The Daily Reckoning UK

Gatsby The Working-Class Champion

Pieter Cranenbroek

by

Posted 4th January 2017

It may be the greatest anomaly of our times: billionaires are elected to fight the working-class battle.

With inequality levels heading back to 1920 levels, the American electorate chose a billionaire as its champion to lift wages and fight corruption (“drain the swamp” to use Donald Trump’s phrase).

The American writer Upton Sinclair once wrote that “it is difficult to get a man to understand something, when his salary depends on his not understanding it.”

The logic applies to Trump. Not to his salary for being President, but to his business interests.

Trump owes everything to the current system, so what incentive does he have to change it?

We’ve already seen Trump put together what could easily be described as a Gatsby government made up almost exclusively of billionaires and millionaires.

Trump has filled his cabinet with an estimated wealth of over $4.5 billion. It includes an oil tycoon, various bankers, and an investor who made millions off subprime mortgages during the crisis.

This is not to say that previous governments didn’t include people in the 7+ club or that millionaires are necessarily bad public servants. However, studies have shown that policies are greatly influenced by a person’s socio-economic status.

As the research in this Washington Post article states, there’s an undeniable link between politicians’ demographic, economic and professional backgrounds and their policy objectives.

Rich people in government tend to carry out policies that correspond with the preferences of rich people.

No surprises there, but that doesn’t bode well for the large base of working-class and middle-class voters that elected Trump.

After all, there’s a stark contrast in the opinions of the wealthy and the lower and middle classes when it comes to issues like taxation, minimum wage, and social security.

Since the Trump administration will include more billionaires and millionaires than its predecessors, it doesn’t look like the new government will fight hard for the man on the street.

“Taxes are coming down, regulations are coming off, we’re going to get rid of Obamacare,” Trump spoke at his New Year’s Eve party to loud cheers of his no doubt deep-pocketed audience.

So much for that big shake-up.

“It really is like the 1920s redux. That didn’t end well,” Nomi Prins wrote on Twitter.

Speaking in London last month, Prins warned that this could lead to a vicious response from the public. It’s not that Trump’s oblivious to the public mood, he just doesn’t pay attention to it, she said.

We can only judge Trump’s performance once he’s assumed office, but his Gatsby government isn’t likely to deliver the change people are hoping for.

Fat Cat Wednesday

Meanwhile in Britain the situation isn’t all that different.

Today is Fat Cat Wednesday as UK bosses earning at least £1,000 an hour will already have made more money by lunchtime than the average worker will earn all year. Happy New Year.

While most British workers have seen their incomes stagnate in recent years, top executives have been getting a pay rise.

I don’t think you need to be a Marxist to agree that bosses earning 129 times more than their employees isn’t a good thing.

For one thing, the wealthier someone is, the likelier they are to hoard that wealth. It doesn’t circulate in the economy, and therefore doesn’t fuel a rise in economic activity.

Often it’s tied up in assets, like property, inflating their prices (Exhibit A: London’s housing market). In turn, this tends to lead to the less well-heeled incurring higher levels of debt to own such assets, promoting financial instability.

Britain’s current Prime Minister Theresa May appears to be against the widening wealth gap. After all she scolded David Cameron for not tackling inequality and vowed to make Britain work for everyone.

That’s all well and good, but – assuming she’s serious about making these improvements – will the PM even have time to focus on this issue in the next few years?

With less than three months before the Brexit negotiations are due to start, the UK’s departing EU ambassador, Ivan Rogers, wrote he still doesn’t know the government’s strategy.

Brexit more and more looks to become an all-consuming policy issue that will require the government’s full attention.

Although May reshuffled Cameron’s ‘cabinet of millionaires’ (the first Cameron government was worth £70m) to make a statement, she might not get round to major reforms in these busy times. What’s more, a bad Brexit deal could make Britain’s inequality problem even worse.

In 2016 people in Britain and the US may have voted for Brexit and Trump to shake up the establishment. But I’m not overly optimistic 2017 will be the year they’ll start seeing the change they want to see.

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