The number one issue on voter's minds in this election year is immigration. That may come as a surprise to some, but it makes a lot of sense if one believes that we have entered a period of populism.

 

Sixty-two percent of registered voters nationwide support a program to "deport all undocumented immigrants," according to a CBS News poll over the weekend. On June 3, 2024, President Biden signed an executive order that would ban migrants who cross the southern border illegally from claiming asylum to defuse this election issue. Faith-based charities, like Catholic Charities, which have a long history of providing shelter, food, and clothing to migrant families are targeted by anti-immigration activists. What has all this immigration anger have to do with American populism?

 

By now readers should be aware (if you have been reading my last three columns) that over the last 40 years middle- and lower-income Americans have seen their livelihoods dwindle because of government policies that favored a top-down approach to economic growth and fiscal spending. The flow of money from both the Federal Reserve Bank and the trillions of dollars in government spending has largely found its way overseas in a variety of forms. "Go forth and conquer the world" was the mantra our nation's leaders espoused pointing to the benefits of international free trade.

 

Every effort was made to encourage, expand, and at times, protect our overseas markets. Think of government contractors across a wide spectrum of U.S. industries importing goods and services from cheap overseas companies or their foreign subsidiaries. I have already written about the long-term trend by U.S. corporations to invest in plants and equipment in various countries.

 

U.S. companies have routinely imported basic materials from around the world to build our outdated infrastructure and still do. We must also add in the trillions of dollars in U.S. funding of dozens of foreign governments, while also supporting our troops in various conflicts abroad over the last couple of decades.

 

Here at home, as good-paying jobs disappeared, many younger Americans found that even their high-priced college educations might only qualify them for a minimum-wage job at a fast-food restaurant. Unlike in past generations, where only one spouse needed to work, now two were necessary, and even then it was not always enough to put bread on the table. Many jobs don't even cover child-care expenses.

 

Back in the day, they called America "the Sleeping Giant." Given the trends, it was only a matter of time before a large portion of the country woke up and asked the obvious question.

 

 "What about me?"

 

It is not the first time in our history we have asked that question. There have been many populist periods where economic or political dissatisfaction has translated into protests of immigrants and foreign influences in the form of protectionism. Protectionism is a policy of restricting imports from other countries through tariffs on imported goods, and quotas. and a variety of other government regulations that restrict the free flow of goods and services between countries.

 

Back in the 1930s, for example, during the Great Depression, as millions of workers lost their jobs, and populism surfaced, higher trade barriers were put in place. Those tariffs not only exacerbated the severity of the downturn but also worked to choke off any recovery.

 

This latest period of populism/protectionism found its voice through the ideas of MAGA. The Trump administration built walls along the Mexican border, levied tariffs on China and other countries, threatened to pull out of NATO, and provided a steady stream of anti-foreign rhetoric that was music to the ears of many Americans.

 

But like the 1930s, none of these policies worked. It only led to dislocation, losses for American farmers and other workers, and higher prices for consumers. Nonetheless, many Americans not only applauded these efforts but also supported even higher tariffs and more restrictions and deportations of immigrants.

 

The connection between protectionism and immigration is straightforward. Barriers to admitting immigrants are simply a tariff on another type of imported good and service that is entering the country — labor, both legal and illegal. The difference is that, unlike a tariff on Chinese semiconductors, an immigrant is someone who can be identified as such and is far easier to vilify. Immigrants become the embodiment of all that is wrong with globalization.

 

Making matters worse, thanks to COVID-19 and the failed economic policies and shortcomings of some governments, the refugees' rush to flee to the freedom and economic promise of the U.S. became irresistible. As such, we are assaulted through the news media with the spectacle of huge waves of immigrants at our borders, climbing fences, wading rivers, and dying in deserts. Unfortunately, they are also a visual reminder to all those generational Americans who have been left out of that economic promise, who see them only as a danger to our society and to job security.

 

Only now, thanks to the match lit by Donald Trump's oratory over the past several years, have politicians and corporations, begun to realize that the 40-year top-down, globalization trends that benefited a small segment of society have run into a brick wall of anger, resentment, and demand for change — or else.

 

Those who read my two-part column on immigration in March "Immigrants are getting a bad rap on the economic front," understand that immigrants have contributed far more than they have taken from the U.S. economy in recent years. In fact, throughout our history that has proven to be true.

 

But facts have never carried much weight in a season of discontent. As many who have tried reason in the face of conspiracy theories know, spouting facts in the face of this populist sentiment is a useless endeavor. 

 

The U.S. is not alone in using immigration as the favored whipping boy in an era of populism. In European elections last week, France, Germany, Spain, and Italy saw large advances by political parties that oppose immigration. The trend toward protectionism and de-globalization is gathering steam in Asia and Latin America as well.  Next week, I will examine similar times in our past when populism flourished. How long these regime changes normally last, what lessons we have learned, and why the coming crisis period we will encounter could usher in a change for the better over time.    

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

The Federal Reserve Bank's smoothing of the business cycle, which started in the 1990s, was meant to ensure price stability and the health of the labor market. It's top-down policies of reducing interest rates through the banking system and into the hands of the largest corporations was meant to benefit the whole economy.

 

The problem is that corporations and the minority of Americans that control them are not the whole economy. What did that matter, argued supply-side economists. This group, who championed Reaganomics in the 1980s and beyond, assured us that the benefits of the Federal Reserve Bank's policies would ‘trickle-down' throughout the entirety of U.S. society over time. They said the same thing about corporate tax cuts. Those assurances never materialized. Why? Times had changed, and neither the government nor the Fed realized their mistake.

 

As profit-seeking organizations, corporations do not seek to be fair, equitable, or distribute justice. They ignore that side of the pendulum swing (as they should). Corporations simply seek to reduce costs and expand revenues. If they are good at doing so, more and more profits are generated for themselves and their shareholders.

 

In the 1990s, and especially after the turn of this century, U.S. companies and their owners realized that by investing overseas where labor and taxes were much lower, they could reduce costs, widen profitability, and open new markets for their products. As a bonus, it could also help them to compete in an increasingly global marketplace with larger and larger companies.

 

In the ensuing years, U.S. jobs and industries were exported overseas leaving entire regional industries rusting into decay. It also drastically reduced the size of the great American middle class, which had acted as a buffer between the haves and have-nots within society. It also made any semblance of 'trickle-down' economics a sad joke. There was nothing fair or equitable about this trend and yet our politicians applauded the outcome. We were winning the market share war in China. And all it cost was money and giving them our greatest corporate trade and technology secrets.  After all, both parties' politicians reasoned, who doesn't want cheaper T-shirts (for those who could buy them) at Walmart?

 

In my Nov. 8, 2012, column "The Incredibly Shrinking Middle Classhttps://tinyl.io/Av8y" I wrote "Last month the Census Bureau found that the highest-earning 20 percent of households earned 51.1 percent of all income last year. That is the biggest share on record since 1967. The share earned by middle-income households fell to 14.3 percent, a record low. From 1979 to 2007, the incomes of the richest one percent of Americans soared 275 percent. That same 1 percent earned 23.5 percent of all income, the largest share since 1928. At that rate, the rich are 288 times richer than you the middle class."

 

At the same time, with the additional corporate profits rolling in, company managements invested in technology, especially labor-saving technology, that further reduced the need for human capital.  Companies got bigger, owners became billionaires, the stock market boomed, and those with enough money to invest (mostly Baby Boomers), were paid off in escalating stock prices, buybacks, and extra dividends. As for the bottom half of society, "Let them eat cake."

 

Today, income inequality is a worldwide phenomenon where the richest one percent own half the world's wealth, while the poorest half of the world own just 0.75 percent. Here at home, the bottom segment of American society has been suffering through the worst period of income inequality in American history, far higher than during America's colonial period.

 

In a column I wrote entitled "The Next Third World Nation" back in 2010, I asked this question, "What do Cote d'Ivoire, Uruguay and the United States have in common? Answer: all three nations have about the same level of income inequality. America now ranks lowest of all developed nations in terms of its income distribution." It has declined further over the ensuing 14 years.

 

It is no coincidence that the rise in populism here in the U.S. began about the same time. There was a gathering sense that the real people in this country were under attack by money-grubbing elites, many of whom were thought to be liberal or represent liberal-minded institutions. Movements such as Occupy Wall Street and the Republican Tea Party were early warning signs of the discontent that has now bubbled over among many Americans in the form of today's populism. 

 

Unfortunately, the same trickle-down mentality and government policies that created this inequality continue today. Trump, if elected, offers tax cuts for the wealthy. Biden is funneling billions into corporations as you read this.

 

Who suffers the most from the Fed's higher interest rate policies? The credit card holders, the family purchasing a used car, the first-time home buyer; that's who. Ask yourself who benefited the most from the trillions of dollars in spending over the last decade under the last two administrations. 

 

In my next column, I will tackle the issue of protectionism, which I believe is the cousin of today's populism, as well as the similarities and differences between the crisis we will face over the next decade and those of similar times in our nation's past. 

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.