It is often the case that only the most logical and deliberative can convince themselves of things that simply are not so. Those who have persuaded themselves to believe that the economy had largely rebounded from the last crash are now starting to see that mirage for what it was: a figment that was evident to the millions of Americans who never saw their fortunes recover. That illusion has, however, been dispelled too late to prevent the rise of the powerhouse populist groundswell that now threatens to overrun the bulwarks of American politics still manned by the establishmentarians’ thinning and demoralized ranks.
For months leading up to late August, it appeared to many observers as though a cyclical downturn was due. Since mid-2014, the American economy appeared to be entering a soft patch. GDP projections regularly disappointed observers who expected sustained growth following years of a modest and halting recovery. Some attributed those disappointments to the cold weather that often accompanies winter, the regular onset of which only suddenly began to shock economists. Oil prices have fallen off a ledge, which often portends a global economic downturn. While the official unemployment rate continued to improve modestly over the course of 2015, the labor participation rate remained tragically stagnant. The business cycle that tends to enter into recessionary territory every seven to eight years loomed, but those fears were offset by a Federal Reserve that seemed inclined to keep the two paddles of the defibrillator – near-zero interest rates and liquidity in the form of quantitative easing – ever at the ready.
The summer portended ominous signs, but, by late August, many thought that a true catastrophe had been averted. A sovereign debt crisis in Greece that threatened to undermine the very foundations of the Eurozone appeared to be contained, even if that containment meant that Europe’s leaders had resigned themselves to the fact that Athens would forever be a ward of the continent’s more economically robust states. A Chinese stock market meltdown in early July threatened to be the moment when the bubble the People’s Republic had been inflating for years would finally burst. Chinese government intrusion in the markets only had modest successes, but those inclined toward panic were temporarily mollified by Beijing’s interventions. The worst, it seemed, was avoided. The Fed prepared to put the defibrillator away.
But the business cycle can never be broken entirely. The signs that another contraction is approaching became evident last week when the Asian markets again went soft. The New York Stock Exchange soon endured a correction. On Monday morning, the Dow Jones Industrial Average collapsed by over 1,000 points within the first three minutes of trading. But panics are slow to develop, and history’s great market crashes are often preceded by modest implosions. Only in retrospect was it obvious that the crash of October 24, 1929 presaged “Black Tuesday” on October 28. When the DJIA slid 4.6 percent on October 16, 1987, few could have foreseen the 22.61 percent correction coming the following Monday. The subprime crisis exploded onto the front pages on September 16, 2008, but the great selloff from which the market would not recover until June of 2014 occurred almost a month later.
It is no coincidence that all of these crashes have occurred in the autumn. “Most crashes tend to be in the fall,” COMMENTARY’s John Steele Gordon once observed. “I think it’s human psychology, you tend to be more cautious in the fall. The speculations of summer that seem so brilliant, suddenly, when the chill winds of October come, you wonder if they’re such a good idea and you try to get out.” If a crash is coming, it’s coming in the fall.
The interim will be both an economically and a politically dangerous period for the West. Boiling just beneath the surface of American politics, a quiet and righteous rage has been building. It is the honest indignation of those who fell between the cracks and never experienced the recovery that political commentators and administration boosters so often touted. It has found a vehicle on the left in the self-described socialist Senator Bernie Sanders and, on the right, in populist billionaire Donald Trump. Both candidates have drawn the support of between one-quarter and one-third of the primary voters from the political parties to which they are only marginally loyal and loosely affiliated. Their appeal is derived from the disquiet of the aggrieved, the left behind, the afraid. Both fly the seductive banners of revanchism. They promise not merely a return to a status quo ante without much sacrifice from their constituents, but the comeuppance long due their ill-defined tormentors. It is a brand of populism that gave rise to figures as divergent as “The Kingfish” Huey Long and Robert “Fighting Bob” La Follette. It knows no party or ideology, and it owes its nebulous appeal to the trepidation acutely felt by modernity’s unremembered.
It is tempting to romanticize the grievances of a segment of society that uplifts the vengeful populist politician. No doubt, these Americans are nursing injuries that are real, their trials are legitimate, and their fears are justified. But theirs is not a thinking rage. Donald Trump has spent the majority of his campaign railing against the supposed damages done to both American pride and its economic standing by the People’s Republic, which has been “eating our lunch” for quite some time. The implosion of Chinese equities does not bode well for its economy, but Trump’s message changes little. “As I have long stated, we are so tied in with China and Asia that their markets are now taking the U.S. market down,” the celebrity candidate insisted. “Markets are crashing – all caused by poor planning and allowing China and Asia to dictate the agenda. This could get very messy. Vote Trump!” The candidate who so often contradicts himself – endorsing, for example, both a flat and progressive tax code within the same interview – owes his appeal not to the compelling nature of his ideas but to sentiment and the cult of the strongman.
His mirror image on the Democratic side of the aisle has also utilized the stock market crash to advance his agenda. “For the past 40 years, Wall Street and the billionaire class have rigged the rules to redistribute wealth to the richest among us,” Sanders insisted. “We need banks that invest in the job-creating economy. We don’t need more speculation with the American economy hanging in the balance.” Like Trump, Sanders’ political appeal is impervious to economic realities. When the markets are flush, only the richest are benefiting at the expense of the American worker. When the markets crash, the American worker takes the bath while the banking sector remains insulated. Heads, I win; tails, you lose.
The populists’ message does not need to be coherent so much as it must have an intuitive emotional appeal. The audience for this message is growing. The aggrieved populist is having his moment, and it will not abate for some time. As such, it will be tempting for the Democratic and Republican Parties’ more responsible voices to shed their caution and pragmatism. The future does not belong to either Trump or Sanders, but the political figure that inherits the reins of power from Barack Obama will likely have achieved this feat by seizing the populist’s moment.