'HOW DID WE GET HERE?' The NAB explains how economics underpins the US electoral mood

Photo by Cole Bennetts/Getty Images

If there appears to be a unifying theme that brings together the campaigns of Donald Trump and Bernie Sanders with the vote of Britons to leave the EU, and of the rise of populist political movements across the developed world in 2016, it seems to be inequality.

The NAB’s economics team believes it is this and the “squeezed middle class” which is the powerful force driving the voter mood in the United States in this presidential campaign and across the OECD.

“The hollowing out of the middle class is a concern in OECD countries with very different characteristics and it has been blamed on such trends as globalisation, the erosion of union power, technological change demanding high skilled workers and winner-take-all pay systems. These concerns will not disappear post-election,” the NAB said.

That the middle class is shrinking is undeniable. The NAB says with the “share of US adults with real incomes that would put them in the middle class fell from 61% to 50% between 1971 and 2015 but their share of total US household income fell by much more – from 62% to 43%, a drop of 19ppts”.

That’s a big down-shift in the size and incomes of the middle class. And, the growth in incomes has gone to the upper-income groups where incomes have grown at a much faster pace than the rest of the population in the US.

“The top 20% of households have lifted their share of US household income from 43% to 51% since the late 1960s with the top 5% share rising from 17% to 22%. Middle income categories share of the cake has shrunk – from 10.8% to 8.2% for the 21st to 40th percentiles and from 17.3% to 14.3% for the 41st to 60th percentiles,” the NAB said.

Which is why inequality is a big issue in the campaign with income growth concentrating not just outside the middle class but at the very top of the distribution, the NAB said.

“The top 10%’s share of household income rose from 32% to 48% between 1979 and 2015 but two-thirds of this extra income went to the 1% best-paid households,” the bank wrote.

This is limiting social mobility “when those at the top lock in advantages through the use of money and networks to support the position of their children,” the NAB said.

This is helping to “polarize the workforce” and it’s the driving force behind the voter mood and helps explain why concerns about globalisation and migration are such a big part of the campaign.

It also explains why Donald Trump’s rhetoric, and appeals to these concerns, makes this US presidential election too close to call.

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