Will the Trump Bubble Burst?
Not unlike Alice from Lewis Carroll’s Victorian novel, I’ve recently fallen through the rabbit hole of reading various articles and other texts about the history and rise of financial markets. Something – anything – unrelated to politics and away from social media seems like a positive development in this over-connected world. Alas, in reading Niall Ferguson’s Ascent of Money, his explanation of financial bubbles conjured a clear parallel in my mind to the rise (and fall?) of Donald J. Trump.
The rise and eventual explosion of financial bubbles are divided into five categories, which appear consistently across bubbles in history ranging from Tulip mania in 17th century Netherlands to the housing bubble that plunged the world into the Great Recession just a decade ago. The five verbatim from Ferguson’s book:
- Displacement: Some change in economic circumstances creates new and profitable opportunities for certain companies.
- Euphoria or overtrading: A feedback process sets in whereby rising expected profits lead to rapid growth in share prices.
- Mania: The prospect of easy capital gains attracts first-time investors and swindlers eager to mulct them of their money.
- Distress: The insiders discern that expected profits cannot possibly justify the now exorbitant price of the shares and begin to take profits by selling.
- Revulsion or discredit: As share prices fall, the outsiders all stampede for the exits, causing the bubble to burst altogether.
Who better to map against the rise and fall of valuation, of boom and bust, than Donald Trump?
Politics and economics are intertwined, no doubt, but the parallels here may come across as somewhat contrived. Regardless, I think there is value in attempting to relate a subjective, political story to a generally accepted empirical framework for financial markets.
We begin with displacement. In fact, this story begins in the devastation of the last major bubble bursting: the 2008 housing crisis. Barack Obama ascends to the White House with promises of hope and change, and a mandate from the people as Democrats commanded the presidency, the House and the Senate. With the economy in dire straits, the administration passed a bailout to prevent major corporations from going belly-up, on top of a program that helped homeowners who were facing foreclosure and capped by the Affordable Care Act in 2010.
The middle portion, aid to homeowners swindled by banks hawking subprime mortgages whose rates exploded after a fixed term, drew particular ire from conservatives. Rick Santelli, a CNBC contributor, delivered a rousing speech in February of 2009 that spurred the Tea Party Movement from the floor of the Chicago Mercantile Exchange: “The government is promoting bad behavior,” he said. “Do we really want to subsidize the losers’ mortgages… we should reward the people who want to carry the water instead of those who want to drink the water.”
From the ashes of the worst financial crisis since the Great Depression, the Tea Party arose like a phoenix, or more properly a fiscal hawk. This marks the clear displacement referenced above: The Republican Party is in some ways a big tent, but the Tea Party represented a fierce belief in smaller government, lower taxes, and strict originalist readings of the Constitution. The “market” saw a void and the Tea Party filled it, perhaps a portent of Trump. While its leaders may in good faith espouse this, in practice the movement seems to have given a home to more fringe elements of the party, such as those who questioned Barack Obama’s citizenship. Donald Trump, prior to his serious bid for the presidency, was a loud and frequent “birther,” suggesting Obama was illegitimate and not an American.
The piece of this ideology that remained consistent both in philosophy and in practice was a distrust and disdain for “establishment” politicians, not just in the opposition but within the Republican Party. That’s why otherwise unlikely candidates such as Michele Bachmann were propelled into the halls of power, and how in safe-red districts the real challenge incumbents face is a primary opponent that tacks even further to the right.
Moving forward to the 2016 elections, a massive field of candidates, not unlike the Democrats have in 2020, ran to be the Republican answer for eight years of Obama. In that field were plenty of anti-establishment candidates, among them: Ben Carson, Ted Cruz, Rand Paul and, yes, Donald Trump. But perhaps above all the others, Trump truly bucked the trends and took Republican disregard for “political correctness” to dizzying heights. He seemed to say and do whatever came to mind, with no thought or concern for the repercussions. The strategy bore fruit, as his rise in the polls hardly faltered and he cruised rather easily to the nomination, though stragglers like Jeb Bush, John Kasich, Marco Rubio and Ted Cruz nipped at his heels through the summer up to the convention.
So ends the displacement. Republicans moved away from the statesmen-like figures of Reagan, McCain or Romney and toward the bull in the china shop, Donald Trump. If big banks ruined the economy, let Trump disrupt the political class – Republican and Democratic alike.
With the background out of the way, the rest of these categories are liable to be rather short in comparison. Euphoria, to my mind, is the stage after it was clear Donald Trump would be the nominee. Plenty of candidates stayed in the primary, as I listed above, but it was a fool’s errand to be sure.
If any single candidate had challenged Trump in that primary, it seems possible, if not likely, that the challenger would have prevailed. Trump consistently polled well below a majority in the primary, but with a half dozen other candidates dividing up the establishment vote, there was little room for anyone besides Trump to win. Couple that with winner-take-all states later in the primary, where nothing but first place really mattered, and Trump was bound to win.
At the same time as his success in the polls, Trump was holding massive rallies where he ginned up the audiences. Euphoria seems a fitting enough term for the spectacles, where people would appear in droves to see the celebrity-turned-candidate, waiting hours often in bad weather just to catch a glimpse of the man in the red hat. The rallies often took dark turns, with Trump openly calling for his supporters to rough up any protestors that might appear, and chants of Lock Her Up in reference to Hillary Clinton echoing throughout the venues. North Carolina’s own Dallas Woodhouse, erstwhile head of the NCGOP, appeared on television with a pair of handcuffs, dangling them during his interview and suggesting Secretary Clinton would soon don a pair.
The Trump rallies during the primary, and still today as he campaigns for reelection, produced a frenzy likely paralleled in rancor only by something from the Deep South years ago. Outright suggestions of violence against particular groups, thinly and not-so-thinly veiled, were and are constants, and the divisions within the nation only appear to be deepening.
Part of the issue with the Trump candidacy and now presidency is his proclivity to endorse and entertain far-right fringe and conspiratorial theories. Perhaps unknowingly or perhaps with a clear-eyed plan, the president propagates ridiculous and easily discredited “alternative facts,” to borrow from Kellyanne Conway’s lexicon. More troubling than the fact that the president openly lies without repercussion is the readily eager crowds of supporters who accept everything he says as gospel. Or, worse yet, know he lies but don’t care.
This is the issue with mania: it discredits the truth and makes everything meaningless. Why does it matter for anyone to attempt to find the truth of a story if the most powerful man in the nation openly discards any narrative, even the most factual, that diverges from his predisposed view of the world? It is a sad lens of the world but true, nonetheless. This behavior has seeped into every part of the discourse, and partisans of any stripe are encouraged to find the narrative that makes them feel good and reinforces what they already believe, instead of challenging preexisting notions.
The latest example of this mania is what has caused the current talk of impeachment. The president apparently tried to coax the new leader of Ukraine into digging through the business dealings of Hunter Biden, Vice President Joe Biden’s son. The younger Biden worked in the Ukraine and served on the board of a company that would have possibly faced scrutiny by a Ukrainian prosecutor, all while the older Biden was VP.
The alleged impropriety is that Joe Biden pressured Ukraine to relinquish that prosecutor of his duties because he was too lax on corruption. Eastern European corruption remains an issue as the former Soviet satellites strive to build modern, Western economies and democracies; corruption makes that impossible, and pushes Western entities otherwise inclined to support their efforts away.
In fact, this is where the story being hawked by Trump and his supporters falls apart: The crux of their scandal requires Joe Biden to have acted in a way that directly supported his son, apparently in a corrupt manner. But the facts disagree; truth be told, keeping the derelict prosecutor in place would have done more to shield Hunter Biden from inquiry than removing him in favor of a more deliberate prosecutor. On top of the illogic of that reasoning, it wasn’t Joe Biden alone making this decision. He worked as Barack Obama’s point person, and it would have been the opinion of the US State Department and plenty more individuals with less than zero concern for Hunter Biden, that were pressuring Ukraine to dismiss their prosecutor. Beyond the United States, other Western nations and institutions like the International Monetary Fund were pushing for the same result; you would have to be willfully obtuse to believe the conspiracy pushed by the president.
But then again, the president released an attack ad just this past week suggesting the Biden story held water and attempting to foist the blame away from himself and toward another. It’s a decent tactic, but likely the only one he has. The issue before Trump is that he now faces impeachment because of throwing around his own weight in an attempt to dig up dirt against Biden. He either doesn’t know that he ought not pressure foreign governments for help in domestic campaigns or doesn’t care; either choice is distressing.
Distress. You are here. This is the point in the bubble of the Trump presidency that we currently find ourselves. Now that he faces proper impeachment, likely by Thanksgiving if the process continues apace, some of the Republicans that are steadfast supporters of the president may find themselves with weak knees. A recent poll from Morning Consult found support for impeachment increase about 13 points just in the week that these Ukrainian revelations came out. Most striking, to me, is that the number among Republicans grew from 5 to 10 percent.
What appears most likely is that the House of Representatives will impeach the president, in an almost strictly partisan vote (though one independent and one Republican seem to be interested as of today), and the Senate will vote against removing him from office. The question bandied about now is whether impeachment is worth it. I think it is. The Founders may not have foreseen this particular circumstance (and how could they?), but impeachment alone is a valuable enterprise. It allows for the facts to come out and for the people to fully understand who knew what and when they knew it.
Many Republicans are crowing about this being Democrats’ attempt to reverse the outcome of the 2016 election, but that is ridiculous on its face. Democrats have had the majority for nearly a year now, with most moderates opposed to impeachment. Again, the reasoning presented flies in the face of logic: How can Democrats be reversing the outcome of 2016 if there is no chance the president will be removed by the Senate; and, if he were to be removed by the Senate, it only vindicates Speaker Pelosi’s impression that this was indeed a grave offense. You can’t have it both ways.
That’s why we’re at the point of distress. Supporters of the president should take stock in where things are and where they are liable to go. What’s best for the country is an honest assessment of merits and demerits to the case presented before the Senate, if impeachment proceeds. The media echo chamber on the right parrots talking points from the White House and is undermining the legitimacy of the investigation before it even takes place. That is bad for the country; the best thing to do is wait and see what happens, before arriving at a predestined notion of who is right and who is wrong.
The problem with bubbles, Niall Ferguson notes, is that “Time and again, this process has been accompanied by skullduggery, as unscrupulous insiders have sought to profit at the expense of naïve neophytes.” If voting in the Senate for removal were done via secret ballot, one insider noted, the president would likely be shaking in his boots. But because the votes are publicly recorded, and Republicans and Democrats alike have to run for reelection based on how they acted, there is a perverse incentive to do what is popular over what is right, whatever that may be at the time.
That leaves revulsion. This is the one piece of the puzzle yet to be seen, and one that we can hardly predict. It has two potential parts: One, Trump loses in 2020 or is otherwise removed from office, meaning that the requisite number of voters decided to be done with him or else their elected representatives in the House and Senate felt the same way; or two, Trump wins in 2020 and continues on with his rebranding of the Republican party, likely for a generation.
Revulsion would be the bursting of the bubble. It’s Trump losing because a majority of the country, including a number of Republicans, decide his politics and persona are unpalatable and something needs to change. It would mark quite a defeat for Trumpism, and it would also be a proper burst because it would take down far more than just the President. The entire modern GOP is indentured to Trump, with the RNC running as his mouthpiece and the NRCC parroting snide remarks and attacks against Democrats daily. The face of the party is Trump now, not Reagan. Only through his defeat in 2020 would that trend face a potential challenge; otherwise, it seems the Party of Reagan would complete its transformation into the Party of Trump.
So those are my thoughts on the Trump phenomenon, if it is a phenomenon. The most interesting part about politics and of this current era is that there is no simple answer. Nobody is right or wrong, in terms of prognosticating. Was Trump the teleological end to what the Tea Party birthed in 2009? Perhaps. The real tell will be whether candidates for president on the Republican ticket in 2024 align themselves tightly with Trump or if they run for the hills and the mere mention of his name. As always, time will tell.