Grouchy.

Photographer: DUARDO MUNOZ ALVAREZ/AFP/Getty Images

Why Trump's Prosperous Supporters Are Angry, Too

Tyler Cowen is a Bloomberg View columnist. He is a professor of economics at George Mason University and writes for the blog Marginal Revolution. His books include “Average Is Over: Powering America Beyond the Age of the Great Stagnation.”
Read More.
a | A

There is bitterness and resentment to the Trump movement that differs from the tone set by America’s last few Republican presidents, most of all Ronald Reagan.

Older white Americans are Donald Trump’s core support group, and that’s relevant to the success of Trump’s rhetoric. Commentators frequently cite globalization and wage stagnation as the economic forces behind recent political shifts, but there is a less heralded force influencing American politics: insufficient savings, most of all for older Americans. For those individuals, the prospect of falling standards of consumption – for the remainder of their lives – means the economy is worse than the GDP growth and unemployment numbers are indicating.

Here is an unsettling statistic about the U.S. economy, although like many scary things, it reveals its full problematic nature only with scrutiny: “The Center for Retirement Research at Boston College reports that for those on the cusp of retirement – workers between the ages of 55 and 64 – the median balance in household 401(k) or IRA accounts is $111,000.” That is from the new Oxford University Press book “Empire of the Fund: The Way We Save Now,” by William A. Birdthistle, a law professor at Chicago-Kent College of Law.

These days, the 20-year retirement is extremely common, and savings must hold for longer yet for those who will live to 90 or 100 years old. For a 20-year retirement, that $111,000 in savings can work out, under plausible assumptions, to no more than $7,300 a year. And that is the median, so half of America’s older workers are in a worse situation.

To be sure, private retirement accounts are not the only available means of savings. Social Security is already the primary source of income for retired Americans, yet Social Security benefits for the elderly average only $16,000 a year, and traditional private-sector pensions have dwindled in importance.

When it comes to comparative retirement security, in an international comparison the United States finished 19th for three years in a row. Even relatively optimistic assessments suggest that only about 28 percent of American households will be able to maintain their pre-retirement living standards.

The Decline of American Thrift
U.S. personal saving as a percentage of disposable income
 
Source: Bureau of Economic Analysis, Bloomberg

Often it’s argued that Americans are too strained by circumstance to save much more, but the evidence belies that view. China is much poorer, yet its citizenry often manages a household savings rate of 30 percent. And in the 1970s, a much poorer America had a savings rate that once reached 15 percent and hovered above 8 percent as recently as the early 1990s. Since then the American savings rate has fallen and has settled in the range of about 4 to 6 percent.

As for today’s 45-to-69-year-olds, only 36 percent claim to be engaging in net savings. And only 45 percent of all people earning $75,000 to $100,000 a year claim to have net positive savings, as measured in 2012. That helps explain why the typical Trump voter in the Republican primaries earned a relatively high income of about $72,000 a year and still worried about his or her economic future.

The savings problem thus is about the scarce virtues of temperament, patience, and discipline. American savings rates started to fall in the 1980s, and rising asset prices during that time set a problematic dynamic in motion. As homes and stock portfolios rose in value, many Americans concluded they didn’t have to lay aside much for their nest eggs. Asset markets would do their savings for them.

That attitude still may have made some sense in the 1990s, but now the country has a less vigorous economy and high real-estate and stock-price returns are far from guaranteed. Yet Americans keep spending money. That is the root of the problem, and even the financial crisis significantly boosted savings rates for only a short while.

The patience factor illustrates why political solutions to this problem are hard to come by. The American will as expressed through the public sector is arguably no more far-sighted than that expressed through the private sector. For an extreme example, consider the approximately $111 billion in unfunded pension liabilities in the state of Illinois, to draw another figure from Professor Birdthistle. Bloomberg View columnist Megan McArdle has argued it won’t be easy to boost Social Security enough to fill savings gaps.

To sum all this up, over the last few decades the U.S. has been conducting a large-scale social experiment with ultra-low savings rates, without a strong safety net beneath the high wire act.

The first sign of the bill coming due is the uptick in labor force participation rates for older workers since the financial crisis. That is happening at the same time when most other demographic groups are, after adjusting for cyclical forces, working somewhat less.

The second effect is that many elderly Americans will be disappointed by their falling living standards. That means less happiness for them, which as it turns out influences politics for the rest of us, as you can witness in the divisive tone of the Trump campaign.

Trump is himself often portrayed as impetuous. It is less commonly remarked that he may be in part the result of a broader and larger impatience that has plagued American society for decades.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Tyler Cowen at tcowen2@bloomberg.net

To contact the editor responsible for this story:
Jonathan Landman at jlandman4@bloomberg.net