Trump as the financial crisis

Loved this extended analogy from Lee Drutman in Vox last week:

In 2008-’09, a major financial meltdown shook the economy and caused a significant recession. This crisis came as a surprise. No models predicted it. Initially, the only people who picked up on the warning signs were dismissed as crazy. But looking back, it should have been clear all along…

One benefit of such a comparison is that thinking in this way allows us to see Trump’s rise as the result of the incentives and structure of the existing political system, in the same way that we came to think about the financial crisis as the result of the incentives and structures of the financial system. This has consequences for the reform conversations that this crisis will hopefully bring about.

A second benefit of this comparison is that the analogy to toxic assets seems particularly useful. The anger turned violence that has emerged in the 2016 campaign is similar to the toxic assets that came out of the financial crisis. And to push the analogy further, those who think Trump can be simply marginalized by responsible Republican leaders are deluding themselves, somewhat like investors who argued that the collapse of Bear Stearns in May 2008 could be safely contained and we could then move back to endlessly increase housing prices.

While some might prefer to wish away the toxic elements of our politics that are emerging, this would be unwise. We need to find a way to rescue them.

A system full of perverse incentives

One reason the financial crisis was so bad was that the financial system was full of perverse incentives. For example, mortgage brokers and investment banks got rich by making and securitizing loans that should never have been made. But because they got rich doing so, they financed and securitized riskier and riskier loans, until the system was so flooded with junk that it of course collapsed.

 In a similar way, it seems that Republicans received short-term electoral rewards for poisoning our political system with increasingly hateful and nihilistic rhetoric. As Vox’sEzra Klein wrote: “Republicans have worked for years to radicalize their base against Obama, to persuade them that something truly different and terrifying is going on, and in that project they have enjoyed a catastrophic success.”

In 2009, Republicans faced a choice. They could have looked at the disastrous second term of George W. Bush’s presidency as the logical end of the Reagan coalition and seen the Democrats’ sweeping 2008 victory as heralding a new political order, and then worked constructively to pass a climate bill and a health care bill and end an era of increasingly bitter partisanship. Instead, Republicans decided that the problem was that they had not been conservative enough. Their congressional leaders opted for pure obstructionism. And their messaging rediscovered regions of negativity and hatred that had been ignored in America for decades.

The benefit was clear: As long as they directed fire at a common enemy, they could continue to maintain the fiction that their coalition was unified, papering over the growing contradictions and disappointments. Republicans could continue to placate their wealthy donors with fiscally conservative policies because they could misdirect blame onto Washington Democrats and their big-government agenda for any stagnating wages.

Sure, they were playing with fire. But like the investment bankers who kept shoveling toxic assets into the system even as the thin logic that had once rationalized them vanished, all the incentives pushed toward maintaining the existing fiction.

What investment banker would have benefited in 2007 from telling clients that all these securitized mortgages were really junk and it was time to stop investing in them? Everybody had an incentive to perpetuate the status quo just a little longer, deluding themselves that it could go on and on.

Similarly, what Republican politician would have turned his back on the fight, accepting minority status for the price of peace? All the incentives pushed to maintaining the existing fights. And especially when the Republican strategy worked in 2010, the rewards became clear…

Donald Trump represents the consequence of a political system in which the contradictions have been expanding for probably two decades now: a system in which economically struggling and less well-educated voters have been marginalized, in which both parties (but especially Republicans) have sided with their donor classes against their voters, and in which both parties (again, especially Republicans) have attempted to paper over their internal contradictions by spewing negative partisanship into the system. More than ever, voters support their party not because they like their party but because they absolutely hate the other party.


About Steve Greene
Professor of Political Science at NC State

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