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Donald Trump: You’re Hired!

Monday, November 28, 2016

Authored by Saeculum Research

On November 8, Donald Trump pulled off a shocking upset of Hillary Clinton to become the 45th president of the United States. It was a fitting end to a volatile election season the likes of which we’ve never seen. As pundits and pollsters try to figure out what they missed, Americans are settling in for four years of Trump. SI sat down with Saeculum Research Founder and President Neil Howe to get his take on what happened and what’s to come.

SI: Let’s start with a post-mortem of what happened on November 8.

NH: Whew. Where to begin? Now that the tight Michigan and Arizona races have been offi­cially decided (in Trump’s favor), the Electoral College count is in: Trump beat Clinton 306 to 232. And yes, that second congressional district in Maine covering over four-fifths of the state did indeed show its red-zone colors. It issued its one electoral vote for the Donald, denying Hillary a sweep of New England.

In the popular vote, on the other hand, Clinton is certain to beat Trump, though the final count is not yet in. As of November 22, she’s ahead by 1.3 percent—or by more than 1.7 million votes—with nearly 133 million votes counted. You’d have to look way, way back to find a president elected with a greater popular margin deficit—all the way back to Rutherford Hayes over Samuel Tilden in 1876 (a 3 percent deficit), in the election that ended Reconstruction. Or even further to John Quincy Adams over Andrew Jackson in the “corrupt bargain” election of 1824 (a staggering 10 percent deficit).

SI: Wow. How exactly was Trump able to prevail despite such a large negative popular vote margin?

NH: In the end, Trump’s popular vote simply was more efficiently distributed than Clinton’s. Compared to McCain or Romney, Trump gave up some of his margin in the Deep South for just enough extra to eke out victories in the Rust Belt. Clinton racked up huge popular vote victories in large blue-zone states like California and New York where her extra numbers counted for nothing.

Clinton’s popular margin didn’t even help her party down-ticket: The GOP held on to the Senate and further tightened its stranglehold on governors, from 31 to 34.

SI: This Election Day was particularly unique in that virtually none of the experts foresaw a Trump win. How can this be explained?

NH: You’re right; none of the major pollsters or big-name forecasters saw this coming. The RealClearPolitics average on the eve of the election was around 3.5 for Clinton—versus an actual popular margin of maybe 1.0 for Clinton.

To be sure, this is not as gross an error as it sounds. We’re talking about 1 in 100 voters opting for Trump that the experts thought would vote for Clinton. But the question needs to be asked: How did the pollsters systematically underestimate the Trump vote by 2.0 to 2.5 percent?

Here’s my quick three-fold answer:

First of all, as Election Day approached, most Republicans—even most “NeverTrumpers”—came home to the GOP ticket. Witness the late drop-off in support for Libertarian candi­date Gary Johnson and his third-party peers. When push came to shove, the right voted for the Donald.

Second, there were many undecided voters late in the race, and many of them were indeed “shy Trump voters.” As evidence, some pollsters confirmed that Trump scored better on robocalls to households than on personal calls. According to anecdotal accounts, white women were most likely to be shy. Result: Trump’s pre-election poll numbers were biased downward.

Third, compared to 2008 or 2012, there was a better turnout for pro-Trump demographic groups, especially non-college whites. This was coupled with a poorer turnout for pro-Clinton demographic groups, especially urban minorities. Sure enough, states with the lar­gest percentages of non-college whites overperformed the most on Election Day. As we saw with Brexit, voter motivation really does matter.

SI: It’s still hard to believe that pollsters failed to account for the possibility that any of these circumstances would take place.

NH: Right. If you ask me, the real story here isn’t the magnitude of forecast error—which was rare, yes, but not unprecedented. What was unprecedented was the degree of certainty—given the modest margin for Clinton—by which all of respectable America discounted the possibility of a Trump victory.

The media repudiated Trump (in their editorials and op-eds), giving him almost no endorsements. Corporate CEOs and entertainment celebrities did likewise, giving him almost no money. Most of the leadership of his own party disowned him—along with the top conservative intellectuals, from George Will and Charles Krauthammer on down. It was as if elite America believed voters could be shamed into voting against him.

But guess what? A good share of voters went for Trump precisely because the elite hated him. To quote Michael Moore, one of the few on the left who foresaw Trump’s likely victory in what he calls “America’s Brexit states” (the Rust Belt), Trump was a “human Molotov cocktail” that ordinary people could hurl at the ruling elite.

Most futures markets gave Trump about a one-third chance of winning. His victory did not shock the statistical odds. But it did shock our social sensibilities.

SI: Let’s dig deeper into the demographics of the electorate. How did 2016 compare with previous elections?

NH: Well, here are a few highlights. Compared to 2008 and 2012, the gender gap widened a bit further. This election’s 12-point male-female gap within both parties (women for Hillary, men for Trump) is the largest ever measured. What Michael Barone calls the outlook divide between “Mommy” and “Daddy” America is alive and well. The marriage counselors enlisted to repair the damage done by split votes can attest to this.

The racial gap, or the distance between the share of whites voting for each party, was 21 percent—a slight gain over what it was in 2012 (20 percent). With only 37 percent of whites voting for Clinton, the Democrats may have a “white problem” as much as the GOP has a “minority problem.” Trump won among every major demo of whites—both white men and white women, every white age bracket (including Millennials), and every white educational bracket (including the college educated).

To find a white demo favoring Clinton, you would need to specify two cross tabs—white women who also have college degrees, for example. Then, sure, you could find modest margins for Clinton—in this case, about 6 points.

SI: That’s pretty slim support among whites.

NH: For sure.

A somewhat more alarming shift, how­ever, is the rapidly growing correlation between party vote and geographic location. More than ever before, urban centers, especially on the culturally influential coasts, are tilting Democrat—in part because they are becoming younger and more educated. Trump only got 10 percent of the vote in his hometown of New York City, where he’s been heavily involved in civic activities. And only 4 percent of Washington, D.C. went red. But he got 67 percent of rural America, up from 60 percent for Romney.

Increasingly, voters are surrounded by people who vote the same way that they do—which raises the serious possibility of succession movements.

The biggest shift of all in this election? Income. Consider that, in 2008 and 2012, Obama beat the GOP candidate by 22 percent (60 to 38) among households earning less than $50,000 annually. Clinton beat Trump by only half that margin (11 percent, or 52 to 41) among that group. Meanwhile, Trump’s margin among six-figure households declined from Mitt Romney’s.

SI: What other interesting traits do Trump voters have in common?

NH: Trump supporters share some fascinating non-demographic characteristics that aren’t immediately apparent. For instance, social scientists have noted that these individuals score higher on tests that measure authoritarian personality traits. These are people who, above all else, look for order and control when they’re choosing their leaders. (See: “Diagnosing Trumpism.”)

But let’s go back to the demographics unifying these voters. The windfall of support that Trump won among more rural and poorer Americans is a manifestation of the new, more populist and nativist definition of the Republican Party as redefined by Trump.

And this isn’t just happening in America: Across the pond, we’ve seen voters reject the political status quo in favor of extreme right-wing parties—like Marine Le Pen’s National Front in France and the Five-Star movement in Italy. (See: “A Rising Generation of Eurosceptics.”) Le Pen, in fact, was quick to hail Trump’s victory as a sign of “a great movement across the world.” Voters worldwide are choosing bold leaders who promise action.

Of course, this right-wing Euroscepticism sweeping across continental Europe has a distinctly different flavor than what we’re seeing in the United States. While the movement abroad largely has been powered by young voters, the movement that swept Trump into office has occurred in spite of young voters. Trump’s election bears a much closer resem­blance to the U.K.’s Brexit vote, where young people overwhelmingly checked the box next to Remain.

That’s not to say that Millennials were thrilled about Clinton, though. The age gap during this election actually closed a bit from where it stood in 2008 and 2012, mainly due to a smaller Millennial margin for the Democrats. Despite pre-election talk that Trump was pure anathema to young voters, Millennials clearly were not convinced that a third Obama term was what the country needed.

In the end, young people—whether here at home or abroad—are showing that they will vote for whatever system they believe will work best.

SI: What has this election taught us about American consumers?

NH: Mainly that we may not understand their wants and needs as well as we thought.

The very notion that there’s an untapped consumer base out there has sent the advertising world into an existential crisis of sorts. Much of the business of marketing is based on the mythical “aspirational brand,” the fact that everyone wants a pair of Nike sneakers on their feet or an iPhone in their pocket. But that concept is based on a very blue-zone, cosmo­politan worldview—and Trump’s win shows marketers that this worldview is far from the only one out there.

Thus, marketing executives face a major conundrum as they try to expand their brand reach ever-further beyond country borders: making sure that it still appeals to the red-zoners at home who reject the idea of a glossy aspirational brand. McCann CEO Harris Diamond sums it up nicely when he says that marketing needs to be less New York and L.A.—and more “Des Moines and Scranton.”

SI: Let’s turn now to what’s happened to the economy post-election. What do you make of the various market booms and busts that we’ve seen in the past two weeks?

NH: Good question. First, let’s back up to where the markets stood immediately before the election.

Pre-election, I think global markets were taking it for granted (as a positive) that Clinton was going to win. The steady swoon in the S&P during most of the three weeks prior to November 8 was triggered by the growing awareness—following the Comey revelations—that maybe her victory was not assured and, more importantly, that rising partisan bitter­ness and even impeachment charges could besiege her administration from day one. Thus, the prospect of a seamless Obama third term seemed increasingly imperiled.

The markets’ preference for Clinton became obvious during the final five days of the campaign—when the polls registered a late Clinton surge, showing her starting to break away with a larger lead, and when the S&P simultaneously shot up by 2.6 percent. The market reaction after the first hint of the Trump win on election eve followed the same narrative: The after-hours Spooz plunged all the way to the 5.0 percent circuit breaker.

But the next morning, with Trump the clear victor, something changed. The S&P quickly recovered its deficit and continued climbing. It is now up 4.8 percent over its pre-election “Clinton” high.

SI: So what exactly changed?

NH: Two things. News that the GOP had retained the Senate. And Trump’s surprisingly gracious victory speech. Replacing the apparition of barbarians invading the White House down the street from a divided legislature in the grip of civil war, a new narrative took hold. Maybe we were watching a positive-minded leader who really wants to “rebuild” America and who now had the means, with all of Congress working with him, to push through his agenda.

And what was that agenda? Oh yeah, this was the guy whose plan calls for massive fiscal expansion, mainly through large personal, corporate, and pass-through tax cuts. Clinton’s fiscal agenda was actually slightly contractionary. Trump’s, on the other hand, promised some $5.3 trillion in deficit spending over the next decade, or roughly 2.5 percent of GDP of stimulus every year for ten years.

Already, in only two weeks since the election, global equities have risen. The dollar has surged. And 10-year breakeven inflation expectations have jumped by 26 basis points (1.73 to 1.99). Miraculously, a Trump victory has accomplished what central banks have been laboring to accomplish for the last two or three years—persuade the world to believe that inflation is on the up and up. This persuasion in turn gives monetary policy traction again—by making nominal interest rates more deeply negative in “real” terms. In lockstep, fixed-rate sovereign debt (along with equity look-alikes) has tanked. Has the so-called fiscal cure arrived? Paul Krugman is sputtering with indignation that this uncouth right-wing charlatan has stolen all of his progressive thunder.

The new narrative now dominates the thinking of global investors. And apparently markets think that Trump’s “huuuge” fiscal push could be big enough to overwhelm any developing late-cycle deceleration in the economy. The fact that Trump also wants to steamroll regula­tory obstacles for energy, heavy industry, banks, and Big Pharma simply adds another sectoral “spin” to the rally.

There has been considerable discussion about whether the Trump administration may pressure the Fed to take a more hawkish policy stance, perhaps by pressuring Yellen into resigning. But it’s fair to say that what the Fed does will be more effect than cause. If equities and long-end rates keep rising, the Fed will ratify investor sentiment by raising the near end of the curve. If markets reverse, the Fed may delay. But the Fed cannot success­fully raise rates in the face of a slowing economy and risk-off markets—no matter who Trump appoints.

SI: Do you believe that the Trump rally has legs?

NH: There are plenty of bulls who do believe in the Trump rally. Bank of America officials say that the market could very well keep on rising through the holiday season. Plenty even draw parallels between Trump’s election and Reagan’s election, which kick-started an 18-year bull market.

Personally, I very much doubt that the rally will last. Wall Street Journal columnist James Mackintosh quipped last week that, “It has taken markets just four days to price in four years of President Donald Trump.” If he’s not right, he’s close—and there’s no telling what markets will do once the Trump win is fully priced in. Already we’re seeing signs that the bond selloff may be slowing down. Stocks could just as easily slip.

SI: What sorts of factors could derail the rally?

NH: Here are a few alternative scenarios that could displace “Trumponomics”:

One possibility is that Trump won’t be able to pass or implement his expansionary agenda. Keep in mind that there are a whole lot of Republicans in Congress, both traditional and Tea Party, who don’t favor reckless deficit spending and adding another 20 to 30 percent­age points of GDP to U.S. federal debt. The debate here has yet to begin. A possible House balking at the debt limit ceiling this spring could bring the whole Trump train to a halt real fast.

We could also begin to see spasms of anti-growth populism. To date, global investors are focused on all the policy measures—fiscal stimulus, tax reform, deregulation—which get lots of support from a wide range of economic experts. But what about the other stuff: unilateral tariffs against China and Mexico, rounding up millions of “illegals,” telling Poland or South Korea either start paying “your own way” or we’re history? Any or all of this could happen on day one with an executive order. Trump may not want to act like a bull in the china shop, so to speak, but he has a movement to feed. He has followers to favor. He has midnight tweets he needs to fire off. It’s easy to imagine a firestorm that could eclipse all of his well-wrought fiscal and regulatory plans.

Another scenario is that U.S. “slowth” overpowers Trump’s agenda. The real economy lumbers on, like a supertanker, requiring two or three quarters of hard-about steering to change its trajectory. Further deceleration in employment, industrial production, retail sales, personal income, or sentiment could quickly turn markets around no matter what news comes out of Trump’s transition team. Bulls may take last week’s strong retail sales figures—which showed the best two-month stretch of sales in at least two years—as evidence that the rally is real. But remember: That’s just one blip in one variable.

There’s also the threat that global trouble may drag down U.S. markets. In three weeks, Italy will vote on a constitutional overhaul that, should it fail, could bring the nation to its knees. Austria is likely to elect a right-wing nationalist as president. Emboldened by Brexit and Trump, nationalist “alternatives” in France, Germany, and the Netherlands will all be running for national leadership in 2017.

Meanwhile, the Trumpian boost in the U.S. dollar is hammering emerging markets that were already being killed by falling commodity prices. And did anyone forget that the glo­bal economy has been slowing down over the past two years? (See: “The Global Econo­my Gears Down.”) Then let’s add on the extra $20 in the price of oil should Trump unplug the Iran agreement. The bad news that stops the Trump rally may not be home-grown.

SI: Anything else, dare I ask?

NH: OK, now let’s imagine that Trump clears all of the above hurdles. His deficit-fueled program is certified by Congress, he avoids tariff wars, and he is blindsided neither by slowth in the U.S. economy nor by financial crises abroad. The final question is whether global financial markets can actually survive Trumponomics successfully deployed. Can inflation expectations, long-term rates, and debt-to-GDP ratios (the rates and the ratios feed off each other) keep climbing without triggering a collapse in high equity valuations? Can wages push higher—four more states approved higher minimum wage laws on November 8—without squeezing earnings? Can the dollar and U.S. yields both keep rising without starving the emerging market economies of investment funds? We cannot confidently say “yes” to each of these questions.

SI: Some are comparing Trump to Reagan—and say he may trigger the same kind of boom.

NH: That’s simply delusional. For starters, just compare the demographics. Back in the early ‘80s, we had a huge youth generation (Boomers) starting their careers and a small 60-something generation (Silent) about to retire. That was great for economic growth. Today, the situation is reversed. Also, back then, levels of public and private debt were roughly half (as a share of GDP) of what they are today. Today, U.S. debt levels—indeed, global debt levels—are at unprecedented highs.

So the fundamentals on the economic side just aren’t there. Nor on the financial side. Recall that the ‘80s rally was born out of a recession that bottomed at close to the lowest cyclical P/E ratios in history. Today, you’re starting when valuations are already high. How much room is left for a sustained rally? What’s more, the so-called risk-free interest rate is rising—which will inevitably pull up the earnings yield and dividend yield on equities as well. And that means falling P/E ratios. Finally, an accelerating Trump economy will push us beneath our sustainable unemployment rate—which is going to push up wages and shrink the capital share of national income. This “triple whammy” makes it tough sledding for Trumponomics.

SI: Wow. It looks like Trump has a steep hill to climb.

NH: Exactly. And that fact is not lost on everyone, by the way. Even some of the most vehement anti-Hillary voices are convinced that the Trump rally will be short-lived. Take David Stockman, who says that the rally merely proves that “there are only idiots and robo-machines left” on Wall Street.

SI: Ouch. Now I’d like to zoom out a bit. What, if anything, does this election signal about where America is headed, politically and culturally?

NH: To answer this question, I’m going to draw upon a concept that Bill Strauss and I wrote about in The Fourth Turning.

Years ago, Bill and I identified a recurring pattern in American history whereby, in a sense, history repeats itself in four cycles each lasting approximately twenty years. Each cycle resembles a different “season” of history—spring, summer, fall, and winter.

Today, we are smack-dab in the middle of winter—what I call a “Fourth Turning.” Fourth Turnings are Crisis eras in which many political and economic institutions are torn down and rebuilt. The prevailing social mood is, in a word, uncertainty.

So why am I talking about all of this? It’s simple: Trump’s rise—and the sweeping political realignment that is sure to come—is a strong sign that we’re nearing the vital inflection point in our current Fourth Turning. Trump was voted into office in no small part because of his promise of action over rhetoric. Yes, to some extent he was a protest vote for people who felt betrayed by the system. But Trump is also much more than that—he’s the leader whom the people have chosen to actually get things done in Washington. And if he fails in that role, the people will rapidly swing to someone else, maybe on the opposite end of the political spectrum (another Bernie Sanders?). We live in a time of extreme political volatility.

SI: We’ve seen plenty of headlines recently about the “end of the GOP” or the “end of American politics.” Does Trump’s election mean that our political system is irreparably broken?

NH: In its current form, perhaps. What was clear even before the election—and what be­came even clearer on November 8—is that both parties have plenty of soul-searching to do. Republicans are left wondering how a belligerent political outsider managed to hijack their party, while Democrats are asking themselves how they could have lost to that outsider.

The reflection that’s sure to come in the weeks, months, and years ahead may cause po­litical leaders on both sides to rethink the direction—and the very identity—of their party.

SI: Is there any chance that this election was just a momentary blip, after which we’ll return to the political status quo?

NH: There’s always that possibility. But the very sense of disarray and chaos that got Trump elected makes it unlikely that in 2020, voters will simply say, “Never mind; we made a mistake.”

Bill and I hinted at all of this in The Fourth Turning:

“[A] national election will produce a sweeping political realignment, as one faction or coalition capitalizes on a new public demand for decisive action…The winners will now have the power to pursue the more potent, less incrementalist agenda about which they had long dreamed and against which their adversaries had darkly warned.”

What we’re seeing today may very well be the seed of this new political order. When all is said and done, our society will be left with shiny new institutions that come to be trusted by the majority of Americans—especially the rising generations. This remains Trump’s biggest test: to see if he can become a builder and a unifier rather than just a tool designed to blow up the system.

SI: What else about this election cycle seems relevant to you from a turnings standpoint?

NH: I will say this: It’s fitting that the man elected to shepherd American politics into this new era is a Baby Boomer.

To understand why, it’s important to know that, as eras of history repeat, so do the types of individuals who make history. Each of today’s generations belongs to what I call a generational “archetype” that shows up once per turning. Boomers belong to the “Prophet” archetype, a group defined by overindulgence in youth, fiery passion in young adulthood, and rigid moralism in elderhood.

Born on the heels of one Crisis, Prophets inevitably lead society into—and through—its next Crisis as they enter elderhood. In The Fourth Turning, we predicted that the final Boomer leaders would be “authoritarian, severe, unyielding.” Their tough talk would inspire adoration among his supporters—and scorn among his adversaries.

SI: Sounds a lot like our president-elect.

NH: You’ve got that right.

The Donald probably wasn’t what Nathaniel Hawthorne had in mind when he told us of the “Gray Champion,” a mythical, venerable man who—according to legend—appears every eighty-odd years to protect a wronged people against injustice and rouse them to action.

Throughout history, we’ve seen countless real examples of society’s elders—invariably from a Prophet generation—rallying youth and influencing the course of human events. Could Trump be the latest example?

Though he’s an ill match for the quiet, “unbroken dignity” with which Hawthorne describes the Gray Champion, it’s hard to argue that Trump is not a champion of the people. Or, to be more accurate in today’s polarized America, he’s a champion of his people. As Yoni Appelbaum of The Atlantic writes, “The conservative, Christian voters backing [Trump] are looking for someone who can defend them, not someone who embodies their values.”

SI: Do you have any closing thoughts?

NH: I’d like to end on an upbeat note. At a certain point, creative destruction becomes healthy and necessary. Periodically, society’s institutions need to be torn down so that something fresh, trustable, and simplistic can grow in their place. Trump’s election means that people to some extent realize that it’s time for this regrowth.

Whatever the eventual outcome of this election cycle, our society is in capable hands. Pragmatic Generation Xers are entering leadership positions, and are uniquely equipped to guide us through the transition. They bring with them a resolve to make the tough decisions that will benefit the most people.

As for the generation that comes after Xers, Millennials, there’s a reason why they’re often referred to as “makers” and “builders.” This generation’s affinity for teamwork gives them the potential that we last saw from the G.I. Generation, the society-builders who turned America into the well-oiled machine that it has been for the better part of the past century. Millennials will take the bare bones of the new society that’s given to them, and they’ll turn it into something special.

I’ll leave you with this passage from The Fourth Turning:

“Emerging in this Crisis climax will be a great entropy reversal, that miracle of human history in which trust is reborn. Through the Fourth Turning, the old order will die, but only after having produced the seed containing the new civic order within it.”

Material posted on this website is for informational purposes only and does not constitute a legal opinion or medical advice. Contact your legal representative or medical professional for information specific to your legal or medical needs.

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