The making of the President 2020.

Almost a half-century ago, Connecticut Senator Abe Ribicoff decried police violence from the podium at the 1972 Democratic National Convention. "And with George McGovern as president of the United States, we wouldn't have to have Gestapo tactics in the streets of Chicago.” 

The Gestapo tactics worked, of course; George McGovern never had a chance. Richard Nixon drove his law and order message against the backdrop of anti-war and civil rights protests across the country, and romped to an historic 520 to 17 victory in the Electoral College that year, winning the popular vote by the widest margin in history. It is the stuff of Donald Trump's dreams.

In what has become a defining moment in the cancel culture wars, former Obama campaign data geek David Shor was eviscerated online and ultimately lost his job in May for tweeting out an academic article that suggested that protester violence in 1968 contributed to Richard Nixon winning the presidency that year. The article, by Princeton political scientist Omar Wasow, is so intuitive in its conclusions that it is hard to understand why Shor was attacked for sharing it. In his study of how Black protest in the 1960s impacted public opinion and voting patterns, Wasow concluded that nonviolent activism, particularly when met with state or non-state vigilante repression, expanded public support for the civil rights movement, while protester-initiated violence had the opposite effect. Specifically, he concluded that protester-initiated violence in 1968 "likely caused" a 1.6 to 7.9% shift in voter support toward the Republican Party, particularly among suburban whites in neighboring counties, ultimately tipping the electoral balance against Hubert Humphrey.

This is exactly the scenario that Donald Trump is hoping to repeat, and he has not been subtle about pointing to Nixon's law and order campaign strategy as his model. A precondition of a law and order campaign, however, is the perception of disorder, and – unlike 1968 – crime barely registers among the issues that voters rank as of concern to them during this presidential year. Accordingly, a major focus of the President's effort has been to change that perception through a drumbeat of verbal attacks, tweets, and images.

When Department of Homeland Security Secretary Chad Wolf arrived in Portland to check on the paramilitary units that Trump and Attorney General Bill Barr dispatched there under the pretext of defending a federal courthouse, he had Fox News and Trump campaign film crews in tow, ready to create the necessary B-roll footage for American Carnage: the Sequel, also known as the Trump 2020 ad campaign. The post-apocalyptic images of soldiers in gas masks, patrolling surreal, gas-fill streets with burning building interiors and graffiti strewn exteriors suited the campaign's purposes, are now featured in Trump campaign adds, across conservative cable news shows, and even made an appearance on Capitol Hill as a Republican prop during a House committee hearing.

Cracking the whip in America, popping corks in Moscow
Jonathan Levinson/OPB

If the Trump administration has agreed with agreed with Oregon Governor Kate Brown to stand down – as it appears they have this week – it is simply because Portland has served its purpose. The President has already announced the next target cities for his Operation Legend – perhaps the first named paramilitary operation launched against civilians on U.S. soil – which will likely be tightly linked to his campaign strategy. If the campaign can produce similar images of federal forces subduing protesters in Detroit, the President believes he can win back those white suburban women who abandoned the GOP two years ago and restore his standing in the polls in Michigan as Election Day approaches. If it can do the same in Milwaukee and Philly – he can regain the advantage in Wisconsin and Pennsylvania. If he can put Michigan, Wisconsin and Pennsylvania back in his column, he is almost all the way home. Albuquerque is a bit more of a "bank shot" in terms of campaign strategy. Exacerbating Hispanic-Black political tensions is nothing new to New Mexico politics, but in 2020 it may be less about New Mexico's five electoral college votes than suppressing enthusiasm among the far more critical, Democrat-leaning Hispanic vote in Texas. 

All of this, it is important to emphasize, takes the notion of a law and order campaign far beyond anything Richard Nixon ever imagined. Nixon responded to real unrest during the 1960s, he did not instigate it to create footage for campaign commercials as Trump has done. More to the point, as his former White House counsel pointed out this week, there was never any consideration of putting paramilitary federal forces on the ground in American cities. The forces that Abe Ribicoff accused of using Gestapo tactics on the streets of Chicago were the Chicago police.

The singular question surrounding Trump's unrelenting focus on instigating racial tensions as his chosen path to reelection is whether he has misjudged the country. It has been more fifty years since John Lewis was beaten bloody by Alabama State Troopers in Selma, and Richard Nixon's race-baiting Southern Strategy drew long-time southern Democrats to the GOP, yet Trump plays the race card with a bluntness that suggests that he believes little or nothing has changed in American society over the ensuing half-century. The widespread public outrage at the brutal murder of George Floyd clearly eludes him. As Brendan Buck, a long-time aid to Republican Speakers of the House Paul Ryan and John Boehner observed about the President this week. “There seems to be a complete lack of understanding why [Trump's] been getting drubbed in the suburbs. Educated suburban voters are not interested in – and are actually repelled by – his fear-mongering and these racial dog whistles.” 

While coming from opposite ends of the political spectrum, Donald Trump and David Shor appear to agree on one thing, that the United States today may have changed less in the intervening half-century than polling data appears to suggest, and that continuing violent protest could yet turn public opinion against the Black Lives Matter movement and once again cost a Democratic presidential candidate the White House. David Shor fears that could happen, while Donald Trump is counting on it. Nearly every day, whether by tweet, word or action, the President doubles down on his conviction that white Americans are no better, no more open minded, and no more caring about their fellow citizens of color than they were a half-century ago. While some look at the data showing widespread public support for public protests and police reform, Donald Trump sees evidence of a starkly partisan issue that he can leverage to his advantage. Fear and racial animus worked for Richard Nixon, and he fully believes that it can work for him this year.

What remains to be seen is whether the President has enough credibility with enough of the electorate to sell his story of violence and mayhem as a greater threat to the nation than giving him another four years in the White House. In my worse moments, I fear that Donald Trump may yet be proven right, that he understands the zeitgeist of the nation in ways that others do not, and that the episodes to come of American Carnage: the Sequel – whether from Detroit or Milwaukee or Philly – could turn the trick, and his standing in the polls will begin to bounce back. Yet each day, even as the he continues to caricature Democrats and protesters as wild-eyed radical anarchists wrecking havoc across the country, he cannot escape the caricature of himself that is on display every day. And each day, new polls suggest that an increasing share of the electorate is disgusted with the direction in which the country is headed under his leadership and are prepared to move on.

It is a truism in politics that three months is an eternity, and that the electorate doesn't even begin to focus on a presidential race until after Labor Day. But this is not a normal year. Life in a perpetual state of semi-quarantine has slowed to a crawl, as the economy remains stagnant, the body count continues to rise, and the country waits anxiously to see what turn the pandemic will take next as students head back to school. For Donald Trump, however, that extended sense of time seems less an opportunity to change the narrative of the race, than an eternity for the electorate to dwell on the inexorability of the pandemic and on the President's failures. Incapable of seeing that he alone is the cause of his campaign woes, and desperate to fight the reality that he is becoming more irrelevant to our lives by the day, Donald Trump's behavior is only becoming more erratic. One moment he is doing his best to stick to the script and play the role of a responsible leader, the next he is lashing out at his enemies, and the next he is claiming that some new miracle cure lies just around the corner. All the while, he is hoping beyond hope that he can find some way to convince voters that it is the other guys who are tearing apart the fabric of the nation.

Follow David Paul on Twitter @dpaul. He is working on a book, with a working title of "FedExit! To Save Our Democracy, It’s Time to Let Alabama Be Alabama and Set California Free."

Artwork by Joe Dworetzky. Check out Joe's political cartooning at www.jayduret.com. Follow him on Twitter @jayduret or Instagram at @joefaces.

The surging disconnect between Wall Street and Main Street.

Bernard Baruch, a legendary financier from the early 20th century, famously said that he knew it was time to get out of the stock market before the roaring '20s gave way to the 1929 crash when he started getting stock tips from his cook and the boy who shined his shoes. As wing tips have given way to running shoes, we have had to look elsewhere for indicators of irrational exuberance in the equity markets. Today, we have Robinhood.

Robinhood is an Internet platform for "free" stock trading where today's cooks and shoeshiners can play the markets. According to Robintrack.net, 40,000 Robinhood accounts added Tesla shares during a four-hour span this past Monday – a nearly unheard of level of herd activity. Perhaps those investors know something the rest of us don't – indeed a lot of hedge funds and professional investors have lost a lot of money shorting Tesla over the past few years – or perhaps when the history is written, those frantically looking to pile into the market over the past weeks will be seen as the shoeshine boys and cooks of the Covid-19 economic collapse.

The defense of the Robinhood stampede is a simple one. "Don't fight the Fed" is the eons-old mantra of trading stocks. In lay terms, it means that as long as the Federal Reserve Bank is cutting interest rates and pouring money into the system, buying stocks is a good bet. To dispense with all the math and high finance, the rationale is essentially that – all things being equal – the lower the interest rates on Treasury securities fall, the higher asset values – including stocks, bonds, and real estate – should rise. And interest rates have never been lower than they are today. Ever.

As the Fed has reduced rates to zero, the stock market
has risen to historically high levels.

The current bull market began 40 years ago, when legendary Federal Reserve Bank Chair Paul Volcker pushed the Fed Funds rate – the primary tool that the Fed uses to stimulate or constrain economic activity – up to historically high levels to quash inflation that had risen to double digit levels during the post-Vietnam War years. As illustrated in this graph, over the ensuing decades, the Dow Jones Industrial Average grew 29-fold, from 900 or so from when Volcker pushed the Fed Fund Rate up to just over 19%,  to its current level of nearly 27,000 today, as the Fed has finally joined the rest of the world in adopting a Zero Interest Rate Policy.

Those who have helped push the Dow back up from its late-March, pandemic bear market low, have had more than just declining interest rates on their side. Over the past several months, as the pandemic roiled the domestic and global economy, current Fed Chair Jay Powell made it clear he intended to pull out all the stops to push money into the system. In addition to the Congress flooding trillions of dollars of cash into the economy in the form of payments to individuals and corporations alike, the Fed both pushed interest rates down to historically low levels, and acted to further boost market confidence by creating funding programs to purchase all manner of corporate and asset backed securities. All told, since mid-March over $6 trillion has been pumped into the system, and a lot of that money has found its way into the stock and bond markets, pushing market indices back toward historic highs earlier this year, and producing hefty returns for Goldman Sachs and other Wall Street banks.

Source: Bond Market Through the Virus, John R. Mousseau
Oxford U. June 29, 2020.
Cumber.com

The looming question surrounding the apparent disconnect between an ebullient Wall Street and Main Street America rife with depression is whose perception of where we are headed will prove to be accurate. As suggested by this graph here of the "S&P 500 Forward Price/Earnings Ratio," current stock prices are near historically high levels relative to expected earnings down the road. As shown here, the high point of the forward P/E ratio came in the late 1990s, during the Internet bubble, when investors famously piled into dot.com stocks that showed little or no prospect of profitability in the near term, based on the theory that in time those companies would become enormously profitable. When reality ultimately set in, as happens after market bubbles, stock prices settled back down, with the NASDAQ index declining by 75%.

The problem, of course, is that it is hard to know if stocks are mis-priced until after the fact. This time around, investor exuberance is relying less on normal economic cyclicality, or even continuing Fed intervention, than confidence that the miracles of modern science will bring the pandemic to a swift end and restore economic activity to the halcyon days of this past February. Zero interest rates and the infusion of over $6 trillions into the economy by Congress and the Fed may have been necessary to restore market confidence in the short-term, but it will not be sufficient to restore corporate profitability to levels that justify current stock market values. Investors today are pricing in a best-case scenario that presumes both that a vaccine arrives in short order, and that employment and consumer confidence will be restored with it.

Source: S&P, The Shape of Recovery, July 17, 2020 

For most industrialized countries across the world, a vaccine has not proven to be a precondition for returning kids to school and economic activity to near-normal levels. Across much of Europe and Asia, widespread adoption of recommended public heath practices – face masks, social distancing, contact tracing and hand-washing – have built public confidence and brought the coronavirus sufficiently under control to allow countries to see a path toward the resumption of near-normal life. The United States, of course, did not choose that path, and as a result the timeline for economic recovery is less certain and likely to take longer than many stock investors appear to anticipate. As illustrated in this graphic, Standard & Poor's projects that the recovery of the economy to 2019 levels is going to take as much as three years or more, varying by industry, with continuing downside risk as the course of the pandemic plays out. The banking sector, in particular, which continues to receive massive support from the Fed, may prove particularly vulnerable as that public support recedes.

The elongated pace of economic recovery laid out by S&P – particularly with respect to consumer-facing tourism, entertainment, travel and non-essential retail industries – suggests skepticism with respect to the timing of a Covid-19 vaccine being widely available, and the economic implications of Donald Trump's bi-polar relationship with the scientific establishment. On the one hand, the President has consistently undermined the low-tech recommendations of his public health advisors that have proven effective in nations grappling with the virus across the globe, while on the other hand he has thrown billions of dollars at pharmaceutical researchers in the hope that one of them will produce a vaccine quickly enough to rescue his reelection prospects. Trump's vaccine-or-bust strategy has effectively eschewed the middle ground of suppressing the transmission of and learning to live with the coronavirus that has enabled something resembling normal daily life to return across much of the rest of the world.

Every week, we hear new announcements trumpeting the latest successful steps in vaccine development by one company or another. Yet even as those announcements lead to quick bumps in company stock prices, they are also sowing seeds of distrust that loom to undermine the effectiveness of whatever vaccine the public is ultimately asked to take. The naming of the vaccine development program Operating Warp Speed, the President's urgent focus on having a vaccine in place by the fall as his path to reelection, and the public neutering of the Food and Drug Administration as a trusted arbiter of vaccine safety and efficacy are each breeding distrust in the vaccine development process.

Economic life revolves around voluntary activity, and the more the President has tried to mandate the return of normal economic activity through threats and dictates, while doing little to address the underlying pandemic conditions that have caused distress and anxiety across the population, the more he has undermined what remains of his waning credibility. Each time one of the drug companies competing in the Operating Warp Speed Olympics announces its latest, greatest news, the public is further reminded of why they distrust the entire undertaking, as evidenced by polling indicating that an increasing share of the population may decline to take the vaccine.

The irony of the President's decision to go all-in on a silver bullet cure is that if he had done the simple things up front – promoted those public health measures that have worked across the globe – both the economy and his reelection prospects would be in far better shape today. And those public health measures may still constitute our most viable strategy for near-term economic recovery, particularly if, as scientists at the University of California San Francisco concluded this week, coronavirus antibodies turn out to be too short-lived to allow a vaccine to be effective.

GOP analytics maven Bruce Mehlman suggested this week that for the first time since 1900, the nation is facing four "super-disrupters" at the same time: economic recession, pandemic, mass protests and election turmoil. Each day, we can see how those factors are interacting and amplifying their combined impacts. Over the past few weeks, as the pandemic has continue its spread across states in the south and the west, we have seen corporate leaders and banks walk back earlier forecasts of a quick, "V"-shaped economic rebound, and suggest instead that a longer path to recovery lies ahead. Against this backdrop, it would seem that the bloom may be off Wall Street's rosy scenario, and that the frantic enthusiasm of Robinhood investors may be a signal – as Bernard Baruch suggested of his shoeshine boy nearly a century ago – that the markets are headed for a fall.

Follow David Paul on Twitter @dpaul. He is working on a book, with a working title of "FedExit! To Save Our Democracy, It’s Time to Let Alabama Be Alabama and Set California Free."

The big lie Donald Trump is counting on to pull him through.

In the wake of this week's jobs report, Donald Trump is back on offense. "We're going to make America great again... doing things that nobody could have done," he boasted in the comfortable confines of an interview with the Sinclair Broadcast Group. He had planned all along to run on the economy, and he is not going to let the coronavirus – or the facts – get in his way.

It is hard to imagine that the American electorate is going to overlook Trump's myriad failures across a broad spectrum of issues – at home and abroad – but the simple truth is that, as of now, at least 40% of the country seem to be fine with his performance. That means that all that has transpired – including the abject failure of the United States to deal with the coronavirus pandemic, as summed up by the graph here – has only moved the needle by five points or so, from his general approval rating in the mid-40s over the course of his presidency to where it stands today.

Back in 1992, Bill Clinton's political consigliere James Carville famously pointed out that while other issues may come and go, on Election Day, It's the economy, stupid. Carville's words remain a political mantra that politicians ignore at their peril, and a wild card for the Joe Biden in November. For all the positive polling news that has come Biden's way over the past several weeks, the dirty little secret remains that the electorate continues to give Donald Trump the edge when it comes to handling the economy. If anyone doubted that the Trump campaign plans to put the economy front and center over the coming months – even in the face of pandemic-induced economic turmoil –White House Press Secretary Kayleigh McEnany cast those doubts aside. "The President will always point to the difference between his record and that of President Obama," McEnany commented on Tuesday. "You had, on the one hand, the Obama-Biden presidency, the weakest economic recovery since World War Two. With President Trump, we got to the hottest economy in modern history."  

'I created the greatest economy in history,' the President likes to say these days. 'I did it once, and I can do it again.' For those who have drunk the Kool-Aid, Trump is a businessman extraordinaire, an economic mastermind who took over an economy that was dead in its tracks, cast his magic spell, brought manufacturing jobs back home, and produced the lowest unemployment rates in history.

This is a myth, however, just part of his continuing con man act. As the graphs here illustrate, rather than representing a transformation from the American Carnage that he announced in his inaugural address, the "Trump economy" was a linear extension of the steady economic expansion that followed the 2008 global financial collapse. Restoring manufacturing jobs – perhaps the sine qua non of Trump's promises to his white working class supporters – is a case in point. While Trump boasted this week that "We've got to bring back our manufacturing, and I've brought it back very big," as this graph illustrates, manufacturing employment bottomed out in the wake of the 2008 global financial collapse and has grown on a consistent trajectory since 2010.

The highpoint of the President's hubris surrounding manufacturing jobs came with the 2018 announcement that Foxconn – the Taiwan electronics manufacturing giant that makes iPhones in China – would build a new manufacturing plant in Wisconsin creating 13,000 high tech manufacturing jobs. Since the Foxconn investment was announced – which the President attributed to his personal relationship with Foxconn CEO Terry Gou – the cost in public subsidies per job created has skyrocketed, from an initial estimate of $231,000 per job to over one million dollars per per job, as the number of anticipated new jobs created declined by 90%.

The myth of Trump-as-economic-wizard extends as well to his claims to having created the lowest unemployment rates in U.S. history. During his 2016 presidential campaign, Trump repeatedly claimed that the unemployment rate across the country was 20% or higher, despite what official figures might suggest. It was a central element to the American Carnage theme. Having convinced his followers that he inherited a moribund economy, the swift recovery was all the more spectacular.

Macomb County, Michigan provides a case in point. Macomb County's white working class voters – labeled "Reagan Democrats" by Democrat pollster Stan Greenberg – were successfully targeted by Bill Clinton in his 1992 victory over George H.W. Bush, while Donald Trump won the county by 12 points in 2016. The county is emblematic of communities in the Midwest that saw an economic turnaround under Barack Obama, but who to this day credit their good fortune to Donald Trump. As shown in this graph, the unemployment rate in Macomb County peaked at 18.3%, five months into Barack Obama's first term, and then began a steep decline to 4.6% on the day that Donald Trump beat Hillary Clinton. Then, as illustrated here, from Election Day 2016 to February 2020, the period of the widely trumpeted "Trump economic miracle," the unemployment rate in Macomb County declined at a more modest pace, from 4.6% to 3.6%. The economic transformation of Macomb County, like much of the Midwest, took place under Barack Obama, yet through Trump's consistency in driving the narrative, many to this day will point to those results as a product of the Trump economic miracle.

Macomb County is a microcosm of the nation economy. This next graph shows the trends over the course of the past four presidencies of the national unemployment rate, along with the unemployment rates of African American and Hispanic or Latino workers, as well as the "U-6" rate for what are referred to as "Marginally Attached" who may be working part time but prefer full time. The data here across categories mirrors those of Macomb County. During the Trump years, from Election Day 2016 to February 2020, the unemployment rate nationally declined from 4.7% to 3.5%. In contrast, over the course of the Obama presidency, the rate declined from a peak of 9.9% in November 2009 to 4.7% on Election Day 2016. The unemployment rate for Blacks and Hispanics or Latinos – a particular Trump talking point – shows similar trends, with most of the post-2008 decline taking place before Donald Trump took office. As in the case of manufacturing employment, the improving trends over the course of the Trump presidency were the last stage of a long economic expansion. If anything, the downward trend in unemployment abated somewhat during the the Trump presidency – though this slowing pace could be accounted for by a plateauing of the long decline in workforce participation rates, a logical trend toward the end of an economic cycle.

If there is anything particularly unique about the Trump economy, it was the decision to cut taxes during the highpoint of an economic cycle. In a normal world, tax cuts are a tool for stimulating an economy as it is slowing down or in recession – the tax cuts early in the presidential terms of JFK and Ronald Reagan are classic examples. In contrast, the Trump tax cuts were from the outset about politics rather than economic policy. Republicans had continued to deride the economic performance of the Obama years – despite the fact that unemployment rates and federal deficits were each steadily declining from peak levels in the wake of the 2008 crisis – and Donald Trump promised the huge tax cuts as a campaign pledge. As illustrated in the graph here, the Trump years have been unique, as for the first time in a half-century, deficits have been increasing even as unemployment rates were continuing to fall, in contrast to every other economy cycle over the past half-century, where deficits decline as unemployment rates fall during periods of economic growth. The Trump tax cuts did, however, provide a Keynesian crack hit of sorts during the end of the long period of economic expansion, driving unemployment rates to historically low levels, despite being grossly irresponsible fiscal policy.

At the end of the day, the hallmark of Trump's claim to economic wizardry is about economic growth. Yet again, his claims are not backed up by historical data. As shown in the last graph here, the pace of economic growth over the course of the Trump presidency has not been extraordinary, certainly no different than during other recent presidencies. As in so many things Trump, his claims to economic wizardry is all spin and self-promotion, with little regard for the evidence. Donald Trump was in the right place at the right time. He delivered his promised tax cuts, cut regulation for those who gave him money, and took credit as the economic expansion that began in the wake of the Great Recession continued to roll on.

This week, relishing economic data that showed a sharp bounce off the lowest floor of economic statistics in history, the President complained to anyone who would listen that he was not being given enough credit for the second economic miracle transpiring on his watch. As bad as things might seem out in the real world, this is a refrain we will hear from now until November, for the simple reason that it is all he's got.

The Biden campaign and others hoping to see a new president in the White House next January ignore Trump's claims at their peril. While the economic data may not back up Trump's claims, polling data continue to suggest that this is the single area where voters give the President higher marks than Joe Biden. If that remains the case on Election Day – as James Carville observed long ago – that single factor could end up determining who wins the election.

Follow David Paul on Twitter @dpaul. He is working on a book, with a working title of "FedExit! To Save Our Democracy, It’s Time to Let Alabama Be Alabama and Set California Free."