Bruce Mehlman [email protected] @bpmehlman October 4, 2017 Navigating The Gilded Age ^ Why Change Is Coming… Again Contents NAVIGATING THE NEW GILDED AGE o How Modern America Is In a New Gilded Age (slides 3-8) o How the Last Gilded Age Ended & What It Means for Today (slides 9-15) o Where We Are Now: 7 Knowns & Unknowns (slides 16-30) o What We’re Watching: Q4 ‘17 Politics & Policy (slides 31-35) 2 How Modern America Is In a New Gilded Age (1870-1920) 3 Gilded Age Economy Saw Rapid, Disruptive Change Sectoral Composition of U.S. Employment Changes The Gilded AGe TodAy 60% 90% 55% 80% Services 50% Agricultural 70% 45% 60% 40% 50% 35% 40% 30% 30% 25% Manufacturing Manufacturing 20% 20% 15% 10% 10% 0% 1870 1880 1890 1900 1910 1920 1930 1955 1965 1975 1985 1995 2005 2015 Fears linger from recent Global trade powers growth Laws & regulations designed financial crashes but has winners & losers for the past century fail to (1873, 1893, 1907… cover new economy 2007) Source: US Census Bureau 4 Emerging Tech Defined the Gilded Age… and Today If Data is the New Oil, Is Bezos the New Rockefeller? The Gilded AGe TodAy Carnegie Rockefeller Vanderbilt Page / Brin Bezos Zuckerberg STEEL OIL RAILROADS ONLINE ADS E-COMMERCE SOCIAL NETWORK Vast fortunes amassed by Iconic Innovators (aka “Robber Barons”) Electricity & Engines Transformative tech reshapes economy Internet & Mobile Dominant firms build huge market share 5 Gilded Age Politics Have Returned Intensely Divided Red & Blue States 1888 Election Electoral college winner loses popular vote 1876 1888 2000 2016 Rising share of election spending by fewer ultra-rich financiers 2016 Election New communications technologies engender media sensationalism Source: Gerald Seib, WSJ 6 Demographic Disruptions Drive Social Angst As income inequality grew, many in the “bottom 90%” blamed the rapid rise of immigrants… who no longer looked like them The Gilded AGe TodAy 20.0% 0.5 18.0% 0.48 Income Inequality Spikes (Top 10%) 16.0% 0.46 14.7% 14.0% 13.6% Immigration Peaks (Share of U.S. Pop.) 13.2% 14.0% 0.44 12.9% 11.6% 12.0% 0.42 11.1% 10.0% 0.4 8.8% 7.9% 8.0% 0.38 6.9% 6.2% 5.4% 6.0% 0.36 4.7% 0.34 4.0% 0.32 2.0% 0.3 0.0% 1900 1902 1904 1906 1908 1910 1912 1914 1916 1918 1920 1922 1924 1926 1928 1930 1932 1934 1936 1938 1940 1942 1944 1946 1948 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Sources: Immigrants (Migration Policy Institute); Inequality (World Wealth & Income database) 7 Fear & Frustration Fuel Populist Backlash BLAME IMMIGRANTS FAULT TRADE HIT “GLOBALISTS” ATTACK THE PARTIES 8 How the Last Gilded Age Ended And What It Means for Today 9 THEN: Changing World Reshuffles Politics REFORM REVOUTIONARIES CRUSADING MUCKRAKERS POLITICAL INNOVATORS Dominant Republican Party Independent Journalists Industrial Age Generates Splinters Between Expose Market Failures, New Policy Issues & New Establishment & Reformers Catalyzing Demand for Political Alliances Reform 10 THEN: Populist Passions Led to Real Reforms Political Reforms Market Reforms Social Reforms Tillman Act of 1907… …bans corporate political contributions 11 NOW: Antiquated Systems Ripe for Change Yesterday’s Rules Unfit For Tomorrow’s Economy Antitrust Law 1890, 1914 Highways 1956 Entitlements 1966 Tax Law 1986 Telecom Law 1996 12 NOW: Winner’s Circle Is Too Small Success in Modern America Depends on your… …Geography …Education …Sector 5 companies 2017 gains in the S&P 500: 37% from AAPL, FB, AMZN, GOOGL, MSFT 495 63% from the other 495 companies companies Sources: Economic Innovation Group (DCI); Zero Hedge (S&P) 13 NOW: Economic Issues Vying With Social Concerns Politics Has Become a Two-Front War INSIDE Goldman Sachs is Good Globalization Works Lead the World C L A LEFT S RIGHT White Identity Politics Non-White Identity Politics S More Immigration CULTURE WAR Less Immigration Race & LGBTQ Race & LGBTQ Gun Control W 2nd Amendment A R OUTSIDE Tax the Rich Trade is Bad Punish Wall Street Stop Nation-Building 14 NOW: Are Social Networks the New Muckrakers? Empowered Activists or Vigilante Mobs? 15 Where We Are Now 7 Knowns & Unknowns 16 #1. KNOWN: Trump’s Core Voters Remain Happy Trump Approval Remains High Among Trump Voters Voted for Trump in GOP Primary Subgroups With Trump Net Job Approval Republicans +70 98% Rural +30 approval White No College +22 White (all) +7 65+ +3 Voted for Trump (Liked Him ) Rather Than Against Hillary 50-64 +2 35-49 +2 Source: NBC/WSJ, Sept. 2017 97% approval Source: NBC/WSJ, Aug & Sept. 2017 17 #1. UNKNOWN: How Can Trump Expand His Base? Anger Over “Culture Wars” Likely to Limit Gains from Economic Nationalist Message Trump Net Job Approval by Key Subgroups White African Suburban Independents College+ Female Urban 18-34 Hispanic American Democrats 0 -10 -7 -7 -20 -19 -20 -30 -40 -34 -35 -36 -50 -60 -70 -80 -77 -78 -90 Source: NBC/WSJ, Sept. 2017 18 #2. KNOWN: Trump Is Winning In Many Ways Dow Jones Industrial Average closed at new record high DEREGULATION NATION 53 times • Withdrawn /delayed 800+ Obama-era regulatory actions in 2017 (thru 10/20) • New “significant regulations” down 80% S&P 500 Return 1st Year Through 10/20 GHW Bush 1989 27.0% Kennedy 1961 22.9% REMAKING FEDERAL JUDICIARY TRUMP 2017 20.4% Clinton 1993 11.7% 7 Confirmed Obama 2009 8.5% +17.8%51 Nominated Best Return for the Eisenhower 1953 -2.0% vacancies awaiting 100S&P Since 1997 Nixon 1969 -6.6% Trump nominee Reagan 1981 -8.4% Carter 1977 -9.1% GW Bush 2001 -23.8% Sources: TheBalance (DJIA); S&P data; US Courts; CEI (regs) 19 #2. UNKNOWN: Can Congressional Leaders Win Too? Republican Voters’ View of Leadership (Net Right Direction) +63% -13% Source: CNN (by SSRS). Sept. 17-20, 2017 20 #3. KNOWN: Cutting Deals Is Good For Trump Deal with “Chuck & Nancy” Avoiding Shutdown Was Trump’s Most Popular Action in First 250 Days 80% 71% 70% 60% % Approve Trump Handling 50% 41% 39% 40% 36% 35% 27% 30% 25% 25% 24% 23% 20% 20% 10% 0% Hurricane / Debt Economy Border Security North Korea Changing Health Care Pardoning Race Relations Environment Use of Twitter Charlottesville Deal with & Immigration Business as Sheriff Joe "Chuck & Usual in Nancy" Washington Source: NBC / WSJ Sept. 2017 21 #3. UNKNOWN: Are Deals Also Good For Dem Leaders? Dem Base: Why Join Him When You Can Beat Him? Pelosi heckled by activists for DACA deal Liberal protesters protest at Schumer’s home 22 #4. KNOWN: Tech Sector Is Under Growing Pressure RISING RISING PROTECTIONISM POPULISM Limiting Market Access & Questioning Size, Fairness Taxing Locally & Consumer Welfare RISING RISING NATIONALISM NATIVISM Challenging Security & Limiting Access to Talent Local Contributions 23 #4. UNKNOWN: What Might Disrupt the Disruptors? A World of Trouble: Global Tech Policy Risks Proliferating USA States EU China Market Power Issues (Antitrust, Regulatory parity, Minimum tax, Royalties to ● ● ● ● publishers, Algorithm transparency, Automation & Local jobs) Consumer Protection (Privacy, Political ad disclosure, Breach notification) ● ● ● ● Security Concerns (Gov’t surveillance, Encryption, Export controls, AI & Drone regs) ● ● ● ● Intermediary Liability (Hate speech, Online sex trafficking, Copyright, Fake news) ● ● ● ● Trade Policy (Cross-border data & Forced localization, CFIUS, Local taxation) ● ● ● Helpful Policies ● At Growing Risk ● Adverse Policies ● Source: Mehlman Castagnetti analysis 24 #5. KNOWN: First Midterms Are Hard for Party in Power All (Midterm) Politics Are National President & Year of Net POTUS House Senate Governor- Seats in State 1st Midterm Job Approval Seats Seats ships Legislatures TRUMAN (1946) -19 -55 -11 -2 -456 IKE (1954) +35 -18 -2 -8 +483 JFK (1962) +36 -5 +4 0 -76 LBJ (1966) +3 -47 -3 -8 -762 NIXON (1970) +31 -12 +1 -11 -288 CARTER (1978) +13 -15 -3 -5 -357 REAGAN (1982) -6 -26 0 -7 -201 GHW BUSH (1990) +26 -7 -1 -1 +32 CLINTON (1994) 0 -54 -8 -10 -514 GW BUSH (2002) +33 +8 +2 -1 +127 OBAMA (2010) -3 -63 -6 -6 -708 TRUMP (2017) -19 tbd tbd tbd -8 (out of 27 chances so far) 25 Sources: Sabato; NCSL; W.Post #5. UNKNOWN: Is the Tea Party Back (With a Vengeance)? Breitbart Targeting Establishment Candidates in Primaries 2010 2012 2014 2016 2018 “Establishment” Won “Establishment” Won “Establishment” Won “Establishment” Won “Establishment” Won 59% 79% 100% 100% 0 for 1 of Contested Primaries of Contested Primaries of Contested Primaries of Contested Primaries of Contested Primaries so far Round 1: Establishment stays out of Round 2: Establishment supports competitive primaries incumbents & better candidates Outcome: Star Wars bar scene Outcome: GOP wins & holds Senate 26 Source: Author’s analysis of contested GOP primaries #6. KNOWN: Trump Needs a Foil (or Ten) Politically-Incorrect Provocateur Is His Brand 27 #6. UNKNOWN: Will the Semantic Presidency Persist? Depends on the Meaning of Depends on the Meaning of “Is” “Mission Accomplished” Depends on Meaning of “Red Line” Depends on Meaning of “Wall” 28 #7. KNOWN: The Trump Team Is Pivoting Trump Following Clinton Playbook Retool White Successful Leverage Less Pivot to the Center Enjoy Strong House Leadership Popular GOP on Policy Economic Run Operations Moment Foil 29 #7. UNKNOWN: Are Pivots Possible in a Twitter World? Tweeters Gonna Tweet 30 What We’re Watching Q4 2017 Politics & Policy 31 What Congress Needs to Get Done in Q4 Congress Unlikely to Do More Than It Must MUST DO (Deadline-Driven) VERY POSSIBLE MOVEMENT Funding FY18 (or shutdown 12/8) Budget for FY18 tax reform Tax Reform (allowing use of reconciliation) (House action very possible) VOTE-A-RAMA Oct.