ own accounts, Dodd Frank allowed it. Practically all the changes that reform groups had proposed to avert another financial crisis were, in the words of Cornell’s Jonathan Kirshner, “watered down (or at least waterboarded into submission) by a cascade of exceptions, exemptions, qualifications, and vague language.”
Not surprisingly, concentration of financial assets increased after 2009, with the four largest banks owning assets that now come to 50 percent of the entire country’s $18.6 trillion GDP.
When in the weeks before the elections, Wells Fargo — headed by a CEO, John Stumpf, who made over $19 million in 2015 — was revealed to have fabricated millions of accounts in the names of their depositors (possibly including mine) without their knowing it, this could only be interpreted on the ground as a result of the administration’s coddling of Wall Street and created tremendous skepticism with Hillary Clinton’s promise to “get tough” with the banks if elected.
Dead End Vision
A vision of a better future is what voters expect of their leaders.
To the people of the Rust Belt that had been devastated by the export of their jobs to China and other low-wage enclaves, the vision that Obama gave them of their future as he entered his second term was more alarming than inspiring. This was the Trans-Pacific Partnership (TPP), another free trade agreement that they realized would complete the deindustrialization of their region. Even Hillary Clinton realized that this was one Obama initiative it would have been suicidal to support. But turning her back on a trade deal that she had aggressively supported as secretary of state was instead seen as cynical and opportunistic.
Clinton had her share of problems, but they weren’t enough to kill her chances in the elections. What really sunk her was her running on the economic legacy of Obama, which was one of unremitting failure for working people. Distancing herself from that legacy instead of defending it would probably have been the better strategy.
During the 1992 elections, her husband’s advisers ran a disciplined campaign on the theme “It’s the economy, stupid.” It was an advice she failed to follow. For all Trump’s bizarre flamboyance, Clinton’s demagogical opponent kept on message, at least as far as the Rust Belt was concerned, and that made all the difference.
*Foreign Policy In Focus columnist Walden Bello is an associate of the Transnational Institute (TNI), visiting senior research fellow at the Center for Southeast Asian Studies (CSEAS) at Kyoto University, and professor at the State University of New York at Binghamton. This article is based on work the author is doing on the global financial system under the auspices of TNI and CSEAS.