Hillary vs Donald, an Election Day lookback - Is the best behind the United States?

Today is election day in the United States with Hillary Clinton on one side and Donald Trump on the other. This election will go down as one of the most vitriolic in American political history. I thought I'd take this opportunity to step back and take a look at both and look through their BS to see if I can find a little bit of truth.

Tonight both Hillary and Donald released a capstone video as a last plea to win votes.

Here is Hillary's comment:

"We've come through some hard economic times. And we've seen some pretty big changes. But I believe in our people and I love this country. And I've convinced our best days are still ahead of us if we reach for them together."

Clinton's comments are similar to Reagan's optimism in the 1980 election.  Every politician since then has made this optimism a cornerstone of their policy even if facts got in the way.  Hillary's only real modification is adding 'reach for them together' which is a nod to the demographic shifts of the past fifty years. 

Here is Donald Trump's take which is amazing in its pessimism:

"The political establishment has brought about the destruction of our factories and our jobs as they flee to Mexico and China and other countries all around the world. The only thing that can stop this corrupt machine is you."

It is hard not to have at least a little grudging admiration for a man that can state, 'Vote for me, I'm the only one that can save you' with a straight face.  Beyond Trump's self importance, he actually speaks truth to subjects the American people know are correct but our politicians are too cowardly to state out loud.

The country isn't dominating anymore.  Politicians have failed the country over the last 30+ years. The US manufacturing sector has shrunk to a fraction of the American workforce since its numerical peak in the late 1970s. The American trade deficit is staggering and the national debts we are accumulating are unsustainable.  Trump has tapped into something powerful that will have ramifications long past this election.

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Of course politicians are supposed to talk a good game but the question no one really asks is --- can they really do anything about the problems?

When the United States founders wrote the Constitution they knew they country had one huge advantage over their counterparts in Europe.

In essence, the United States had lots of land and the ability to expand.

During the country's first century most immigrants become farmers and as they settled the land they pushed the borders westward (by war and native displacement) past the Mississippi River and eventually to the Pacific Coast.

After the Civil War, the country moved to its second phase, taking the English Industrial Revolution to a new scale and creating wealth through manufacturing making many millionaires in the process.

Three things fueled the post Civil War boom - land, abundant natural resources, and a seeming unending supply of cheap immigrant labor.

Farming as a percentage of total labor dropped from 70% to 30% during this period as people started to move from farms into cities looking for work. A lack of competition meant profits stayed mostly with the 'robber barons' leading to the first government regulation of business and pressure for labor unions.

Then Europe exploded in flames and changed everything. Few people realize the transformational effect World War One on the the country but you can make a good argument it was just as big as the American Revolution or the Civil War.  Certainly its impact was bigger than World War Two.

The Industrial Revolution started in Europe but with millions their men dying in trenches, United States manufacturing rose to fill the demand. American steel, American grain, American textiles, and perhaps most important, American gunpowder, took the place its European counterparts. American gold reserves filled to overflowing due to the international trade imbalance. The American Dollar soared in value. Every warring power found themselves highly indebted to American banks to the point they all demanded relief from their debt load in the 1920s.

The United States produced almost half the world's industrial products during the post war period even though it represented about 3% of the total population. New inventions like radios, automobiles, and refrigerators poured out of American factories, lengthening the lead and increasing the boom.

During the 1920s, the United States still held its three key advantages in land, abundant resources, and cheap labor but it had been joined a fourth - Banking Power. 

The country leveraged this into a decade of prosperity until over speculation lead to a Wall Street crash, the Great Depression, and the world economy dependent on American production and banking crashed as well.  This led to another disastrous World War, which again destroyed much of Europe allowing the American economy to restart with a virtual monopoly in many world markets.

In the first half of the 20th century, the government broke up predatory monopolies and enacted protection for labor unions. During the post World War Two world and with a world dependent on the United States goods, wealth rapidly spread down through the economy leading to a rapid expansion of a new American 'middle class'.

High hourly wages, leisure time, employer paid medical plans, and retirement pensions became an expected part of American life vs. the impossibility of such ideas a generation earlier. A boom of postwar babies came to understand this circumstance as normal, not as a fluke of profitability due to a destroyed world economy.

The first signs things were changing started in the 1960s as wages started to stagnate but the real turning point was the OPEC embargo in 1973. In 1971, gold reserves dropped to a dangerous point forcing the president to move from a gold backed currency to currency based on faith in the American economy.

American manufacturers suddenly found it harder to compete internationally as the high labor cost, imported oil, and the creeping cost of property eliminated many of the country's historic advantages. In the 1980s the economy exploited its last advantage, banking to continue to expand its economy and to pay for the salary and benefits expectations raised by the postwar boom.

As the Industrial Revolution made its way around the world, countries leveraged their cheap labor costs to compete with American business. It didn't take long for the United States to move from a manufacturing based economy to a service/consumer economy. Families that previously could survive on one income now needed two incomes to pay the bills. Massive credit card debt became the norm. Big school loans. Borrowing against housing loans. Living paycheck to paycheck.

In 2008, speculation in the housing market crashed almost destroying the United States last economic advantage in the banking sector. Massive subsidies saved the banks but ended the banks spending spree which tightened credit. The post war baby boom is began to retire leaving fewer active workers to pay for retirement benefits. Government debt rose to all time historic levels vs GDP, threatening to spiral out of control and make the US dollar worthless.  It's a mess that will take hard decisions but American political system is unequal to the task as the politicians continue to ignore these issues, afraid for their re-election, hoping the problems will magically go away and leaving the mess for the next guys in office.  Of course there are exceptions but the bottom line is gridlock.

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Click to embiggen

Hillary says we've been through tough times but 'together we will find better days ahead' without giving any details. The truth is after WW2 the United States saw a period of unsustainable profits but instead of recognizing that we spent our surplus on unsustainable social programs, war, and extravagance. Hillary's plan does little to address the problems that face the country and I'm pretty sure she's smart enough to realize this. She's also a smart politician and will never admit it.

Donald says he can bring jobs back but I've seen no plan from him that could actually accomplish this. Look at the above chart.  The United States has added  100 million workers in the last 65 years, most of them in the service industry.  Frankly, there is no way to get manufacturing back to 30% of total employment we saw in the post war era.  We'd need to create 50 million manufacturing jobs and none of these jobs are coming back. No manufacturing company can compete if they pay American wage rates. Trump has hinted at using tariffs and quota's to accomplish this but all that would do is create a backlash against American products internationally.  It would cause higher unemployment as companies retaliate and stop buying American.  It would also lead to inflation due to the tariff, causing Americans to pay more not less for their products.

The bottom line is the United States benefited from a global economy for most of the 20th century and now we are feeling the effects of competition that were destined to occur.  It is naive to think we can go back to a pre-WW1 economy where the United States trade stayed mostly within its own borders.  It is silly to blame NAFTA or the Pacific Trade Partnership for lost jobs.  In fact, working with the world is important if we want to continue to thrive.  We can no longer dictate to the world.

Wall Street knows this which is why the stock market improved 300+ points on Monday, assuming that Hillary is more likely to win.  The stock market will crash if Donald actually does win as they hate uncertainty.  Hillary is a politician and knows the nuance of the world economy.  Donald speaks to an angry populace that feels helpless.  I understand that anger but it doesn't mean they are correct.  Frankly, I hate to think what might happen to the economy if the country is led by someone that doesn't understand the basic economics.

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Politicians annoy me. It's obvious I'm not the only one who feels like this and Donald Trump has tapped into the country's anger. The problem is like the Egyptians, Romans, and British before us, empires follow a predictable pattern.

The people of the United States need to understand our time of dominance is almost over.   That doesn't mean we will become a third world country.  The United States will be an important member of the world community for a long time to come but only if we learn to live within our means.  I know none of us want to admit it but it is true.

Neither of this year's candidates are willing to tell us the truth so it is up to us to lead them.  We cannot rely on politicians to improve our future as their reliance on empty promises can't solve anything.  Trump has tapped into anger that is important but only if we are willing to face the truth.  If we don't we will create the future for ourselves that we fear the most.

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