Scott Sumner  

The morning after

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I Win All My Election Bets... Wisdom and Courage from Arnold...

Here I'll list a few observations:

I've been consistently wrong about Trump, so I won't even try to predict what he'll actually do.

This is the most Republican national government of my lifetime. Will they shrink government, or increase spending and deficits?

The UK stock market is doing better than most---I wonder if that's because this result gives them a stronger position in the Brexit negotiations. They can say that voters all over the world are rejecting open borders. Perhaps even Le Pen could now win in France.

At the same time, remember that Trump won power, not a public opinion poll. Hillary won more votes. And people vote for many reasons, so it's hard to know what "the voters are telling us" in a close election. They are certainly telling us something, but different voters focus on different issues.

Since I've been wrong about most election issues, I'll point to a couple items I got right:

a. I claimed politics isn't about which party wins, it's about which issues win. I also claimed that each party would win about 50% of the elections in the 21st century, just as in the 20th century. The issue is what those parties do doing their 50% of time in office. I was criticized for ignoring the fact that the GOP was "obviously" committing suicide for decades due to demographics. Seems that reports of the death of the GOP have been premature.

b. A few weeks back I pointed to a global trend of 5 recent elections where the right/nationalist/non-PC candidate or issue was outperforming the polls. This election was almost exactly like Brexit, right up to the initial market misjudgment on election night. BTW, one of those over-performances was the UK Conservatives getting re-elected---so this global trend is not just about "throw the bums out".

I doubt this election will have much impact on monetary policy, but we will see.

It will be interesting to look at the data, which will undoubtedly show lots of odd facts. One I just noticed is that Hillary won Orange County, California by 5%, while Trump won Kern County by an 18% landslide. Never heard of Kern County? It has as many people as San Francisco County, and it's 50% Hispanic. That's right; Trump won a 50% Hispanic County in deep blue California by 18%.

Trump did much better than Romney is working class white areas on the East Coast (often Catholic) such as Rhode Island and Staten Island. Otherwise he did poorly in that region. The big story is the big cities trending blue (all over the country) and the smaller towns trending red.

It's difficult to know whether the third party candidates were decisive this time (unlike 2000 when it was obvious). My hunch is that it would have been very close in a straight one on one match-up.

I agree with Tyler.

On paper, this is a complete repudiation of President Obama, as the GOP has promised to undo almost all his important decisions. But will they? I have no idea. Interestingly, Obama is far more popular than Trump, and I mean more popular by landslide proportions. So what exactly are the voters "saying"? I'm not sure, but we'll see the results soon enough.

I wonder if the weird stock market reaction is a microcosm of the split between elite opinion and average opinion. Elite opinion is horrified, and drives stocks much lower last night (in futures markets) then average opinion wakes up and sees a buying opportunity, and calls their broker---looking to spend some of those big tax cuts for the rich that Trump promises.


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COMMENTS (35 to date)
Mike Rulle writes:

Great post on all fronts. Was trying to say something similar on your other site. This is better and more complete, so I will leave it at that.

baconbacon writes:
I wonder if the weird stock market reaction is a microcosm of the split between elite opinion and average opinion. Elite opinion is horrified, and drives stocks much lower last night (in futures markets) then average opinion wakes up and sees a buying opportunity, and calls their broker---looking to spend some of those big tax cuts for the rich that Trump promises.

Stock markets aren't like elections, having more money buys you more votes. For the elites to drive the market down initially only to have the "average" buy it right back to even would require some convoluted logic, especially in a situation where Hillary is winning (or at worst even) the popular vote, and winning it in areas with tons more money.

Jay writes:

I don't like even mentioning the national vote as evidence of anything. That's not our system. A lot of people don't vote simply because their state isn't contested and they see it as a waste of time even if their more inclined to vote to begin with. You'd think this would fall evenly on both sides of the aisle but do we really know that?

JK Brown writes:

Lots of crony deals in the market just got risky so that sparks panic like it did with Brexit. Late morning, I'm only seeing a big hit on my gun stock and oddly Kellogg is down. I can see how the election might slow gun sales and Obama has been a champion gun marketer, but cereal? Maybe people are expected to switch to bacon and eggs?

baconbacon writes:

@ Jay

Additionally the candidates choose strategies based on where votes are most valuable. Trump out did Clinton in this arena, assuming that she would have won under different rules doesn't hold.

rtd writes:

Prof Sumner, Obama is "popular" by the same polls suggesting Trump had no chance. Think about it.

Peter Schaeffer writes:

Both Hillary and Trump had serious favorable/unfavorable issues up until election day. In spite of how bad Hillary was, she still had a considerably better favorable/unfavorable rating than Trump.

Trump won anyway. He won by turning Blue states Red. He won because he talked about real issues (trade, immigration, failed foreign policies, stifling PC, etc.) that Hillary either ignored or took the wrong side of.

Trump didn't win because of his detailed knowledge of policy issues (far from it). He didn't win because of his thorough grasp of foreign policy (far from it). He won because the better educated, better prepared candidate (Hillary) was on the wrong side of the great issues of the day.

Scott Sumner writes:

Thanks Mike.

Bacon, I think you missed my point. I know that Hillary won places like Manhattan. My point is that when people who live there saw Trump win, they became very worried. Perhaps average investors are less worried.

Jay. You said:

"I don't like even mentioning the national vote as evidence of anything. That's not our system."

I agree that that is not our system. Out system is "rigged", so that while "the people" voted for Hillary, the system delivered the election to Trump. And both sides knew going in that this was the system. I'm fine with that, although I've always preferred direct elections.

But I think you missed my point. I wasn't saying it was evidence of public opinion, I said it was more likely to be evidence of popular opinion that the electoral vote. "Our system" is not a public opinion poll. So voters are not "sending a message" in any clear way.

In a system where popular vote determined the outcome, Hillary almost certainly would have won the popular vote by a wider margin, as turnout in states like California would have been higher. But again, this is a moot point. I'm certainly not saying Hillary really won. Trump won. Period, end of story.

rtd, You said:

"Prof Sumner, Obama is "popular" by the same polls suggesting Trump had no chance. Think about it."

That's wrong, the polls said Trump did have a chance. Nate Silver gave him a 30% chance. It was an upset, but the popular vote was only about 2% off the average of polls. (1.2% vs. 3.2%)

Scott Sumner writes:

Peter, Or maybe he won because the system is rigged. Seriously, I think it's a mistake to look at things in such a simplistic way. Hillary and Obama have almost identical views on those great issues you talk about, and yet Obama is far more popular than Hillary.

Polls typical show the public agrees more with the Dems than the GOP on immigration and trade. Now you can say that the election is the only poll that matters, and I'm fine with that. But you have no idea why people voted for Trump--there could be 100 reasons. Just because Trump differs from Hillary on 23 issues, doesn't mean the public agrees with Trump on all 23 of those issues. Especially when he doesn't even win the popular vote.

The voters weren't "saying" anything last night, they were voting. Now a referendum like Brexit or pot legalization is different; there you really can argue the public has expressed its views on the issue at hand.

Jay writes:

@Scott Sumner

"I said it was more likely to be evidence of popular opinion that the electoral vote."

Right, and that's exactly what I was disagreeing with. Like baconbacon said, people vote knowing the rules so you can't use the national count as evidence for anything since those votes were cast (or not) in a system where that count is meaningless.

"Hillary almost certainly would have won the popular vote by a wider margin, as turnout in states like California would have been higher"

I don't think this can be assumed as easily as you say. You can just as easily argue the R-count in CA and NY (and other dark blue states) would go up since their value in a direct election goes WAY up relative to the current system.

MFFA writes:

Is the fiscal theory of the price level the next thing to rise in status?

http://www.bloomberg.com/news/articles/2016-11-09/investors-are-betting-that-trump-will-be-the-inflation-president

EB writes:

Will Trump fire Janet Yellen? That is the question; see

http://www.zerohedge.com/news/2016-11-09/will-trump-fire-janet-yellen-here-wall-streets-response

pyroseed13 writes:

"Polls typical show the public agrees more with the Dems than the GOP on immigration and trade."

Sorry Scott, but why should we believe any of this now? People were telling me that I was wrong to think that Trump supporters have legitimate concerns about trade and immigration because polls supposedly showed that these were people with high incomes in areas that were not much exposed to trade or immigration. And yet...Trump won the Rust Belt. I don't think polls do a very good job of capturing voters actual views on these issues. And a lot of this depends on how you ask the question. If you say "Should hard working immigrants be allowed to stay," well, who is going to say no to that? Yet, I've taken YouGov which asked the immigrant question exactly like that.

Rich Berger writes:

Trump won with the entire weight of the media against him, and he spent far less on his campaign. He is a novice politician, but he won the biggest prize in his first attempt.

I think that's incredibly impressive, and I expect good things from him as President.

Tom Brown writes:

"Trump won with the entire weight of the media against him"

Except for Drudge, Fox, Breitbart, talk radio, Coulter, and lots (100s) of RW news websites.

The media is not a monolith.

Scott, I'm from Kern county actually. The NE "white" bit. I no longer live there, but I'm pretty sure it was Trump friendly.

RPLong writes:

I think history is a better lens here than economics or current events. Two points are being under-reported:

First, if you had asked people in 1993 who would win a head-to-head presidential race between HRC and Donald Trump, I submit that Trump would have one by a wide margin. America's disdain for HRC has been a decades-long constant, despite what some in the media want to say.

Second, The only time in the last half-century a party has ever managed to win the presidency three consecutive times was Reagan/Reagan/Bush. It's an unlikely situation. Some of Trump's success can be attributed to the fact that the D's won the presidency twice in a row already and it's the R's turn.

Andrew_FL writes:
I doubt this election will have much impact on monetary policy, but we will see.

I dunno, Trump has a history with dropping money from the sky.

BC writes:

Stock market is now up 1.40% and 30-yr treasury yield is up a whopping 0.25%. A 0.25% move in interest rates may not seem huge since rates can move several percentage points over months or years, but that's like saying a 5% move in stock prices isn't that large because in a 1-2 yr period stocks can drop 50%. A 0.25% 1-day move in treasury yields probably happens about as infrequently as a 5-6% move in stock prices.

I'm not sure why treasuries are reacting this way. Expected stronger growth or more US debt? Rates have been rising since early July, so not necessarily all Trump related, but the move is very large to not think that at least part is related to Trump. Any ideas?

LD Bottorff writes:

This is the most Republican national government of my lifetime.

Thanks for pointing this out. Many of us forget that while GW Bush had control of Congress when he took office, the margins were very slim. Also, the Republicans have made significant gains in state governments. The Republican Party is far from dead.

Andrew_FL writes:
Thanks for pointing this out. Many of us forget that while GW Bush had control of Congress when he took office, the margins were very slim. Also, the Republicans have made significant gains in state governments. The Republican Party is far from dead.

The last time the government was this heavily Republican the didn't win another Presidential election for the next twenty years, so....

Scott Sumner writes:

Jay, You said:

"You can just as easily argue the R-count in CA and NY (and other dark blue states) would go up since their value in a direct election goes WAY up relative to the current system."

Actually you cannot "just as easily argue" since there are far fewer Rs in those states. You can argue that, but it's a very unlikely argument to be true.

MFFA, Maybe, but the increase could be due to factors other than fiscal policy.

pyroseed, I agree that polls of policy questions can be tricky, I'm just saying it's not obvious that people are saying they oppose those things (in this election).

Yes, it depends whether you ask about a big tax increases on goods sold at Walmart, or "protecting American workers".

Rich, Yes, it's a hugely impressive win, that I didn't expect. But I'm not sure if that translates to policy. He never articulated a coherent policy agenda, so we really have no idea what he'll do. And no, that not as true of all politicians, although there's always some uncertainty. Even his supporters admit that some of the things he promised were bizarre, like promising to pay off the entire national debt in 8 years, or suggesting he might default on part of the debt. Yes, lots of this was "just talk", but then how do we know what's real? His supporters say immigration, but even there he waffled on expelling the 11 million illegals, so I just don't know. We'll know soon enough.

RP, I agree with your second point.

BC, I think both factors that you cite are part of the explanation. Possibly a bit more inflation too--Trump might want his very own Arthur Burns.

shecky writes:
This is the most Republican national government of my lifetime.

Oddly enough with effectively the least Republican platform in my lifetime.

Trump seems to be basically Sanders with a dash of xenophobia and a helping of vulgarity. I think those are characteristics that are broadly appealing to lots of Americans, characteristics that are often looked down upon in polite company of the elite class.

BC writes:

Could the rapid change in the stock market from -5% election night to up 1-1.5% during the day be explained by Trump's conciliatory victory speech and Ryan's upbeat speech in the morning? Maybe, the market switched from being scared by a Trump presidency to being optimistic about a unified Republican government.

bill writes:

Great post and comments.
I've seen little in the media about the total vote count. Watching the pundits last night I had the sense that turnout was going to be some sort of record. Long lines. Etc. Yet the total in 2012 was almost 7 million more votes than this year in spite of population growth. And so far Trump's total votes are less than the votes received by Mitt Romney (by a little) and Clinton's are over 6 million less than Obama had.

Jay writes:

@Scott Sumner

"Actually you cannot "just as easily argue" since there are far fewer Rs in those states. You can argue that, but it's a very unlikely argument to be true."

Yes, total R's in those states but that's not what we're talking about. You can't assume there are far more D's on those states that didn't vote but would under a direct vote since it is the (previously worthless) R votes that are more likely to come out of the woodwork under a direct vote in a blue state. Does this balance out across all red and blue states? Who knows and I don't think you could just assume in either direction.

shecky writes:

re: Kern county
Yes, deep blue CA, but Kern County is deep red. Possibly in part because it is 50% Hispanic.

Dave writes:

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Sebastian H writes:

"Hillary and Obama have almost identical views on those great issues you talk about, and yet Obama is far more popular than Hillary."

I'm not a fan of this kind of analysis. When possible you try to elect Presidents whom you can trust to deal with the issues you aren't thinking about as well as the ones you are. Obama is so much more trustworthy than Clinton that it isn't even funny. So on pretty much any basket of similar explicit policies he is still likely to be much more popular than her.

Jon writes:

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Scott writes:

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Scott Sumner writes:

shecky, Interestingly, the stock market rally yesterday suggests the market thinks Trump will abandon his populism.

On Kern County, I think one reason Hillary lost is that millions of Hispanics voted for Trump. Not a majority, but more than you'd expect given his anti-Mexican (and even anti-Mexican American judge) rhetoric.

BC, Yes, I think that's the most likely explanation.

Bill, Maybe, but there are still millions of votes that have not been counted. Still, Hillary seems to have lost because of low turnout in cities like Detroit and Milwaukee.

Dave, See my responses to Jay.

Jay, I think your agnosticism supports my original point. Wo don't know what the message of the voters is. There are too many uncertainties.

Sebastian, That was exactly my point!!

Jon, Exactly.

Jay writes:

@ Scott Sumner

Agreed, far too many uncertainties to draw any conclusions from the popular vote which is why I dislike that its even an object of analysis in our system. Right now my Twitter feed is lousy with people calling this yet another failure of the Electoral College system because of the count, as if the counterfactual with a direct vote would be the same result.

Rich Berger writes:

Scott-

I think Trump has been very specific about many things he will do. Build a wall and curb illegal immigration. I think the simple enforcement of the law will encourage self-deportation. Repeal and replace Obamacare. Rescind Obama executive orders. Cancel regulations. Reduce corporate tax (eliminate carried interest provision) and reform the tax code with reductions.

I don't expect him to be a libertarian, but I think he will be good. This man is well-organized, fearless and a hard worker. We haven't seen this in at least 8 years.

ColoComment writes:

I, too, have seen the wave of opinion that a popular vote would have seen Hillary elected. I have problems with that conclusion:

If it were popular and not electoral college vote for president, the candidates probably would have campaigned far differently, and the electorate may have voted differently. For example of the latter: those who soothed their consciences by voting third party, esp. Libertarian, knowing that candidate had no chance in the e-college, may have instead voted for the Republican Party candidate in the hope of curbing (at least insofar as may be possible given the status quo) expansion of federal government. Here in Colorado, had the Libertarian vote been cast instead for Trump, Colorado would be a "red" state on the election maps.

We simply don't know how behaviors might have differed.

I do think that it's a huge indicator of how a popular vote MIGHT have gone that, in ACTUAL popular voting, Republicans kept the House and Senate, and expanded their positions in governorships and held state legislatures.
http://www.cbsnews.com/.../gop-expands-governorships-and.../

But this is all 'way beyond any area of expertise I may claim, so YMMV.

Mark Bahner writes:

Hi Rich:

I kid...but I hope you're right:

I think Trump has been very specific about many things he will do. Build a wall...

Yes, build a wall and have the Mexicans pay for it. That's "specific" like me saying I'll convert my water heater from natural gas to cold fusion by Christmas this year. :-)

Repeal and replace Obamacare.

He can't repeal and replace Obamacare. Congress can do that. The question is whether they will, and whether the replacement will be any better. (On that front, I'm at least skeptically hopeful.)

I don't expect him to be a libertarian,...

Something on which I think we all can agree. :-)

...but I think he will be good.

Like I wrote above, I hope you're right. But his talk about banning Muslims from coming into the country, killing the families of suspected terrorists, and most of all, his desire to be "unpredictable" with nuclear weapons, make me very, very nervous.

Best wishes,
Mark

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