Welcome to the 22nd issue of The Outsider Perspective, brought to you by The Beltway Outsiders.
Good Friday Morning! We’re 10 days out from the general election. The end is in sight for this campaign cycle. Which means we’re due for one more October surprise. We’ve already hit Trump’s iceberg of the Access Hollywood tapes. What’s next? The true October surprises always hit around this point when there are less than 2 weeks left to go…
October Surprises happen at the end of the month
For a brief history, in 2000, a story hit 5 days before the election that George W. Bush had been arrested for a DUI in 1976. Bush’s campaign manager at the time, Karl Rove, estimated that the revelation cost Bush 2% in the polls, and cost him a chance at winning 5 states. The story caused a number of people to vote for Gore and made roughly 3 million Evangelical voters stay home.
In 2004, Bush received a boost this time after Osama bin Laden released a video at the end of October attacking Bush. Bin Laden accused the President of being a tyrant and that the Patriot Act was a bad piece of legislation. This video helped give Bush a boost in the polls and sent him past Kerry.
In 2012, the Romney campaign dealt with two major events. The first was hurricane Sandy ravaging the Atlantic coast. And the release of a tape where Romney spoke at a private fundraiser and gave his infamous “47%” speech. The combination of the two events push the news cycle into Obama’s camp and helped him keep a safe lead.
The moral of the story is this: we’re at the end of the campaign, which means anything can happen. Politico has a listicle of 15 other October surprises.
The State of the Race
Last week I wrote barring a miracle, Hilary Clinton was going to be the next President. From a polling standpoint, nothing has changed in a week. Trump’s electoral path still depends on winning states he is currently losing. And he is deploying few resources into those states to get his base out to vote. And while the national polls have tightened somewhat, from a 6.0 – 6.5 point Clinton lead, to a 5.5 – 6.0 point Clinton lead, it’s not a true tightening of the race. Trump is still projected to lose by the same amounts he was last week. Effectively this race is in the middle of the range where Obama won in 2012.
Most problematic for Trump is that he’s losing in Arizona (-1.3%) and barely hanging on in Georgia (+2.8%). Any path he has for winning depends on winning those states easily. And this isn’t including the problems he’s now having in Utah and likely Idaho, states where Evan McMullin is rapidly gaining ground. So what is making the race closer? Trump is regaining Republican voters he lost in the wake of the Access Hollywood tape scandal. But with every gain he makes, Clinton is also gaining undecided voters. So whereas Trump is trying to lock down Republican voters, Clinton is gaining with everyone else:
Consider one of the worst polls of the day for Clinton: Monmouth University’s poll of New Hampshire, which gave Clinton a 4-percentage-point lead, down from a 9-point lead in Monmouth’s previous poll of New Hampshire in mid-September. But the poll didn’t really show Clinton’s vote declining (she fell only from 47 percent of the vote to 46 percent). Instead, the shift was primarily because Trump increased his vote share from 39 percent to 43 percent, having taken his votes from Gary Johnson and the undecided column.
One of Trump’s worst polls, conversely, was a Suffolk University national poll that showed Clinton beating him by 10 points1 — up from a 7-point lead in Suffolk’s previous national poll in late August. And yet, Trump didn’t actually lose any ground in the Suffolk poll, improving to 38 percent of the vote from 35 percent before. It’s just that Clinton zoomed up further, improving to 47 percent from 42 percent.
We can also see this pattern in FiveThirtyEight’s national polling average. Clinton’s currently at 46.0 percent, which is her highest number on the year and up by 0.6 percentage points from a week ago, when she was at 45.4 percent just before the third presidential debate. Trump, meanwhile, is at 39.6 percent in national polls. That’s not a great number but is also improved — he was at 38.8 percent a week ago.
In other words: Trump is getting Republicans to “come home” to his ticket. Clinton is expanding her lead with moderates and undecideds. Trump isn’t “gaining” ground on Clinton so much as he is re-gaining ground he had lost with his own base. That’s a very important distinction to make when evaluating whether or not the race is tightening or not. If Trump started to gain on moderate and undecided voters, or take them form Clinton, then we could officially say he was tightening the race. That’s not happening. He’s simple rebounding from his 3 month lows.
The short version of the race is this: Clinton has an 85% chance to win. Trump has a 15% chance. You can ignore anything either of them says about the race, this is reality. Clinton is winning all the right swing states and Trump is underwater.
Trump’s plan to win
The biggest bombshell released over the past week was an interview Trump gave to Bloomberg Businessweek. He granted access to his campaign to give an interview on the behind-the-scenes details of the digital side of the Trump campaign. You can read the full thing here, but several sections stuck out for me:
Despite Trump’s claim that he doesn’t believe the polls, his San Antonio research team spends $100,000 a week on surveys (apart from polls commissioned out of Trump Tower) and has sophisticated models that run daily simulations of the election. The results mirror those of the more reliable public forecasters—in other words, Trump’s staff knows he’s losing. Badly. “Nate Silver’s results have been similar to ours,” says Parscale, referring to the polling analyst and his predictions at FiveThirtyEight, “except they lag by a week or two because he’s relying on public polls.” The campaign knows who it must reach and is still executing its strategy despite the public turmoil: It’s identified 13.5 million voters in 16 battleground states whom it considers persuadable, although the number of voters shrinks daily as they make up their minds.
Trump’s team also knows where its fate will be decided. It’s built a model, the “Battleground Optimizer Path to Victory,” to weight and rank the states that the data team believes are most critical to amassing the 270 electoral votes Trump needs to win the White House. On Oct. 18 they rank as follows: Florida (“If we don’t win, we’re cooked,” says an official), Ohio, Pennsylvania, North Carolina, and Georgia.
First note the following: Trump and his team know the polls aren’t wrong. In fact, they know that Trump is losing badly across the board. The “polls-are-wrong” speeches are nothing more than empty grandstanding. It’s also worth noting how Trump is doing in the states he lists: Florida (-1.6%), Ohio (+1.1%), Pennsylvania (-5.0%), North Carolina (-2.4%), and Georgia (+2.8%). He’s losing Florida, Pennsylvania, and North Carolina. He’s effectively tied in Ohio and holding on to Georgia (a state that shouldn’t be a swing state for a conservative). The last point on this section is this: Trump’s team agrees with Nate Silver’s projection that they only have a 13-15% chance of winning (which is why it should come as no surprise to see Trump’s campaign send Mike Pence to campaign in Utah to push McMullin back — Trump agrees with polls that say he’s losing).
The second major thing to jump out from this piece is Trump’s solution to the race: voter suppression. I wrote about this last week, after a Yahoo.com piece came out sourcing anonymous Trump sources. That piece said Trump planned to suppress the votes of white women, young millennials, and blacks. His campaign outright made the same claim:
Instead of expanding the electorate, Bannon and his team are trying to shrink it. “We have three major voter suppression operations under way,” says a senior official. They’re aimed at three groups Clinton needs to win overwhelmingly: idealistic white liberals, young women, and African Americans. Trump’s invocation at the debate of Clinton’s WikiLeaks e-mails and support for the Trans-Pacific Partnership was designed to turn off Sanders supporters. The parade of women who say they were sexually assaulted by Bill Clinton and harassed or threatened by Hillary is meant to undermine her appeal to young women. And her 1996 suggestion that some African American males are “super predators” is the basis of a below-the-radar effort to discourage infrequent black voters from showing up at the polls—particularly in Florida.
On Oct. 24, Trump’s team began placing spots on select African American radio stations. In San Antonio, a young staffer showed off a South Park-style animation he’d created of Clinton delivering the “super predator” line (using audio from her original 1996 sound bite), as cartoon text popped up around her: “Hillary Thinks African Americans are Super Predators.” The animation will be delivered to certain African American voters through Facebook “dark posts”—nonpublic posts whose viewership the campaign controls so that, as Parscale puts it, “only the people we want to see it, see it.” The aim is to depress Clinton’s vote total. “We know because we’ve modeled this,” says the official. “It will dramatically affect her ability to turn these people out.”
The Trump team’s effort to discourage young women by rolling out Clinton accusers and drive down black turnout in Miami’s Little Haiti neighborhood with targeted messages about the Clinton Foundation’s controversial operations in Haiti is an odd gambit. Campaigns spend millions on data science to understand their own potential supporters—to whom they’re likely already credible messengers—but here Trump is speaking to his opponent’s. Furthermore, there’s no scientific basis for thinking this ploy will convince these voters to stay home. It could just as easily end up motivating them.
On a purely personal level, I find this plan repulsive. It should drive home the point that Trump does not care about anyone outside the white vote. Which is why he so freely dog whistles racists and freely allows heavy support from racists like David Duke. Trump only cares about white voters and what they give him. He is openly fine with exacerbating race relations.
The second part of all of this is that there is ZERO evidence Trump’s messaging will suppress the voters he’s targeting. There’s no historical parallel he can point to or evidence that says his messaging team capable of doing pulling this off. Political consultant Frank Luntz has tested the effectiveness of Trump’s messaging and it’s failed miserably (transcript by Politico playbook):
Frank Luntz interviewed by Katie Couric — Voters “don’t learn anything from Donald Trump. They do learn when they hear about it from the WikiLeaks, so we tried something. We didn’t show any Trump criticisms. We merely showed CBS, ABC, and NBC reports on Clinton and it changed an entire room of undecided voters. Then we showed them Donald Trump attacking Clinton for the same thing and they all went back to being undecided. Not only did he not win them over, he actually turned them off, because his language is wrong, his presentation is wrong and he should have learned it by this point. … This is the worst campaign that I’ve ever seen in my professional life.”
Trump’s version of the message repulses voters and is ineffective, at best. If you have a journalist deliver the same message, the effect is brutal for Clinton. But because Trump is dominating the news cycles and driving the narrative on how Clinton is being attacked, he’s removing the venom from stories like Wikileaks. Clinton may appear to have teflon. But what she really has is Trump. And Trump is single-handedly destroying the credibility of all bad Clinton stories.
In other words: It’s not the media coverage of Wikileaks that’s helping Clinton. It’s Trump.
In summary: Trump’s “path to victory” involves: winning states he’s losing, suppressing voters with a plan that’s never been tried, with a message that’s losing, and a candidate voters hate. He’s behind in fundraising, field operations, and underperforming in early voting (caveat on that last point). There’s no science or data behind his plans. His own models say he’s losing. He’s never outperformed his own polls, he’s underperformed them (there’s little evidence of a wealth of “shy Trump” voters). Even if the polls tightened back closer to an equilibrium, Trump lacks the infrastructure to capitalize on it.
The rim shot to that entire Bloomberg piece? Trump is building a list of supporters to launch a new media empire:
According to a source close to Trump, the idea of a Trump TV network originated during the Republican primaries as a threat Kushner issued to Roger Ailes when Trump’s inner circle was unhappy with the tenor of Fox News’s coverage. The warring factions eventually reconciled. But Trump became enamored by the power of his draw after five media companies expressed interest. “One thing Jared always tells Donald is that if the New York Times and cable news mattered, he would be at 1 percent in the polls,” says the source. “Trump supporters really don’t have a media outlet where they feel they’re represented—CNN has gone fully against Trump, MSNBC is assumed to be against Trump, and Fox is somewhere in the middle. What we found is that our people have organized incredibly well on the web. Reddit literally had to change their rules because it was becoming all Trump. Growing the digital footprint has really allowed us to take his message directly to the people.”
It’s not clear how much of this digital audience will remain in Trump’s thrall if he loses. But the number should be substantial. “Trump will get 40 percent of the vote, and half that number at least will buy into his claim that the election was rigged and stolen from him,” says Steve Schmidt, John McCain’s 2008 presidential campaign chief and an outspoken Trump critic. “That is more than enough people to support a multibillion-dollar media business and a powerful presence in American politics.”
And just in the past week, Trump’s Facebook page launched a “Nightly News Cast.” An hour and half long program delivering the news as Trump sees it. As he’s starting a media operation, he’s also out hawking his personal businesses. Instead of campaigning:
With less than two weeks before Election Day, Donald Trump evidently wants swing voters to know that the Trump National Doral Miami golf resort got recognized by Successful Meetings Magazine for its renovation, among many other honors and distinctions.
This is something genuinely new under the sun: Abraham Lincoln didn’t use the 1860 campaign to promote the fine legal representation available through the firm of Lincoln-Herndon. Mitt Romney in 2012 didn’t try to persuade investors to go with Bain Capital. …
If the reports of Trump’s interest in post-election media property are true, he doesn’t need a majority of the Republican Party to make a go of it. He doesn’t even need most of his supporters. He just needs an inflamed splinter, convinced that he was done in by a rigged system and that he went down fighting in inimitable fists-flying Trump style.
This is how he’s campaigned over the past month, to the chagrin of all the Republicans whose electoral chances are inevitably caught up in his.
But what does Trump care? His investment in the broader Republican Party is nil. He didn’t come up within it. His latest bout as a registered Republican—his party registration has gone back and forth—dates from only April 2012. He hasn’t spent years endorsing and fighting for Republican candidates or building an extensive grass-roots operation and donor network. He likely has no electoral future within the party and shows no sign of wanting to pursue one.
He showed up one day and said he wanted to be in charge, and Republican primary voters said, OK. No one should be surprised that he has proved wholly self-interested—pursuing stupid vendettas that satisfy his personal sense of honor but put everyone else in the party in an impossible position, and taking precious time out of the final leg of the campaign to promote his properties.
The popular word for this is: “Scampaign.”
McMullin is surging in Utah and is beginning to show in Idaho
Evan McMullin and Mindy Finn continue their surge in Utah. The most recent polls show them garnering nearly a third of the vote between Clinton and Trump. Nate Silver’s model of Utah has 3 models within it. The Polls-only model projects the results using only polls and nothing else. It has the race narrowing: Trump (35%), Clinton (28%), and McMullin (28%). The Nowcast model projects what would happen if the race were held today, it has the race in a virtual dead heat: Trump (33.7%), Clinton (26.9%), and McMullin (29.9%). And FiveThirtyEight is fairly certain the polls informing its models are underestimating McMullin’s chances right now:
Utah is an unusual case. Polls are scarce there, the dynamic has changed quite quickly, and these factors can significantly affect polling results. Our model already excludes Utah polling that doesn’t poll McMullin at all, and that will remain our official approach. But unofficially, we thought we’d take a look at how things might be different if we excluded all polls that didn’t treat McMullin the same way they do the major-party candidates.
Unsurprisingly, this paints a better picture of his chances. As of 3:30 p.m. Eastern time on Oct. 24, our polls-only model gave McMullin a 13.9 percent chance of winning Utah, and the now-cast gave him a 22.5 percent chance. Remove the three polls discussed above, and those numbers rise to 23.5 percent and 38.4 percent, respectively. In other words, excluding a small number of suspect polls improves McMullin’s chances in Utah by about 70 percent, which inches him ever closer to even money. Note that though the now-cast should normally be used cautiously, it might be better equipped than other versions of our model to respond to McMullin’s late surge. First, because it reacts to change much more quickly than other versions, and second because the lack of historical precedents for a candidacy like McMullin’s makes it harder to forecast what might happen between now and election day, and the now-cast bypasses that uncertainty by predicting what would happen if the election were held today.
As McMullin’s chances in Utah improve, so do the the chances of an Electoral College deadlock, though that rise is not as dramatic. In our polls-only model, the chances that no one will win a majority of the Electoral College improve from 0.5 percent to 0.7 percent. In the now-cast, they improve from 0.9 percent to an even 1 percent.
Utah isn’t the only place McMullin is performing well. Rasmussen polled Idaho and found McMullin at 10% with Trump holding a large lead. This shouldn’t be too surprising. In Utah, McMullin started out at 9% before surging. Given the low odds of future polls in Idaho, don’t be surprised if he has a better showing here than expected. Fewer polls = more volatility. More volatility = less accurate polls.
Links for your radar
- Republican control of the Senate rests on Marco Rubio holding Florida – FiveThirtyEight
- What Clinton and Trump are looking at in early voting returns – ABC News
- Conservative and Pro-Trump website Breitbart.com colluded with Democratic activists to attack Trump primary opponents. – Politico
- [Video] Newt Gingrich melts down on Megyn Kelly’s show. The reaction to this clip is a rorschach test: Those viewing Trump more favorably see Newt wining the exchange. Everyone else sees Megyn embarrassing Newt. – Mediaite
- Trump’s mistrust of the US intelligence community is among the strangest and unexplored themes of 2016. – LawFare
- The hits keep coming: Trump made lewd comments towards contestants on The Apprentice. – The Daily Beast
- Clinton is considering Vice President Joe Biden to be her Secretary of State. – Politico
- Longtime Clinton aide/staffer and current Gov. of Virginia Terry McAuliffe had his campaign organization give $500,000 to the state senate campaign of an FBI Agent who worked on the Clinton email server case. – Wall Street Journal
- Former Indiana Senator Evan Bayh, currently running for his old seat, met with banking lobby groups for lunch and golf during the bailouts of the 2008 bailouts. – Politico
- Clinton advisor: “They wanted to get away with it” when describing the email server and Clinton intentions. – Politico
- Inside “Bill Clinton, Inc.” The Intersection between charity and personal income. – Washington Post
The complete collapse of the Obama foreign policy agenda
One story that’s been underreported this year has been the complete collapse of Obama’s foreign policy. From Europe, the Middle East, Asia, and the Americas, the Obama agenda has collapsed before he even leaves office. The more surprising part is that he is spending time defending it. He’s spending considerable time with the media defending it. Surrogates have written books and he’s openly defending it by previewing his future memoirs. But the facts on the ground tell a completely different story.
The entire Washington DC foreign policy and military establishment is gearing up for a Clinton White House. And among the things they expect: a complete reversal of Obama era policies:
There is one corner of Washington where Donald Trump’s scorched-earth presidential campaign is treated as a mere distraction and where bipartisanship reigns. In the rarefied world of the Washington foreign policy establishment, President Obama’s departure from the White House — and the possible return of a more conventional and hawkish Hillary Clinton — is being met with quiet relief.
The Republicans and Democrats who make up the foreign policy elite are laying the groundwork for a more assertive American foreign policy, via a flurry of reports shaped by officials who are likely to play senior roles in a potential Clinton White House.
It is not unusual for Washington’s establishment to launch major studies in the final months of an administration to correct the perceived mistakes of a president or influence his successor. But the bipartisan nature of the recent recommendations, coming at a time when the country has never been more polarized, reflects a remarkable consensus among the foreign policy elite.
This consensus is driven by a broad-based backlash against a president who has repeatedly stressed the dangers of overreach and the need for restraint, especially in the Middle East. “There’s a widespread perception that not being active enough or recognizing the limits of American power has costs,” said Philip Gordon, a senior foreign policy adviser to Obama until 2015. “So the normal swing is to be more interventionist.”
It’s not just the failures the Obama administration in the Middle East. This rejection encompasses everything Obama has pursued in his administration. For instance, one contentious subject of debate in the 2012 election was over the size of the Navy. Romney argued the Navy was too small, the President was downsizing too much, and making the Navy ineffective. Obama’s counter was that we didn’t need more ships, we just had to use smarter power. That was 4 years ago. This week, the Navy is set to release a set of plans to project where it needs to go in the future. The Navy says it needs to be bigger and have more ships to be effective in the world:
The U.S. Navy will submit three Congressionally mandated force structure assessments to Capitol Hill within the next two weeks. While the Navy is not releasing the details of those three assessments, one of the service’s top uniformed officials told an audience at the Naval Submarine League’s 34th Annual Symposium that all three assessments—one by a think-tank, one by a federally-funded research center and one by the Navy itself—call for a significantly larger fleet.
“I expect those reports to be out in about two weeks,” deputy chief of naval operations Vice Adm. Joe Mulloy said on Oct. 26. “Those three studies will go to the Hill and they’ll come out about 80 percent similar, but there’ll some differences. But they’re all, I assure you, looking for a bigger Navy.”
This is a stark repudiation of Obama’s vision for the size and scope of the US military. But it’s not just domestically where this repudiation is happening. The Syrian ceasefire barely lasted 48 hours and was a complete failure. Russia continues to drive hard bargains and the White House continues to ask the Kremlin, “how high?” Ever since the hot mic moment where Obama told Russia he would have more “flexibility” after the 2012 election, Russia has pushed the US back across the globe.
The Asian pivot, once thought the most important part of the President’s legacy, is falling apart. The Philippines, long time US allies, now say they might join with Russia and China:
The Philippines has been an important US ally since the beginning of the Cold War. What’s more, the Obama administration has invested in the country as part of its pivot to Asia. In 2014, the two countries signed an Enhanced Defence Cooperation Agreement. When the Philippines brought a case against China at The Hague over China’s artificial islands in its territorial waters, the US supported the Philippines diplomatically.
In July, the Hague-based arbitral tribunal ruled in favour of the Philippines. This would have been an opportunity for the US to turn the screws on China. But instead, the Obama White House encouraged China and the Philippines to resolve the matter themselves after the ruling.
At the end of August, Secretary of State John Kerry told reporters that the US was not interested in “fanning the flames of conflict but rather trying to encourage the parties to resolve their disputes and claims through the legal process and through diplomacy”. Mr Duterte has now taken Mr Kerry’s advice. After announcing his country’s new alignment with China, he signed a series of trade agreements, along with a promise to continue bilateral negotiations over the South China Sea.
Mr Dan Blumenthal, the director of Asia studies at the American Enterprise Institute, told me on Friday that the Obama administration had fumbled.
“After the tribunal decision, our response was to tell Duterte to tamp down tensions and talk bilaterally with China, and there was no evidence of follow-up by us in terms of our own military exercises or diplomatic initiatives to enforce the findings of the tribunal,” he said. “There has been next to nothing on this. We still haven’t had a freedom of navigation mission that actually challenges the Chinese artificial islands.”
Is it any wonder then that Mr Duterte concluded that Mr Obama wasn’t serious about defending the rule of law in the South China Sea?
With new hot spots popping up in Yemen, Iran becoming more aggressive like Russia, North Korea moving forward with nuclear ambitions, and soft-target terrorism on the rise, 2016 has seen the complete collapse of President Obama’s foreign policy. And the collapse will be complete before he ever leaves office.
Economic Red Flag: S&P Ratings downgrade 6 states, most since 1991
From the Wall Street Journal:
A sharp pullback in spending by cities and states on infrastructure—from highways to sewage systems to police stations—is weighing on U.S. economic growth.
Such government austerity is unusual in the eighth year of an economic expansion, and it is acting as a headwind just as the worst effects of the energy-industry bust, a strong dollar and inventory drawdown are fading.
State and local governments spent an annualized $248.47 billion on construction in August—the least since March 2014 and down nearly 11% from its recent peak in mid-2015.
The decline depressed gross domestic product growth this spring and was on track to weigh on growth again in the third quarter.
“We’re seeing anemic [government] revenue growth and consistent austerity-oriented budgets,” said Gabe Petek, managing director for state ratings at S&P Global Ratings. States are trimming investments in infrastructure and higher education, “areas of the budget helpful for generating economic growth going forward,” he said.
This is worth noting for two reasons. First, the reference to 1991 raises a red flag because it refers to the recession during George H. W. Bush’s presidency. Second, state governments pulling back spending like this is similar to a business pulling back during a boom. It’s either bad move or it foretells of danger to come. When businesses start pulling out of a market, it’s usually because they foresee economic problems ahead. This story could just be a minor blip because of struggling states with bad revenue. It could also be a canary in the coal mine. And economists are looking for those indicators in the economy right now.
AT&T and Time-Warner propose a merger
The biggest story of the week was, without question, the announcement of the AT&T / Time-Warner merger proposal for $85 billion. The deal would create a massive media conglomerate. CNBC has the details:
AT&T has reached a deal to acquire Time Warner for more than $85 billion, a blockbuster deal that fuses a mobile giant with an entertainment conglomerate, carrying with it the potential to reshape the media landscape.
The two companies jointly announced the deal, unanimously approved by both boards, that will see the mobile company pay $107.50 per share in a cash and stock transaction.
The deal represents a marriage of Time Warner’s limitless movie and television empire —including Harry Potter, Batman, Superman and the next generation of super hero movies being developed by DC Comics — with AT&T’s wireless network, which covers 315 million people.
The deal, however, faces a stiff political and regulatory test. The populist winds buffeting Washington mean that legislators may not approve of another multi-billion corporate tie-up. Already, Republican presidential candidate Donald Trump said in a speech that under a potential GOP White House, his administration would not approve the deal.
This is not the first time Time-Warner has been involved with a massive merger. During the dot-com bubble of the 90’s, Time-Warner merged with AOL when AOL was at its dot-com peak. The deal failed spectacularly and Time-Warner ended up divesting itself of AOL. AT&T is confident this deal will pass regulatory antitrust review. It has built in a $500 million reverse break-up fee in the event the deal falls through. That is a huge sign of confidence by AT&T. Antitrust industry watchers think the deal has a good chance of going through.
The deal foreshadows a troubling trend: a shrinking, less diverse, and less flexible economy:
The U.S. economy is increasingly dominated by big companies. That trend worries a growing number of economists, who fear it suggests an economy that is becoming less dynamic and competitive over time.
In the late 1980s, according to data from the U.S. Census Bureau, about 40 percent of American workers were employed by companies with at least 1,000 employees. In 2014, the latest year for which data is available, that figure had risen to 46 percent. That may sound like a small change, but in the context of the entire U.S. economy — tens of millions of people working for millions of companies — it represents a massive shift. Since 1977, the earliest year for which data is available, the number of large companies (those with at least 1,000 employees) has doubled; small companies (those with fewer than 50 workers) have increased by only about half.
American companies aren’t just getting bigger; they’re getting older, too. About 68 percent of U.S. employees work for companies that have been in business for 20 years or more, up from 59 percent 20 years earlier, according to census data. Meanwhile, the startup rate — the share of U.S. companies that are less than a year old — has been falling for more than 30 years.
Those statistics push back against the narrative that incumbent companies are increasingly facing the threat of “disruption” from Silicon Valley upstarts. There are examples of genuine disruption — what Uber is doing to the taxi industry right now, for example. But overall, the evidence suggests that big, established companies enjoy more advantages than ever. The rate at which established companies fail has fallen since the 1980s, while fewer startups are surviving and growing. And in most industries, the share of total revenue earned by the 50 biggest companies has risen over the past 15 years, according to an April report from the president’s Council of Economic Advisers.
But the broader trend of corporate consolidation matters for more than just consumers. It suggests that the economy as a whole has become less dynamic and flexible. Startups, in particular, are a key source of innovationin the economy — they generate new ideas, which force existing companies to adapt or risk failure. That process, repeated thousands of times, makes the economy as a whole more productive. The falling startup rate, combined with the rise of big businesses, suggests that this process has somehow broken down.
One the major problems policy makers will face in the future is how to make the US economy more dynamic. The centralization of US jobs, wages, and innovation in a shrinking labor pool bodes ill for the future. For starters, it makes recessions far more painful. When firms go bankrupt during a recession, a shrinking business pool means there are fewer places for people to turn to for the next job, fewer firms available to purchase assets, and more recession pain felt by each industry. More firms and businesses allows an economy to spread the pain out in a recession, instead of focusing it only on a large few.
The increase of regulations and taxes on businesses is causing more mergers and acquisitions. In order to survive, businesses see merging into a larger entity as the only means to survive. A shrinking pool of business with fewer startups signifies the death of small businesses and future businesses. Just like a population needs a birth rate to replace itself, a vibrant economy needs new businesses to replace the old. The free market must be allowed to create. If that does not happen, we will continue to stagnate.
What I’m Reading
“Safe Landing: Keep the Lights On” by Ravi Zacharias
This is a short post by Ravi covering his thoughts on the election. It’s short, but powerful. I recommend the entire piece:
We are closing in on the day when we elect a leader for the next four years. The bitter rhetoric will hopefully come to an end. To say that it has been a tumultuous path to this day is an understatement. Once again we swing between the two extremes of thinking politics is everything and thinking politics is nothing. Somewhere in the middle lies the truth. Pontius Pilate and the Caesars thought they were in control. They were not. A rock cut with no man’s hand changed history.
Politics is the process by which we choose to be governed for a season. And yes, quite a bit can be at stake. But the heart of man, often bereft of wisdom, chooses for the now and ignores the long-term ramifications. That’s the peril. Isaiah 3:6 says that in the last days a man shall say to his brother, “You have a cloak, you be our leader; take charge of this heap of ruins!” Evidently in the last days, the Scriptures tell us, all it will take for a leader to be considered qualified to govern over a heap of ruins is to own a cloak. Seems quite ominously close to the present qualifications right now, to say nothing of the cloak and dagger type approaches in sway. It is hard to believe that in a nation with so much ability, so much potential and promise, we are reduced to this. It is a movie-like script, swinging between the Scylla of comedy and the Charybdis of tragedy.
But alas! Let us not lose heart. I always bank on the heartfelt prayers of God’s people. Ultimately, He will overrule and bring about what He deems we need the most for this hour. Whether it be in blessing or judgment, time will tell.
Thanks for reading!