The shocking news overnight that Britain has voted to leave the EU has triggered my memory of a conversation that I had about three years ago with the Managing Partner of my former employer. The employer is a global asset manager and the conversation marked the last time he and I spoke.
At the time we were discussing the growth at all costs approach to economics that we have pursued for most of the past half century. This approach is a combination of globalization, low interest rates, low marginal tax rates and former corporate national champions becoming global entities.
I told him that in my opinion global elites (I believe I used the term “the Davos Crowd”) had massively failed in their role as leaders. That along with reaping the benefits, those more fortunate had a responsibility to see to it that the rest of us got some of the benefits of these policies as well.
He called me a populist and I told him, “Given how the elites have f**ked this up, I’m proud to be called a populist.” I had no idea that public opinion would move so quickly.
There are many factors that played into the Leave victory last night. Large portions of the populace feeling as if they no longer had a voice in their government, a feeling that minorities and immigrants had a better deal then they do, and demographic split that should have been anticipated.
It is concerning that, ALL of these factors are in play in most of the Western Democracies. The issues on Brexit, Austria, LePen in France and Trump in the US are strikingly similar.
The most important factor is that levels of inequality in these nations are the highest levels at virtually anytime in the past 100 years. The 2008 Financial Crisis didn’t break the cycle, the crisis exacerbated it. The solutions, which have been mostly monetary policy based have inflated asset values to the benefit of elites while the levers of fiscal policy which could be used to increase wages have been largely shunned. Loss of opportunity is leading to loss of hope and loss of hope leads to………
So why is this a bigger problem now? This is fairly simple. 500 years ago when the Lord of the Manor held all of the wealth, it wasn’t in the open for millions or billions to see. The few people he ruled over had no means to force change on the Lord.
Now, we all know how much money Bill Gates, Warren Buffet, or Vladimir Putin has. For those who are struggling financially it isn’t difficult to come to the conclusion that their wealth and success is at least in some part created on the backs of others. In the US the tax regime and the regulatory environment clearly favors the large, rich, and powerful over the middle class, the poor, and the entrepreneur.
Have you ever wondered why Dodd Frank looks the way it does? There are five banks that like it that way!
So while the Brexit vote may be an isolated case where citizens expressed their displeasure with an admittedly bizarre public institution, is the rest of the West so far away? Could Trump win? What would a Trump win mean in the US? Better still what will happen in the US if Trump loses? Will there be a reaction outside of the legal political realm?
My point is this. The past year has revealed schisms that most of us thought were a part of our past. There are scapegoats aplenty. Blacks, poor people, immigrants, etc. Are they really the problem?
I believe that people who have a good life in which they earn a good enough living to provide a decent life for themselves and their children don’t upset the status quo. They don’t worry about distant politics or about how many Syrians may come to their country. But when times get tough…
It’s time that we all looked at the beneficiaries of our present economic regime. Only they can lead a change that will not be tumultuous and potentially violent. Will they? I’d be betting against based on the evidence.