Tuesday, 12 July 2016

Why is the US white middle class going rouge? ... and voting for Trump

A recent paper published in PNAS by Princeton professors Anne Case and Angus Deaton (last year's Nobel prize winner) reported a stunning finding: there has been a significant increase in mortality and morbidity among middle-aged non-Hispanic white men and women in the US over the past 15 years. The causes have been attributed to suicide, and drug and alcohol abuse. The graphs below summarize the findings:
Mortality in selected countries, 1990-2013.
USW stands for US white. USH stands for US hispanics.
Source: Case & Deaton (2015) "Rising morbidity and mortality in
midlife among white non-Hispanic Americans in the 21st century."
Proceedings of the National Academy of Sciences Vol. 112(49)
December 8th 2015.
Mortality by cause, US white non-Hispanics, 49-54. Source: Case & Deaton
(2015) "Rising morbidity and mortality in midlife among white non-Hispanic
Americans in the 21st century." Proceedings of the National
Academy of Sciences
112(49) December 8th 2015.
Every comparable developed country has experienced a steady decrease in midlife mortality over the past two decades, while the trend for whites in the US has suddenly switched upwards in 1999 and has been steadily increasing ever since. The second graph illustrates why this is so. Deaths from poisonings have gone way up (over 300%) over a time span of only 15 years. Liver diseases and suicides have also gone up. Furthermore, the turnaround in mortality has been driven primarily by whites with a high school degree or less. Those with college education or less remained the same, while those with BA or higher have had death rates decrease. All this suggests that mid-life low-skilled workers, after experiencing job losses, have descended into personal depression and are trying to cure this with drug and alcohol abuse. And if you think that drugs are too expensive for an average unemployed person in the US, think again. The popular TV series Breaking Bad has showed that getting your hands on things like crystal meth is becoming widespread across the low and middle classes in the US (I know it's a fictional TV show, but it does draw implications from the real world). 

Why are these people descending to such states? Why are they killing themselves with alcohol and drugs? A simple explanation is economic, although not necessarily tied to the financial crisis since the trend started during favorable economic times. However the productivity slowdown and the outsourcing trend (a trend that accelerated in the 1990s and particularly in the 2000s), have made their own dents among the low-skilled population. These are not just job losses we are talking about. It's also the prospects of finding a new job for the low-skilled workers (which is perceived to be difficult given immigrants which are prepared to work for much less), as well as their lagging incomes, widening inequality, and disturbed social mobility. However most developed countries have experienced the same problems in recent decades, but these problems haven't manifested themselves into higher death rates for the mid-life low-skilled workers. 

So what gives? Perhaps the fault lies within the US health care system that is out of reach for the poor and middle classes (particularly if unemployed), making them more likely to die from the conditions they've imposed on themselves. In other words, perhaps European low-skilled workers are reacting the same way to globalization-induced job losses (via drugs and alcohol) but are simply more likely to be cured by their free-of-charge public health care systems. That still, however, doesn't explain the increase in suicide rates in the US. Perhaps the inequality and social mobility problems are even worse than we think which is forcing people over the edge. Financial insecurity could also be the issue, as pensions are traditionally tied to stock market earnings. But it's always been this way, and it wasn't a problem before. On the other hand, there has never been such a prolonged period of stagnating low and middle class incomes, so once a low-skilled worker losses his/her job, not having any significant savings accumulated (recall that the savings rate in the US is in steady decline since the 1980s), and possibly overburdened with a home loan, there isn't really much else he or she might hope for. Finally, perhaps the US cultural values emphasizing individual success are taking a psychological toll on its population for the first time in history (or since the Great Depression) as they are unprepared to deal with failure. I'm tapping in the dark here, but one thing is certain - something has definitely gone wrong in the US. 

It is therefore perfectly understandable why the white mid-aged US low and middle classes are switching to populism and are grouping behind Donald Trump. This has been long time coming. Populist messages blaming immigrants on job losses and a wrecked benefits system is exactly what the low-skilled workers have been craving for. Looking at these graphs it is easy to understand why Trump's support has been so high despite all of his political incorrectness and even his billionaire stature. Trump is delivering loud and clear messages that resonate with a part of the electorate that seems to be fighting with various forms of psychological depression and which represent clear losers of globalization (note: globalization certainly has a lot of benefits, but it also has its inevitable losers - for developed countries these are the holders of the scarce resource - the low-skilled workers). Furthermore, the political establishment has failed to hear these voices over the past decades (not only in the US). In such a state, where you lose your job and blame immigrants for it, where you have no savings and no long-term prospects, when you're faced with foreclosure on your home loan, when you realize your children will probably be facing the same bleak future, and finally when the politicians you never really liked anyway are not even hearing your messages, you very easily descend into populism and accept the first loud enough rhetoric that's expressing everything you're concerned about. It is no wonder these people "want to make America great again". For them, America has failed. Their intrinsic voter motivation is in this case actually quite rational. 

Europe is faced with the exact same problem of rising populism resonating to low-skilled losers of globalization, despite its lower mid-life death toll. The most dangerous way of fixing these problems facing low-skilled workers is descending into populism. Let's hope the establishment will realize this and offer realistic solutions before it's too late. 

2 comments:

  1. Former student at ZSEM....I'm gonna shoot you a public policy question. I'm going to use basic economics to develop my train of thought, as I don't have time to find scholarly articles. From this post, one important takeaway is that low-skilled American workers are being squeezed out of the job market due to globalization. This makes sense, as countries with lower labor costs (IE Mexico with the help of NAFTA or China) have a comparative advantage when it comes to low-skilled industries (i.e. manufacturing) and countries like the United States have a comparative advantage in highly-skilled sectors (i.e. medicines or financial instruments). One can surmise from this that perhaps this is attributing to income equality as well.

    As a politician, how would you develop favorable economic policies (short and long term) that help address this long-term problem of low-skilled workers being squeezed out of the market? Let's also assume basic income is out of the question, as it would be too hard to pass in Congress.

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    1. Hi Mike, good to hear from you!
      Great question, in fact, it's a million dollar question!

      Essentially I don't think policy makers could do much at this point. Developing a stronger social safety net for the low-skilled after they lose their job is a short road to welfare dependency. Another policy of the top of my head is the Danish model of flexicurity (see here: http://ec.europa.eu/social/main.jsp?catId=102). In a nutshell this allows businesses to fire people at will, however then the government helps them in training new skills and strongly encourages them (via various incentives and the threat of losing benefits) to get a new job within a year. This is good for the businesses as it allows them a lot of flexibility in hiring and firing people, and it saves the workers from long-term unemployment. Having said that I'm not entirely sure how that would pass in the US.
      Finally, we are currently in the process of an ongoing Third Industrial Revolution. This is the phase that is destroying a lot of old industry jobs. Eventually the labor market will adapt as people won't specialize in skills for which there are no more jobs out there. But this is a gradual process that can last a whole generation, forcing many to be losers of the entire process. Think of Thatcher in the UK and how she made the switch from hard industry to finance in the 1980s (read more about it here ).
      In the end there will be a positive shock coming from this ongoing IT revolution and it will again lower the long-term rate of unemployment. But saying something like this is hardly a popular political message. "Wait for it,and you will be rewarded" It doesn't really work. The people want help immediately.
      So to return to your question, at this point I think any policy should only be of short term effect and should be focused at closing the skills gap of the low-skilled workers.

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