November 21, 2016

Why Do We Forget the Forgotten Man?

Bruce Yandle

Distinguished Adjunct Fellow

Will the changes the Forgotten Man has likely set in motion — sharp revisions to the Affordable Care Act and Dodd-Frank, tax reductions and higher interest rates and a new immigration policy — improve the country's economic growth path or better the Forgotten Man's situation?

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President-elect Trump's unexpected victory generated an analysis avalanche along with a host of mea culpas on the part of big-name media personalities. Lifted by a complex set of social, economic and political forces and driven by the power of his personality and purse, Trump ended his campaign by referring to what he hoped to accomplish for the United States' "Forgotten Man." It's likely Trump's advisers knew exactly what they were doing with that reference, but why is it so easy to forget the Forgotten Man?

The expression came from Franklin Delano Roosevelt's famous April 7, 1932, Depression-era campaign speech. He began by referring to the horrors of World War I and claimed the 1932 crisis was far more serious. He then made reference to the policies of the Hoover administration and introduced the Forgotten Man:

"It is said that Napoleon lost the battle of Waterloo because he forgot his infantry - he staked too much upon the more spectacular but less substantial cavalry. The present administration in Washington provides a close parallel. It has either forgotten or it does not want to remember the infantry of our economic army.

"These unhappy times call for the building of plans that rest upon the forgotten, the unorganized but the indispensable units of economic power for plans like those of 1917 that build from the bottom up and not from the top down, that put their faith once more in the forgotten man at the bottom of the economic pyramid."

Like Trump, Roosevelt was a wealthy populist swept into office by voters who, disgusted with Washington's business-as-usual failed policies, were desperate for change. Like Trump, Roosevelt turned on his Wall Street buddies and called for a huge infrastructure project. He would later attempt to put the U.S. first by limiting immigration from war-torn Europe.

But unlike Trump, Roosevelt was a dyed-in-the-wool Democrat and a successful politician who had governed New York and rendered service to the nation in Washington. And unlike Trump, Roosevelt was one of the greatest orators of his day who won his elections decisively.

The question in Roosevelt's time, as well as today, is this: How did the Forgotten Man get to be forgotten?

A major part of the answer comes to us from public choice economics. The Forgotten Man is so-called because he is part of a large but politically unorganized component of society. Though all such men taken together have common interests, they do not form a politically important interest group. As a result, no one seeking national office typically needs to curry their favor.

Unlike organized interest groups (teachers and labor unions, environmentalists, business and financial interests, ethanol producers, corporate farmers and cattlemen and some racial minority groups), each member of the unorganized forgotten ones can be thought of as being interchangeable with others in that same group. Sure, their votes matter, but most of their time their support is not essential to a politician, at least until they rebel.

Seen another way, it is very costly to organize the unorganized Forgotten Men, unless technological change reduces the cost of doing so. Smartphones and social media may have done just that.

But the term "forgotten" indicates there is another group to consider: Those doing the forgetting. Who are they, and why do they not recognize that a quiet revolution may be forming? In the case of Roosevelt's time and now, the forgetters were the so-called elite, the highly educated and generally well-off urban dwellers and large landowners who typically have their hands on the levers of government.

If there is no payoff for these elites to pay attention to, let alone visit, the rusting parts of industrial America, the smaller towns, rural areas and backwoods villages, then it is rational for them to be ignorant about those places and the people who live there. That is, until it becomes costly, as it did this year.

Why did rank-and-file, low-income, less-educated Americans cast aside their anonymity and make themselves heard this year? Closing industrial plants, rising immigration and falling opportunities for less-educated workers are not new economic forces. In fact, they are background forces at this point in history.

The revolution was more likely triggered by three factors. First, the suddenly rising cost of the Affordable Care Act health insurance mandate and the timing of the premium announcements. Second, the clean energy push and its effect on America's coal producing economy. And third, the highly visible wealth effects generated by federal policies that brought interest rates to almost zero on the savings of ordinary folks, while fueling massive increases in wealth for the Wall Street-savvy elite.

Will the changes the Forgotten Man has likely set in motion — sharp revisions to the Affordable Care Act and Dodd-Frank, tax reductions and higher interest rates and a new immigration policy — improve the country's economic growth path or better the Forgotten Man's situation? The GDP effects of the changes will not be seen for 18 to 24 months. We will have to see if that is fast enough for the Forgotten Men and Women who have awoken to demand a change.