The battle for working-class votes will reverse the secular decline in inflation
The working class is the new swing vote
Looking back on last week, two tidbits stuck with me.
1) A 1978 quote from former Fed Chairman Arthur Burns
"In a society such as ours, which rightly values full employment, monetary and fiscal tools are inadequate for dealing with sources of price inflation such as are plaguing us now-that is, pressures on costs arising from excessive wage increases"
Can you imagine a central banker saying that today? Powell has cast himself as the champion of the downtrodden.
Burns believed that organized labor and pressure from workers more broadly was a chief source of inflationary pressure and that think that view is going to get another look this decade. There is so much tensions between the ultra-wealthy and workers at the moment and there is pressure -- even from the upper class -- to share a larger piece of the pie. I don't know how that's going to manifest but it's coming.
2) A speech from new Canadian Conservative leader Erin O'Toole
"Middle-class Canada has been betrayed by the elites on every level: political elites, financial elites, cultural elites ... Private-sector union membership has collapsed. It may surprise you to hear a Conservative bemoan the decline of private-sector union membership. But this was an essential part of the balance between what was good for business and what was good for employees. Today, that balance is dangerously disappearing."
This same party that passed two anti-union bills in one of their final acts before Trudeau took over -- O'Toole voted for both.
In his recent speech though, O'Toole emphasized a "new Conservative vision" where he outlined a vision of a party that fights for labour rights and a shift away from China.
"Do we really want a nation of Uber drivers?" he asked while highlighting the breakdown between the balance of labour and capital.
It's important because it shows that politicians see blue collar workers as the swing voter. The right wing has given up on cities but at the same time, left wing parties are alienating blue collar workers with woke jargon and an embrace of immigration and globalization.
So the right is circling back around and finding that the labour flank of the left is exposed. In the US, Trump exploited it in a Trumpian way -- heavy on rhetoric and slogans but very thin on policy. Others will have to fight this battle with policy.
Increasingly, this will be a battle about policies like:
- Minimum wage
- Union rights
- De-globalization -- especially in regards to China
- Raising wages via other policies
- More progressive wealth and income taxes
None of those policies scream right-wing or Republican but politics is ultimately about winning elections. The Democrats were once the party of slavery and segregation in the south. They were once the anti-free trade party, then later embraced it and then saw Trump steal the issue from them and the Presidency.
Ultimately, there is a group of people globally who have been disenfranchised by the 1990s-style Washington consensus and they've been left behind. They're angry. They're blue collar and rural workers who have watched their standards of living decline for 30 years and they're looking for answers.
Trump was a strange messenger but he tapped into something that was already there and comments like this show it's not going away. If anything, it's going to be a larger factor and it's going to be inflationary.