We are living in a depression – that’s why Trump took the White House
Since 1975, the fruits of economic growth have disproportionately been taken by the few. Donald Trump tapped into the quiet simmering anger of the many
Larry Elliott
Guardian.co.uk
Sunday 13 November 2016
Words matter. The process of understanding why Donald Trump is now heading for the White House starts with the correct description of what has happened in the eight years since Barack Obama became president.
Some economists call the turbulent period that followed the collapse of Lehman Brothers the Great Recession. Others say the US along with other developed nations is experiencing secular stagnation. Anything, it seems, to avoid using the D word: depression.
The dictionary definition of a depression is a sustained, long-term downturn in economic activity, which sums up precisely what has occurred since 2008. Growth rates globally have remained low despite colossal amounts of stimulus. Living standards have barely risen and the threat of deflation has loomed large. The depression since 2008 has not been as severe as that of the 1930s but there are echoes of it all the same: in the food banks that are the new soup kitchens; in the mass movements of migrants in search of a better life who are the modern equivalent of the Okies in the Grapes of Wrath; and in Trump, who has tapped into anger that has been bubbling away quietly for decades.
The turning point for the average American worker came in the mid-1970s because for the first 30 years after the second world war the gains from rising prosperity were evenly shared.
But this trend was broken around the time of Watergate and the end of the Vietnam war. Since 1975, productivity in the US has more than doubled, but average hourly compensation has increased by only 50%. The fruits of growth have been captured by the few, not the many.
This tendency was especially pronounced in the years immediately after 2008, when lower interest rates and quantitative easing fed through into rising asset prices rather than into higher wages. Between 2009-2012, more than 90% of US growth went to the richest 1%, which included the financiers who had caused the crisis in the first place.
It is not just that workers have been struggling to get a decent pay rise. Jobs have become harder to find in the last decade, with many Americans dropping out of the labour market altogether. The participation rate among prime-age males (25- to 54-year-olds) fell at the time of the crash and has never recovered.
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