Understandable Terms Revisited

The post “Understandable Terms” published on January 24, 2017, attempted to put the remarkable 2016 election into perspective using the craft of a financial analyst. The analysis seems a bit naive after the horrific events of January 6, 2021, during which a violent mob of Trump supporters attempted to intimidate members of Congress into overturning the valid and lawful results of the 2020 election.  Nonetheless, remarkable were the revelations of a few charts, the sort of charts a financial analyst might use to understand a company’s performance.

The analysis made Donald Trump looked like a Pied Piper for extremist, hate and white power groups, which back in 2016 were only skulking in the shadows of U.S. society.  In the four years since, with praise and encouragement from the most powerful political official in our country, those groups are now operating out in the open.  Their perverse and cruel agenda would disenfranchise great swaths of non-white and non-preferred segments of society.  Donald Trump, in their view, is ever so much more than Pied Piper.  He is a hero-god.

Only Trump knows his own mind, but it could very well be the attempt to take over the U.S. Congress on January 6^th will be considered the pinnacle of Trump’s storied career as a grifter.  The book “The Grifter’s Club” chronicles the long history of Mar Lago as a loci for Trump’s real estate shell game and presidential influence-peddling.

By all accounts Trump has been far less interested over the last four years in policy and principle as he covets the trappings of power afforded by the most visible political office in the world  -  the presidency of the U.S. government.  Since real government policies are needed to win the hearts and minds of most U.S. voters, Trump appears to have known all along that other means would be needed to capture the Oval Office in 2016.  He needed to win the support of people who had no particular interest in the well-being of economic or political institutions as much as in tearing down those institutions for their own twisted gain.    

As the months have unfolded Trump’s policy initiatives (using that term loosely) have been more or less aimed at delivering nourishment to his ‘base’, many of whom we now know are violent when unrestrained.   These are people living on the fringe of society, easily seduced by conspiracy theorists and hungry for any convenient explanation that makes the ills of the world simply the fault of others.  These are people who would be particularly susceptible to a confidence game.

The ‘long con’ or ‘big con’ is a scam that unfolds over several weeks or months.  It can often involve an entire team of grifters (White House staff) who employ various props (Twitter, Instagram) and sets (Oval Office) to create a reality and then nudge the ‘marks’ toward a particular action.  When it appeared Trump might have trouble winning the 2020 election, he began the ‘set up’ to get his loyal base of ‘marks’ to deliver the election to him without the popular vote.  He just had to set up the idea that he could only lose the election by fraud or ‘theft.’    

Men and women wearing ‘Make America Great Again’ hats and flying ‘Donald Trump’ flags, were robbed of their dignity for the sake of the man who simply has such a fragile ego that he cannot accept loss.  Now Trump is leaving all those men and women to twisting in the wind as law enforcement tracks them down to hold them accountable for their acts of sedition.  Some may finally realize they have been ‘conned.’  Others may simply pivot to a new conspiracy theory, unable to accept the reality that their hero is a criminal.

Indeed, one of the sources of political influence in the U.S. has not been addressed over the last four years originates in Russia.  The Mueller report, which was made public by the Special Counsel in March 2019, found that the Russian government interfered in the 2016 presidential election in a “sweeping and systematic fashion” and “violated U.S. criminal law.”  The Russians orchestrated a social media campaign to support Donald Trump during the 2016 election and undercut Hillary Clinton.  Favorite social media topics  -  race, religion and gender politics -  were hot buttons for Trump’s supporters.  A Congressional investigation found that the National Rifle Association may have acted as a foreign asset for Russia in the months leading up to the 2016 election by gaining access to politicians for Russian nationals.   The NRA shares many members with white supremacists and hate groups  -  the very people who appear to have become such ardent Trump supporters are unwilling to respect the outcome of a fair election. 

The U.S. may need to do more than prepare thick reports that everyone ignores.  Our country needs to regain common sense and dignity.  Over 150 million people turned out to vote in the 2020 election.  That extraordinary achievement is most certainly a place to start! 

 

        

The analysis that follows appeared in the original article in January 2017.  It was a clear demonstration of how Trump achieved political office in the first place.  We have had a front row seat over the last four years to observe how he had cultivated these fringe groups to do his bidding. 

 

Plenty of politicians have already poured over the 2016 election results, offering one opinion after another about who voted for Trump and why.  I wanted to understand the 2016 election in terms I could understand.  Who are the people in those small states with 3 and 4 electoral votes that have had so much influence over the fortunes of my country?

On a nationwide basis, each of the 538 electoral votes accounts for an average of 422,227 eligible voters.  Electoral college members from twenty-nine states and the District of Columbia represent fewer than the average.  These states and DC are shown in the graph.  These are the states that have inordinate influence over of the presidential election than is warranted by the state’s population.  To be clear, some of these ‘influential states’ voted for Hillary Clinton.  Indeed, 25.4% of the electoral votes for Clinton were from states that have a fewer than average eligible voters per electoral college vote.  However, 41.8% of electoral votes for Trump were from these ‘influential states,’ making it very clear that rural America held sway in Trump’s favor.

To begin, I had some idea already of the rural character found in the states that voted for Trump.  My beginnings were on a cattle ranch in South Dakota and I earned a bachelor degree in economics from the University of South Dakota.  Independent minded and hardworking, South Dakotans are a tough bunch.  Yet many people in the state are isolated and lack experience with the sophisticated and sometimes sinister intrigues of more worldly players.  Yet to understand the 2016 Presidential Election and the Women’s Marches, there is more to understand than nostalgic notions of rural America.

Having established which states made a difference in the election in my own way, I looked at various social, demographic and economic factors to understand better what might be coloring the view of these voters. 

The labor participation rate tells an important part of the story.  For Trump 138 electoral votes out of his total of 336, were from states where the labor force participation was below the average of 63.6%.  That represented 451.% of Trump’s total electoral votes.  However, 113 electoral votes for Clinton were from states that fell into that same low employment status or 48.7% of her total electoral votes.  While there appears to be some connection, this data was simply not compelling enough to say it explains the conundrum of how we have a president in the oval office who is so unpopular.

 

The intensity of the loss felt by some communities might provide a better explanation.  Instead of looking at labor participation, the economic fortunes of each state can be understood through what each has lost in terms of income.  On average median household income in 2015 was down 7.8% from the peak median income for the state.  Some states are experiencing double digit decreases in median income.  Even if a population is largely employed, if purchasing power is not what it used to be, voters are bound to feel discontent.

A look at a chart of ‘median income change from peak year’ makes it clear that Trump’s message resonated well in states where median incomes have dropped by significant amounts.  Indeed, 178 of the electoral votes for Trump were from states where median incomes fell by more than the average 7.8% from peak median income for that state.  That represented 58.2% of all electoral votes cast for Trump.  By contrast, Clinton won only 85 electoral votes from states where income is down by more than the average.  These votes represented 36.7% of her total electoral college votes.  Thus ‘sense of loss’ seems to be a more direct driver of Trump’s Electoral College victory than simply jobs.

The obvious question is why have these states experienced such a deep loss of income and why have they not recovered from the Great Recession of 2010-2012.  Those of us who follow the small-cap sector have a good understanding of what happens when small companies with their limited resources are hit with adverse circumstances.  Earnings losses are possible.  Bankruptcy is a reality.  Recovery takes time.  Weak balance sheets, poorly trained workers, jaded managers or any of a dozens of other deficiencies slow things down. 

Do those states with deep reductions in income have such deficiencies?

There is no state balance sheet to analyze.  However, the corporate body could be considered a state’s asset base.  Gross domestic product has been a popular metric to help explain consumer and vote dispositions.  However, the presence of public companies provides an interesting perspective on a state’s economy.  Public companies require an element of sophistication to meet shareholder and regulatory requirements.  Their financial records are audited and subjected to scrutiny by the public.  These companies must adopt codes of ethics and standards of business conduct.  Public companies are also central to job creation.  Thus the more public companies in a state, the more resilient the economy.

Of course, the larger the state geographically or the more endowed with natural resources, the more public companies might expected.  We are looking beyond which state has the most public companies.  Instead we are looking at whether there is a connection between corporate formation with income recovery.  However, the hypothesis does not seem to be borne out.  We can see in the graph of exchange listed companies that states which had the greatest change in median income from the peak are also among those with numerous public companies.  Indeed, among those low-population states with the inordinate amount of influence in Trump’s favor in the Electoral College, public companies formation seems to be quite robust. 

 

Households present another economic resource, but only if they are fully functional.  Something like a company with negative working capital, income deficient households are ‘gut punched’ by adverse economic events. On their backs, these households cannot contribute to economic recovery.  It is somewhat alarming that nationwide 14.9% of households are below the poverty level.  Interestingly, a good share of the states that voted for Trump have even more beleaguered households, including Kentucky with a whopping 19% of its households below the poverty level.  This includes a good share of those small states with inordinate influence over the 2016 election outcome relative to their population.   

Drug use has been cited as a factor related to workforce participation.  The graph illustrating households below the poverty level also shows the percentage of the population that uses illegal drugs such as heroin or cocaine.  Nationwide approximately 8.5% of the population uses illegal drugs.  There appears to be an inverse relationship between household income and drug use.  It stands to reason that households in a struggle to pay the rent and put food on the table would also have trouble paying the local drug dealer.

Companies recover from difficult times by tapping the talent of their employees.  They have contests to see who can come up with the best money saving tactics and offer bonuses for product innovations.  We can look at the talent pool for each state from the same vantage point.  How strong is the talent pool in terms of education and ability to pursue self-learning.

While there is little difference among the states in terms of attainment of high school education, there are significant differences in the achievement of college degrees.  There are far fewer college graduates in those states were household incomes are lower.  Indeed, in those states where income is well off the peak there appears to be the fewest college graduates as a percentage of the population.  These are the states that pinned their hopes to Trump baseball caps.  In the other states education may provide options for those who lose their jobs, allowing them to get back into the workforce faster.  In turn, this preserves household income.

The Internet and mobile apps have changed nearly every institution.  It is no longer necessary to travel to a college campus to get an education.  Instead students can take classes online.  News is no longer just on the radio or television.  Mobile apps deliver news from a host of new channels.    This makes access to at least the Internet an imperative for every household in order to be fully participating members of our economy and society.

Surprisingly, an average 29.5% of households in the U.S. do not have access to the Internet.  As shown in the chart depicting educational attainment, there are wide differences in across our country in terms of who can jump on the ‘world wide web.’  We can see that among those states with voters backing Trump, Internet access is lower.  There does not seem to be a particular link to state size, but connection to the Internet seems to be lowest in those states with low income.

Perhaps it is not so much capability of our labor force as it is attitude.  The final chart illustrates ‘attitude’ from two different perspectives.  The murder rate per capita can be a proxy for how violence prone a community might be.  Across the country the murder rate is near four per capita.  In those small states with the particular influence over the outcome of the 2016 presidential election, the murder rates seems to be lower than average with the exception of a couple of particularly violent states like Louisiana and Mississippi.  Additionally, in most of the larger states that voted for Trump the murder rates are above the national average. 

Attitude can also be measured in terms of social groups that advocate violence and extremism.  The same chart depicts the number of hate groups by state accordingly to the Southern Poverty Law Center.  Alaska and Hawaii are free of hate groups.  Every other state has some presence of Ku Klux Klan, Nazis, neo-Confederates or other groups organized around hatred toward some segment of society.  Obviously those states with higher population have more such groups than low population states.  It is somewhat alarming to see the incidence of hate groups among those states where Trump garnered support. 

 

Even after a half dozen charts attempting to connect votes for Trump and Clinton to demographic and economic factors, the analysis still seems to fall short of a full explanation for the election outcome and why a half million women marched through the streets of Washington DC to tell the victor that he was not really a winner at all.  However, the exercise allowed shed some light on the angst felt by some people in our country.  That is something we all need to understand on any terms possible.