Rise of the politics of rage

From Barclays:

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Rage is all the rage these days. Global media have taken notice of “voter rage” directed at the centre-right/centre-left establishment. What appears less well understood is that this voter rebellion, “the Politics of Rage”, spans nearly all advanced economies, has been taking place for more than a decade, is unparalleled in modern history, and is deeply entrenched. This is not just about Brexit or the US election; it is about a global political movement.

More troubling, from a market perspective, is that its roots may be misunderstood. Misperceptions in politics tend to lead to volatile surprises, such as Brexit, or to misdiagnoses and to policy mis-prescriptions that imply even worse outcomes for asset prices.

Policymakers have focused on income inequality as the primary driver of the Politics of Rage. Although we cannot reject the thesis, we find little support for it in the data. Others have focused on anti-globalisation movements as the main driver. Our analysis agrees, but in results that may surprise some; we find that it is neither the most important source of rage nor as economically irrational as some have suggested.

We find that a deeper cause is a perception among “ordinary citizens” that political and institutional “elites” do not accurately represent their preferences amid a growing cultural and economic divide. These frustrations appear to be validated, with many caveats, by the data: median earners in advanced economies seem to have been the relative losers of globalisation, both within their own countries and relative to their emerging market peers.

Voter anger may be analogous to the Greek hero Achilles’ terrible rage, not for having received less than King Agamemnon, but for the perceived injustice in the manner in which Agamemnon distributed the spoils of battle. Achilles’ wrath cost the Greeks – and ultimately Achilles – dearly, as the Politics of Rage may cost global output. But it was not because Achilles’ sense of justice was in error.

Our findings have mostly strategic implications for asset markets, but they are not happy. Our research seems to support the late Harvard political scientist Samuel Huntington’s forecast of continued political upheaval and highlights the trilemma of incompatibility among democracy, sovereignty and globalisation postulated by the economist Dani Rodrik. The Politics of Rage has been around longer than many realise and likely will remain for the foreseeable future. Despite this long arc, our findings also are highly relevant to near-term event risks.

The report is robust and detailed, but the issues and conclusions are framed in brief in the Executive Summary and on “Rage in a page”, below.

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Prospects for the Politics of Rage

• Its roots run deeply through and across countries; Brexit was no exception

• Technology likely will nourish the roots of Rage by inflaming some of the key proximate causes

• Governments are ill equipped to fight Rage with already overextended fiscal positions and low levels of popular trust

The Policies of Rage

• Sovereignty: Reclaiming sovereignty delegated to supranational and intergovernmental organizations

• Representative reform: More direct democracy and a greater voice for “ordinary citizens” • Immigration: Greater sovereign control over immigration

• Trade: Restrictions on the free movement of goods and services

• Redistribution of income: More progressive taxation and income support

• Anti-corporatism: More sovereign assertion of tax and regulatory authority for multinationals

Effects of the Policies of Rage

• Direct de-globalisation: Restrictions on the free movement of goods and services, labour and capital

• Indirect de-globalization: Greater difficulty achieving harmonisation of international rules, standards and taxation  Supranational entities like the EU and intergovernmental agreements like the Basel Accords and WTO likely will be at greater risk of dissolution

• Redistribution of income: Even without explicit policies to redistribute, de-globalisation likely will lead to a greater labour share of aggregate income

Implications of the Politics of Rage

Economic

• A slower pace of trend economic growth is likely with EM growth disproportionately affected

• We expect steeper advanced economy Phillips curves; but EM may see even more disinflation

• Fiscal policy likely is ambiguous for advanced economies, but more expansionary for EM

• Global savings should fall, and precipitating a rise in real interest rates to equate investment, but the pattern should shift, ironically, to decrease advanced economy current account balances relative to EM

Financial market

• Global nominal interest rates should rise, but more so in core economies; dispersion should increase

• G10 FX should outperform EM FX, but dispersion within each group should increase; JPY is a clear outperformer, EM and Europe are clear underperformers

• Slower global demand should dominate the outlook for commodity prices

• Equities and credit likely face a poor outlook in aggregate due to slower revenue growth and margin compression, but wide sectoral and country dispersion is likely

• “Fat tails” are likely as markets learn about the Politics of Rage, but a long-run increase in volatility is unlikely

I can gainsay none of that and will only note that it is the commodity-intensive Western nations that have survived the rise of rage best. But as that windfall passes so too will its political blessings.

Australia therefore has an opportunity to get ahead of this trend before it forces itself into our politics permanently, but we, sadly, are stuck with Do-nothing Malcolm and his merry band of real estate rentiers, ensuring that rage will grow.

Comments

  1. Ancient Athens, the Roman Empire and the French Aristocracy all fell because of inequality. Whether it is directly acknowledged, or indirectly accepted (as above). It is seen as the symptom by the above authors, which it may be at the beginning, but now it is the cause of the problems. Things will not improve unless it is dealt with. But it will require those who have become use to just taking to accept that they also have to give. Not everything, they deserve to keep what they have earned. How does the community get them to return their unearned rents is the question of the day.

    • “As Henry Liu describes how Veblen emphasized the predatory role of high finance:

      “Veblen put forth a basic distinction between the productiveness of ‘industry’ run by skilled engineers, which manufactures real goods of utility, and the parasitism of ‘business,’ which exists only to make profits for a leisure class which engages in ‘conspicuous consumption’. The only economic contribution by the leisure class is ‘economic waste’, activities that contribute negatively to productivity. By implication, Veblen saw the US economy as being made inefficient and corrupt by men of ‘business’ who deviously put themselves in an indispensable position in society.””

      http://michael-hudson.com/2016/10/rentier-capitalism-veblen-in-the-21st-century/

  2. One of the frightening things with the politics of rage is that it so often gets captured by the worst “solution providers” – witness the rise of communism in its time, and fascism, and reactionary theocracy, and so on.

    I’ve said this before; the most effective collective action to channel the rage among Australian youth today, would be a covertly-organised mass squatting and illegal “development” episode, on legally-bought land not zoned for development.

    There is an excellent book by Shlomo Angel, “Housing Policy Matters”, which has interesting chapters on how informal housing markets work in many developing countries. What surprised me was the extent to which a parallel “market” is in operation; mass slums around the major cities in developing countries are not so much a matter of myriads of homeless people just squatting anywhere they can: more often, a black-market “developer” has bought a site, and sold “sections” on it. The informal “title” system is supported partly by extra-legal enforcement, but mostly by everyone simply co-operating; they are all in it together.

    In fact this was one of the main points of Hernando De Soto’s “The Mystery of Capital”: the power of INFORMAL “title” to property was so well-evolved that governments would have a lot to gain by simply enabling mass legal recognition of what was already there.

    “Infrastructure” has of course been rudimentary, but technology for “off-grid” solutions has enabled some quite acceptable standards more recently; plus the widespread ownership of motor scooters has enabled “suburban sprawl” in informal slums, with attendant lower land costs and greater spaciousness per dwelling.

    Developed countries like Australia, have less of a history of informal housing meeting the need created by an absence of “formal”, government-enabled suburban spread and democratization of ownership of decent homes. But in the UK, where the 1947 Town and Country Planning Act restored the racket and gouge in economic rent in land for housing that automobility had threatened, the authorities have also “bedded in” draconian and swift actions against any organised squatting on Green Belt land. Within 48 hours, you can expect riot gear, tear gas, batons, handcuffs, paddy wagons, swift court sentencing, and bulldozers; so that nothing remains of any such episode except a few people doing jail time.

    So the social pressures built up there are much further advanced than in Australia, because the racket and gouge has been going on for so much longer, and the crowding in living conditions that partly “compensates” has just about reached its limits – with crawl spaces being let out for a cost that would get you a small house in a median-multiple-3 city in the USA. The “illegal housing development” pressure release mechanism that is the natural order of things in much of the less-developed world, has been forestalled by the establishment long since.

    “Generation Rent” in Australia certainly could be getting better-informed and organised, while there is a chance. But they are so poorly-informed that I suspect that many of them are voters for and advocates for, the very ideologies that are the main cause of their shafting: Green “save the planet (actually farmland) from developers” ideology and Left “faith in central (urban) planning” ideology.

  3. Stewie GriffinMEMBER

    Politics of Rage – that sounds like my sort of politics… maybe I should get involved?

    • Let’s start a party. It shall be named ‘The Very, Very Sensible Party’. Its purpose is to save the real economy from the FIRE sector. Rent seekers shall be in the cross hairs. We shall aim to purge the country of corruption. We shall make the political pay and pensions a set multiple of the median wage.

  4. Rage will grow? My colonial oath it will!! In fact, it’s too late because the rage has already grown in my AO and it’s bubbling away right now. The bloody elites in our society and others are screwing the rest of us for their benefit and contributing nothing in return, so fuck the lot of them.

    We’re being ruined by giant corporations that suck resources from the country while paying no tax as the compromised, captured, corrupt and useless government imports jumbo loads of welfare dependent migrants every day who contribute little to nothing while destroying our culture. Governments, organisations and individuals need to take note of reports like this, otherwise it will not end will for them. If you think Pauline Hanson and Trump are bad, wait until the people start to get *really* pissed off.

    • blacktwin997MEMBER

      Right on LSWCHP, the clowns in charge could start with charging fair price to all the third world family reunion pensioner parasites we’re expected to protect and support. $50K? Start with $400K, they get a partial and taxable refund if they clock off early.

      • adelaide_economistMEMBER

        Yes – that particular rort – noted by Judith Sloan in the Australian of all people and all publications – is all by *itself* enough to show how desperately compromised and out of control things are.

        And yet we still get the Lowy Institute (amongst others) running with the ‘immigration offsets population ageing’… even when the argument was about bringing in skilled 30 to 45 year olds the anti-ageing impact of that was questionable but I’m pretty certain bringing in 65 year olds who will never work a day in their life isn’t exactly justified by the ‘anti-ageing’ argument.

        $50k upfront for hundreds of thousands in benefits? People should be in the streets over that one single thing alone. What a disgusting insight into the short-termism of current policy – booking the $50k gain upfront and then the average taxpayer wearing the cost and congestion for the next 10, 20 or 30 years.

  5. I’d be interested to know how they’re defining the “centre” of centre-left and centre-right.

  6. The Elites don’t understand. Mervyn King said as much in End of Alchemy reguarding The West’s attempts at creating economic growth. If you read The Second Machine Age you will realise that Technology is doing for brain power, what Steam did for muscle power in the first Industrial Revolution. The solutions will be political when enough people realise. In China alone where 70m manufacturing jobs were created, 20m have recently been replaced by technology.